Bartronics India

The IT hardware and software segment sports many stocks that are at ‘attractive’ valuations. But many of them are grappling with businessand/or currency risks that make them a risky investment even at single-digit price-earnings multiples. This fear is compounded for mid- and small-cap stocks.

However, there are stocks in this category with strong business prospects, sustainable growth and a lower risk-to-earnings from macro factors.

In this light, investors with a one-two year perspective can buy the shares of Bartronics, considering its strong business prospects in a niche area and reasonable valuations. At the current share price of Rs 81, the stock trades at about three-four times its likely earnings for 2008-2009.

The triple-digit growth experienced by Bartronics in revenues and profits over the last three years has come on the back of a rapid scale-up of operations and expanding geographic presence, including a strong domestic focus. For a player which is hardware-intensive, a net profit margin of over 17 per cent is healthy. This is likely to be maintained for now.

Bartronics’ automatic information and data capture (AIDC) business and the smart-card business, which has seen an increasing pipeline of orders from government initiatives, provides a sustainable revenue stream for the company. Importantly, many of these deals may provide scope for improving margins over the next couple of years. Bartronics primarily sells products and solutions for data capture in the areas of logistics and inventory management, time and attendance management and asset tracking operations.

It has now enhanced its AIDC offering to include services such as bar coding, biometrics, radio frequency identification and radio frequency data communications and electronic article surveillance.

The company derives 50 per cent of its revenues from India, 30 per cent from the US and the rest from countries such as Singapore and Malaysia, providing reasonable geographic diversification.
Smart Cards drive growth

The smart cards business, for which the company has its own manufacturing facility, holds considerable promise with opportunities in areas such as SIM cards, identity cards, credit cards and social security cards. The company has a production capacity of 80 million smart cards. Bartronics has subsidiaries in Singapore and the US to cater to the local markets. The Singapore facility has already started contributing to profits. This segment is expected to contribute to over 50 per cent of total revenues in the next couple of years.
Government Deal

Bartronics continues to benefit from government technology initiatives.

For example, the Bhamashah Financial Empowerment Scheme of the Government of Rajasthan intends to cover about 50 lakh families through biometrically identifiable smart cards. Bartronics has commenced operations for this project, valued at about Rs 150 crore.

A similar project, involving issuance of 39 lakh smartcards envisaged by the Bihar Government, has also kicked off.

Bartronics’ Rs 400-crore contract win from the Employees State Insurance Corporation (ESIC) further strengthens its domestic presence, apart from bolstering its order-book.

The order-book size of around Rs 500 crore at the end of the second quarter of this fiscal,amounts to 1.8 times its 2007-08 revenues.

The present contract involves providing smart cards across 609 districts in the country under the Rashtriya Swasthya Bhima Yojna.

The revenue inflow is likely to be over several years from this contract.

The company’s target to reach 100 per cent utilisation from the 65 per cent levels of its manufacturing facility, appears to be on course.

These multi-purpose smart cards also mean better realisations for the company.

There is also a national identification card project on the anvil to be introduced across the country and Bartronics would look at tapping this opportunity.
Promise in AIDC

In AIDC, the company is well-placed to capture a significant share of manufacturing clients, both in India and abroad.

The boom in organised retail in the country also offers opportunities to ramp-up revenues.

With strong client base in the manufacturing space — in the areas of inventory control and material tracking — this segment continues to be the main contributor to revenues (over 50 per cent) as of now.

With the Railways also looking at RFID (radio frequency identification) enablement across trains in the country and increased spends therein, Bartronics with its prominent presence in this segment appears well-qualified to capitalise on investments made by the Railways in IT enhancement. East Coast Railways, Reliance Group, the Vedanta group and several State governments are the company’s latest client additions.
Risks

Competition from players such as CMC in the RFID space is a risk. Direct entry by the company’s overseas principals (from which Bartronics sources some products), into the Indian market, is also a risk if there is an absence of non-compete agreements.