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Indian Value Investors- A Unit of HBJ Capital
Bartronics India LtdIdentification Technologies |
Smart Cards
Jun-2010
Theme: Value Investment
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Bartronics
India EXECUTIVE SUMMARY
Bartronics India Ltd is a Hyderabad-based company which
Is Indias leading player in the development and deployment of end-to-end
solutions in Automatic Identification & Data Capture (AIDC) Technologies
Provides a range of Smart Card solutions to various Private & Government
entities, with a capacity to manufacture 80 million units per annum
Industry Overview
Company
, ,
Frequency Identification, Data Communication Technologies, etc.
Radio Frequency Technologies is one of the largest segments within AIDC
with the global market estimated at USD 6 bn in FY 2010. RFID Market in India
estimated at Rs 120 cr in FY 2010, growing at 100% CAGR
Smart Card market projected to reach 150 million units p.a., growing at 45%
CAGR
Bartronics India is currently quoting at P/E < 5 & Market Cap < Rs 500 cr
Good Opportunity for Long term Value Investors
Multiple Growth Engines, Market Leadership provide good scope for returns
Sector
View
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Sector Automatic Identification &a a ap ure
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AIDC
Sector Introduction
Automatic Identification and Data Capture (AIDC) refers to the
methods of
Step 1: Automatically identifying objects,
Step 2: Collecting data about them, and
Step 3: Entering that data directly into computer systems
Some Applications: e a n us ry: rac ng s oc s, rep en s ng s runn ng ow
Manufacturing: Raw material, inventory management
Supply Chain: Tracking transit of raw materials, finished goods
The Internet of Things
This is a concept created by the Auto-ID
Center at MIT, USA
Aim is to equip all items with a unique
identification code (an IP Address), to enable
them to communicate through the internet
Objects, once connected, can be remotely
monitored through the internet
Major AIDC Technologies
Bar codes,
Radio Frequency Identification (RFID),
Biometrics,
Magnetic stripes,
Optical Character Recognition (OCR),
Smart cards,
Voice recognition
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AIDC
Sector RFID Technology
Radio Frequency Identification is a technology used to track
persons, objects, etc using radio waves
RFID System consists of 3 components:
RFID Tag storing information about item being tracked
RFID Reader/ Writer which queries tags to gather information. Also used
to store information on tags
Computer system used to store and process information collected from
tags and to produce Management Information Systems
RFID Mandates
Walmart & US Department of Defense
have mandated that all their suppliers
must place RFID tags on shipments
Walmart
Jan 2005 (Top 100 Suppliers)
2010 (Tagging at pellet level)
US DoD is largest RFID user Globally
Global RFID Market
Leading Countries are Us, UK & China
Global RFID Market estimated at USD 5.56 bn
in 2009, with expected volume of 2.35 bn tags
Government projects like Chinas National ID,
Indias UID, etc driving the market
Other Areas: Animal Tagging, Retail Tracking,
Transit Tickets
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AIDC
Sector RFID Technology - Applications
Supply Chain Management
Monitoring and controlling flow of rawmaterials through supply chain
Enterprise wide SCM to track inventory,
prevent stock-outs
Replenishing stocks running low
Tracking the movement of goods
between various factories, warehouses
Healthcare
Patient history can be stored on smart
cards bearing RFID tags Solutions for maintaining accurate data,
patient tracking, managing medical
supplies
Storing information on allergies,
prescription history, etc to prevent
medical errors
Manufacturing
Tracking dates of manufacture, place of
manufacture at individual item level totrace source of manufacturing defects,
for corrective action
Tracking locations of various parts,
status of production processes
Better co-ordination with suppliers,
specially for Just-In-Time manufacturers
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AIDC
Sector Smart Cards
Smart Card is a device containing an embedded integrated circuit.
Card connects to a reader with direct contact or through radio
frequency interface. 2 Categories
Memory Cards: Ability to store data with optional security features
Microcontroller Cards: Ability to add/ delete and manipulate information
stored. Store large amounts of data
n , . on car s are expec e o e s ppe ource:
Eurosmart)
Market expected to move towards contactless cards, including for payments
Applications of Smart Cards
Secure identity - Employee ID badges, Citizen ID documents,
Electronic passports, Drivers licenses, Online authentication
Healthcare - Health ID , Physician ID, Portable medical records
Payment - Credit/Debit cards, Transit Payment cards
Telecommunications GSM SIM Cards, Pay Telephone cards
Indian Market
Market Size: Indian market has
scope for 150 million cards p.a.
Market is growing at 45% CAGR
Applications: Telecom, Banking,
IT Security, etc
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Stock Bartronics India Ltd.
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Established in 1990, Bartronics India Ltd -
Is Indias leading AIDC solution provider with offerings including RFID solutions,
Point of Sale solutions,
Market leader in Indian RFID industry, with wide range of RFID readers, tags, etc.
Provides custom smart card solutions to Government & Private Sector entities
with a capacity to manufacture 80 million units p.a.
Company has over 2000 customers across East Asia, India & North
Bartronics
India Introduction
America
Jun - 2010
Market Cap Rs 483.15 cr
Stock Price Rs 141.90
52 Week High/ Low 193.70/129.70
Latest TTM P/E 4.6x
FY 2010 Sales Rs 841.4 cr (Cons)
AIDC
RFID,Barcodes
Biometrics
Smart
Cards
SecureMemory
Cards
AccessControl Cards
BusinessModel
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Bartronics India Ltd has 2
subsidiaries:
Bartronics America Ltd (USA)
Bartronics Asia Pte Ltd (Singapore)
Bartronics
India Group Structure
Promoter,
31.06%
DomesticInstitutions
Others,
42.65%
Shareholding Pattern (31-Mar-10)
, .s, .
Bartronics America Ltd
Incorporated in 2007, in Delaware USA Acquired Proximities Inc of Australia &
SRG America Inc for USD 50 mn
Received 3 patents from US Patents
Office for RFID based wrist-band
technology
Contributes 15% of Consolidated Sales
Bartronics Asia Pte Ltd
Incorporated in 2007, in Singapore Bagged an order from Housing Board of
Singapore to supply 48000 RFID tags,
with additional orders expected
Also bagged an RFID tracking project
from Avitar, a Singapore based Group
Contributes 14% of Consolidated Sales
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Bartronics
India Products & Services
AIDC RFID
Barcode
Barcode Printer, Scannera
rds SIM Cards
Prepaid Telephone Cards
Patient Data Cards
Attendance/ EmployeeManagement, AccessControl, Job Costing
Point of Sale Solutions PoS System with Printer,
Touch Screen PoS, CashDrawer, Scanner
S
mart
Management, Insurance
Bank Cards
Credit/ Debit/ ATM
Transport Cards Bus/ Train Pass
Contactless Cards
Highway Tolls
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Bartronics
India RFID Business
RFID Readers/ Writers
Fixed/ Handheld Readers
Operating on Windows & Palm OS
Network Enabled through LAN/ WLAN/IEEE 802.11B
Operating at HF, UHF & Microwave
System Integration
Application Design
Consulting
Training
Wireless Security Assessment
Project Management
x n-s te upport
RFID Tags Active/ Passive Tags
Printed Circuit Boards
High Memory Capacity
Ability to Operate at High Temperature,High Humidity & other adverse
conditions
Business Successfully implemented
projects for entities like TirupatiTemple, Housing Board of Singapore,Avitar Singapore, etc
Tied up with Verayo Ventures, a Vinod
Khosla funded company to offer cost-effective tagging solutions
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Bartronics
India Solutions | Manufacturing
tions Building Management
Electronic Surveillance,
Attendance Management Crowd Management ur
ing Smart Cards
Capacity to manufacture 80million cards p.a.
ISO 9001:2000 & ISO 27001
Solu
For Religious pilgrimages,conferences
Retail Security
Theft Prevention, Active
Deterrence through visual/audio alarm
Document Tracking System
Laptop Tracking
E-Governance
Vehicle Tracking
Man
ufact certified
First Smart Card unit in India
Expected to obtainMastercard/ VISA
certification shortly AIDC
Facility located atHyderabad
Manufactures HF, UHF,custom tags.
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Bartronics
India Financials
0
200
400
600
800
1000
FY 2007 FY 2008 FY 2009 FY 2010
63.49 183.3
376.41
595.52
63.49
270.82
588
845.04Net Sales (Rs Cr)Standalone
Consolidated
India
71%
North
America
14%
S.E. Asia15%
Geographic Contribution
,
grown at CAGR of 99% over the same period
On Consolidated basis in FY 2010, AIDC business contributed
79% of sales & Smart Cards contributed 21%
0
20
40
60
80
100
120
FY 2007 FY 2008 FY 2009 FY 2010
13.46 32.73
48.1143.43
13.46
46.68
20.65
106.66Net Profit (Rs Cr)
Standalone
Consolidated
0
50
100
150
200
250
FY 2007 FY 2008 FY 2009 FY 2010
17.1747.03
117.69
224.33
17.17
64.4190.33
239EBITDA (Rs Cr)Standalone
Consolidated
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Bartronics
India Financials (Contd...)
Debt E uit Rs Cr
0.00%
10.00%
20.00%
30.00%
FY 2007 FY 2008 FY 2009 FY 2010
27.04% 23.78%
15.36%
28.28%
21.20% 17.24%
3.51%
12.62%
Margins (Consolidated)EBITDA
PAT
0
50
100
150
200
250
300
Net Sales EBITDA PAT
166.1
51.25
9.56
238.78
73.01
21.8
264.93
74.91
28.84
Quarterly Financials
- Cons (Rs Cr) Mar-09Dec-09
Mar-10
Debt: Company has assumed significant debt to finance capex. As of March
2010, Debt stands at Rs 625 Cr, including Rs 225 Cr of FCCB(convertible in
2013), Term Loan of Rs 193 Cr. Balance is Working Capital Loan
Debtors: Receivables Period (at 4.5 months of sales) is on the higher side.
Traction on improving this is a significant catalyst for the stock
0
100
200
300
400
500
600
FY 2007 FY 2008 FY 2009
9.12
313.03
.
117.6
274.48311.7
Debt
Equity
0
100
200
300
FY 2007 FY 2008 FY 2009
127.8870.76 59.41
257.83
121.08 129.48
Cash Conversion Cycle
Receivable Period
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Bartronics
India Growth Engines
Order Book: The Company currently has an order book size ofRs 730 Cr as on
May 2010. This does not include the Aapke Dwar Project (discussed on next
slide), which will generate revenues for next 9 years
Out of Rs 730 Cr, Rs 130 Cr is from Smart Cards, and balance from AIDC
UID Project:
Union Government spending Rs 25000 cr to issue unique ID to citizens. Based on
UID, cards will be issued by various authorities. Bartronics is market leader in this
segment
Animal Tagging:
Globally, this is expected to be a USD 7 bn market by 2017. Company is seeing
orders for RFID based tagging products, especially in US
3G Telephony:
With the issue of 3G licenses by Government, telecom companies will commence
network rollout soon. Bartronics has already supplied 3G SIM Cards to BSNL, and is
well placed to tap other private telcos
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Bartronics
India Aapke Dwar Project
Aapke Dwar awarded to Bartronics under Municipal Corporation of Delhis
Government to Citizen (G2C) initiative
Involves setting up of 2000 10x10 kiosks in Delhi City before 2010
Commonwealth Games
Kiosks will provide all information provided by Government bodies like MCD,
Delhi Development Authority, Railways, Delhi State Government
Revenue Model: Services will be provided free to citizens, and reimbursed by
concerned Government Department. Exclusive rights to advertising revenue
Company expects Rs 5000 cr in total revenues over the 9 year term of the
contract
Status Check
The first kiosk under this project was inaugurated on 30-Jan, 2010
Company expects to commission 2000 kiosks by October 2010, and expects to start
booking revenues from Q3 FY 2011. Management has projected Rs 250 cr in revenues in FY
2011
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Bartronics
India Projections
Estimates (Source: Reuters)
(Rs Cr) FY 11 E FY 12 E
Sales 1244.4 1480.9
EBITDA 368.3 447.0
PAT 189.9 247.8
EPS 52.6 68.6
800
FY 2010
0
500
1000
1500
FY 10 A FY 11 E FY 12 E
845
1244.41480.9
Projected Sales (Rs Cr)
Management Guidance FY 2011:
Consolidated Sales - Rs 1400 cr (Consolidated Sales)
Operating Margin - 28-32% & PAT Margin 10-12%
Breakup Aapke Dwar (Rs 250 Cr), Smart Cards (Rs 200 Cr), Singapore (Rs 150 Cr), US (Rs
250 Cr)
127.68 139.84 152
304178.92 195.96 213
426
288.12 315.56343
0
100
200
300
400
500
600
700
4.2x 4.6x 5x 10x
o ng arFY 2011
FY 2012
0
20
40
60
80
FY 10 A FY 11 E FY 12 E
30.4
42.6
68.6
ro ecte s are
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Bartronics
India Valuation
Due to concerns over high debt and conversion of FCCBs issued by
the company, stock has underperformed index (0.56% vs 21.01% YoY)
Stock Trades at P/E of 4.6x, P/B Ratio of 1.4x and market
capitalization of Rs 483.15 cr, valuing it at ~ 0.5x FY10 sales.
On EV/EBITDA basis, stock trades at ~4.0 x of FY 2010 EBITDA
We value the company at 80% discount to 5x of FY-12E EPS. Returns
to be driven by:
High Earnings Visibility due to present Order Book & Aapke Dwar Project
Resolution of concerns over high debt burden
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Bartronics
India Investment Recommendation
BUY: Target: 2x in 2 Years (i.e. > 40% CAGR p.a. returns), i.e. 5x FY 12 EPS
Price Target assumes 80% discount to FY-12E EPS
Stock is quoting at very cheap multiples relative to earnings (4.6x)
Earnings visibility over next 2-3 years owing to strong order book and
also revenues from flagship Aapke Dwar project
Revenues from this project to commence from Q3 FY 2011 onwards
Beneficiary of Indias Consumption Story
Company is a major supplier to Indian Telecom industry through SIM Cards
RFID business is a major beneficiary of retail and manufacturing sector
growth as this technology is gaining huge traction in these industries
Significant linkages with financial services sector through Smart Card business
Re-rating of the stock likely to lead to lucrative returns for patient value
investors.
High earnings growth to ensure high returns even if P/E Re-rating fails to
materialize
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Bartronics
India Risks to Investment Case
High Working Capital Requirement
Companys receivable period stands at about 4.5
months of sales in FY 2009
Though this ratio has improved over the past 2
years, it still raises the Working Capital funding
requirement, leading to higher debt burden050
100
150
200
250
300 257.83
121.08 129.48
Receivables Period
(Days)
High Debt/ Equity Ratio
In FY 2009, the Debt Equity Ratio was at 1.76x
Yet, the Company needs to raise more debt to fund
Capex intensive projects like Aapke Dwar. It isplanning to raise Rs 650 cr more
Low Promoter Holding
Promoters hold only 31% of the equity, with a
significant proportion of pledged shares
FY 2007 FY 2008 FY 2009
-
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.601.80
FY 2007 FY 2008 FY 2009
0.08
1.14
1.76
Debt/ Equity Ratio
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