Bartronics India: Buy

Investors with a two-year perspective can buy the shares of Bartronics India, considering large multi-year deal wins that bolster its order-book, and strong position as a SIM card manufacturer for telecom companies in India.

At Rs 74, the stock trades at 3-4 times its likely 2008-09 per-share earnings. Considering the hardware-intensive nature of the company’s business, the net profit margin it has consistently managed over rapid growth in the last few years is quite healthy.

For the last three years, revenues have grown at a compounded annual rate of 146.8 per cent while net profits have grown by 170.3 per cent. In the nine months of FY09, the company has seen a 155.3 per cent (to Rs 417.2 crore) and a 132.6 per cent (to Rs 65.5 crore) growth in revenues and profits respectively.

Bartronics generates over 60 per cent of its revenues from India; this keeps its business relatively insulated from the slowing world economy.
Key deal

The company has recently won a deal estimated at Rs 5,000 crore from the Municipal Corporation of Delhi. This deal, spread over nine years, is to set up 2,000 kiosks to provide ‘Government to Citizen’ services. This deal also opens up opportunity for garnering advertising revenues for Bartronics. This is especially relevant as the Commonwealth Games is set to take place in Delhi in 2010, providing scope for booking advertising revenues upfront.This deal provides long-term revenue visibility for the company. The funding for capital expenditure (Rs 200 crore) has already been tied up with banks. Margins are likely to be healthy considering that costs involved may not be heavy and advertising revenues are likely to be steady.
Order book

Apart from this deal, Bartronics has an order-book of Rs 700 crore (1.4 times its likely 2008-09 revenues) to be executed over the next 12-18 months. About 25 per cent of this is from the Government, where spends are expected to increase over the next few years. These apart, the company also has strong deal wins from the Government of Singapore to provide RFID services.

The relatively high-margin solutions business now accounts for two-thirds of the company’s revenues, with the US being a key contributor.

Its Smart Cards division, which predominantly manufactures SIM cards for telecom companies, is also witnessing continuous order flows. With subscribers being added rapidly in the 9-10 million range every month, the demand for new SIM cards is on the rise. This division has reached 100 per cent capacity utilisation to manufacture nearly 80 million cards a year.