Bharatiya Global Infomedia IPO Analysis

Bharatiya Global Infomedia Ltd. (BGIL) was initially promoted as Bhartiya Global Financial & Allied Services Ltd in 1994. Subsequently its name was changed to Bhartiya Global Software Fintec Ltd. in 1999 and thereafter to Bhartiya Global Software Ltd in 2001 and then to its present name in 2003. Mr. Rakesh Bhatia, after being appointed as MD in 2004, acquired the shares of BGIL from erstwhile promoters and became the promoter of BGIL. In 2005, BGIL acquired the business of two entities - VTV Network Ltd and STV Enterprises Ltd - and established a digital post production studio.

Current business operations consist of IT-based solutions and digital post production studio.

Under the IT division, the company offers products and services to provide automated solution that help enterprises to meet the challenges of making IT infrastructure secure and compliant. The products supplied uses RFID (radio-frequency identification) technology and used for identification and tracking of the identity, location and conditions of assets, tools, inventory, people using radio waves.



The media & entertainment division has a digital post-production studio, known as BGIL Studio, at Andheri (West), Mumbai. It is an integrated end-to-end film post-production and visual effects services house. It offers services ranging from visual effects, digital film lab (digital intermediate, high-resolution film scanning and film recording) and editing and motion control to high-definition production.

The company develops small, animated capsules for various projects of the clients. The company also designs & develops WAP enabled products for clients and mainly focused on the building RFID technology. The company has received ISO9001:2008 certificate of compliance in respect of IT-based safety security and automation products/solutions.

The income from the IT division increased by 57% to Rs 68.47 crore in FY 2010-11 from Rs 43.62 crore in FY 2009-10. During FY 2009-10, the company had launched 11 new products, which could contribute only partially to the revenue during the said year, but were marketed and sold fully during the entire FY 2010- 11. The income from the media & entertainment division decreased by 7% to Rs 2.53 crore in FY 2010-11 from Rs 2.72 crore in FY 2009-10. The primary reason for the decrease in revenue was reduction of post-production work handled during the year on account of reduced demand from the customers due to technologically less advanced equipments being used by the company.

The company intends to enter capital market by issuing around 67.2 lakh equity share of face value of Rs 10 each at the price range of Rs 75 to Rs 82 per share.

The proceeds from issue will finance Rs 31.94 crore for setting up of corporate office at Noida and branch office in Mumbai (includes Rs 9.9 crore for purchase of owned corporate office and relocation of branch office and Rs 22.05 crore for upgradation of digital post-production studio and investment in the IT division), Rs 6.57 crore for expansion of R&D technology centre, Rs 2.7 crore for Repayment of bank borrowings, Rs 5.05 crore for meeting long term working capital requirements apart from general corporate purpose and issue expenses.

In terms of verticals, IT contributed 96.43%, media & entertainment contributed 3.57% during FY 2011. In FY 2011, Top client contributed 12.93%, Top 5 clients contributed 35.81% and Top 10 clients contributed 49.11%.

As of March 31, 2011, there are 81 employees with 4 in corporate affairs, 6 in finance & accounts, 12 in marketing, 10 in IT–hardware, 31 in IT–software, 18 in administration.

As on March 12, 2011, BGIL has total order book position of Rs.27.84 crore.

Strengths

The company provides a range of solutions to customers that sustain throughout the full product lifecycle. It offers services designed to address the customers' specific needs as products move from different stages of maturity across early to end-of-life. Its services range from identifying, developing, testing, consulting services, support and maintenance.

Weakness

The company intends to expand its operations in the media & entertainment division, which contributed around 5% only during last three years. Out of total revenue of Rs 33.6 crore, Rs 46.34 crore and Rs 71 crore during 2008-09, 2009-10 and 2010-11 respectively, the media & entertainment division earned revenue of Rs 1.67 crore, Rs 2.72 crore and Rs 2.53 crore respectively, which is 4.98%, 5.87% and 3.57%. Out of total IPO proceeds (excluding general corporate purposes and issue expenses), the company plans to spend Rs 13.66 crore in upgradation of digital post-production studio, which is 29.66%.

The company derives a significant portion of revenues from few customers, and a loss of one or more customers or a reduction in their demand for its products and services could adversely affect the business, financial condition and results of operations. Top ten and top five customers contributed 49.11% and 35.81 %, respectively, of total revenue during 2010- 11.

The market for IT products and services is both highly competitive and rapidly evolving.

The company has delayed payment of dues towards lenders from where it has obtained different secured & unsecured loans for use in business. As on March 31, 2011 overdues towards secured and unsecured loans were Rs 0.62 lakh and Rs 11.32 lakh, respectively.

Statutory auditor has qualified the auditor report for FY 2010-11. The main items include irregular payments of the loans taken by the company, not regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education and protection fund, employees' state insurance, income tax, sales tax, wealth tax, custom duty, excise duty, cess and any other statutory dues applicable, an amount of Rs 22.20 lakh towards interest on service tax and Rs 3.03 lakh towards tax deducted at source was overdue by more than 6 months as on March 31, 2011. However, the company paid the aforesaid liability towards interest on service tax and tax deducted at source on May 25, 2011 and May 24, 2011, respectively.

Valuation

At a price band of Rs 75 to Rs 82 per equity share of Rs 10 face value, the P/E works out to around 26.1 to 28.5 times FY 2011 EPS of Rs 2.9 (on post-IPO equity). Listed comparable Bartronics India is trading at approximately 1.8 times FY 2011 consolidated EPS. In the Computer Software-Medium/Small industry, industry composite P/E is 7.36.