bartronics_update_16_oct._2009

8/7/2019 Bartronics_Update_16_Oct._2009

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Oc tober 16 2009

Bartronic s Upg rade to BUY: Good Yield/ Good Credit with GA Rating 1

FCCB Description

BOND NAMEBARTRONICS INDIA USD 0.000

'13 (BAIL IN )Iss'd / 20 USD50m

BARTRONICS INDIA USD0.000 '12 (BAIL IN )Iss'd / 20

USD25m

COUPON (% p.a) 0 0

ISSUE SIZE ($m) 50 25

AMOUNT OUTSTANDING( $m) 50 6

MATURITY 1/4/ 2013 6/11/2012

TOTAL REDEMPTION AMT.($m ) 71.5 8.6

REDEMPTION AT MATURITY 143.01 143.01

YTM & YTP 16.48 0.81

CONVERSION PRICE (INR) 232 112PARITY 60.79 130

INDICATIVE BOND PRICE 85 140

PREMIUM 0.4 8

COUPON YIELD 0 0

CMP (in INR) 164 164

Bartronics India Ltd (Bartronics) is the only organized playe r providing end -to-end solution in Automa tic Identifica tion and Data Ca pture (AIDdomestic market including both smart cards and RFID products. Its most recent results have again surprised on the upside and continue show its resilience against cyclical economic downturns having posted stronger results for both its domestic and overseas operations for the fyea r to Mar’09 and mo re significa ntly in the 1Q’10. The c om pany rem ains in a strong p osition a s it has de-risked its revenue s by c onc entra ti

on several industry verticals with its products covering identity cards, credit cards and social security cards which cater to the private anpublic sec tors. The c om pany’s orde r bo ok rema ins robust and ha ving wo n seve ral prestigious long te rm contrac ts (see Kiosk contrac t), we sclear revenue visibility and have improved our forecasts for overall revenue growth significantly whilst remaining well below market ancompany forecasts. The Company had raised two FCCBs a $ 50mn issue maturing in 2013 (all remains outstanding as conversion price well above CMP) and a25mn issue m at uring in 2012 ($ 19mn having b een co nverted as the c onversion price whic h wa s reset d ow nwa rds is we ll below t he CMP - so wexpec t the remaining $6m to b e c onverted a lso). We ha ve improved our rating a nd no w assign a Global Absolute Bond Rating of 1, based a clearer visibility of earnings, higher domestic sales growth, improved foreign sales which appear protected from the economic downturand the winning of recent longe r term c ontrac ts. Althoug h the FCCB Redemption cover only imp roves from the 5 yr averag e o f 0.55x to 1.5xthe year of maturity of the 2013. Thus, we believe the company will be able to refinance relatively easily should it require to do so, within ttime frame as its de bt to e quity ratio is expec ted to imp rove ov er the next 3 years and its asset b ase should b ec ome far strong er following new Kiosk co ntract. Therefore, we rec omm end aBUYon Bartonics 2013 FCCB as go od yield/ cred it supp orted b y a high c hanc e of refinanc itowa rds the m aturity date , if required , and strong ca sh flows of a lmost $38m p er annum to 2013.



Oc tober 16 2009

Equity Backg roundBartronics India Ltd (Bartronics) is the pioneer in Automatic Identification and Data Capture (AIDC) technology industry in India. It providessolutions to a variety of verticals based on AIDC technologies, namely Barcodes, Biometrics Identification, Radio Frequency Identification,

Radio Frequency Data Communication, Electronic Article Surveillance, Point of Sale and Smart Cards. It provides end-to-end solution, and isthe o nly organized player in the d ome stic ma rket. Currently, it d erives bulk of revenue co mes from the d ome stic ma rket (64% of tota l revenuewhile the remaining c ome s from the o versea s ma rket. It has recently started its sma rtc ards manufac turing fac ility in India, having a ca pa city o80 million sma rt ca rds pa . The industry in whic h the Comp any op erate s is still in its initial g rowth stage s, so b eing the first mo ver in this spa c e,Bartronics enjoys a monopoly position in the domestic market.

Qua rterly Results Summa ry (Rs. in Mn)

Partic ula rs Q1'10 Q1'09 Chg (%) FY09 FY08 Chg (%)

Sales 1,629 1,195 36 5,880 2,708 117

Othe r Income 1 3 -73 26 11 132

Tota l Incom e 1,630 1,199 36 5,906 2,720 117

Tota l Expenditure 1,112 863 29 4,979 2,065 141

EBITDA 518 336 54 928 655 42

Ma rgin (%) 31.76 28.02 3.74 15.71 24.08 -8.37

Dep rec iation 102 30 292 32

EBIT 415 306 36 636 622 2

Interest Expenses 87 30 185 218 38 477

EBT 329 276 19 417 584 -29

Taxes 90 41 121 211 110 91

Net Profit 239 235 2 206 474 -56

Ma rgin (%) 14.65 19.62 -4.97 3.50 17.44 -13.94

Quarterly Highlights

• Bartronics rep orted a jump in sales by 36% to Rs. 1.62bn in Q1’ 10 comp ared to Rs. 1.19bn in Q1’ 09. The Indian op erations contribute daround 76% of total sales in the quarter the balance coming from Singapore based Asian operations and their USA subsidiary.

• EBITDA g rew b y around 54% to Rs. 518mn a s com pared with Rs. 336mn in Q1’ 09. The m argin inc reased by 374bps.• Net Profit wa s up ma rginally by a round 2% to Rs. 239mn a s com pa red t o Rs. 235mn in Q1’ 09, bu t ma rgin wa s do wn b y -4.97% on

ac co unt of higher dep reciation and interest expenses. Overa ll Performanc e for FY09

• In FY09, the com pa ny performanc e wa s ab ove o ur expe cta tion and ag ain co nfirms the c omp any’ s ab ility to grow in the b leakest oec onom ic times due to its spe cialized tec hnical p roduc t ba se, which is proving to b e highly resistant to ec onom ic c ycles.

• The c omp any a lso won some ma jor orde r boo k, which includes setting up of a round 2,000 kiosks of Municipa l Corporation o f Delhi(Kiosk Projec t), which has the p ote ntial to g ene rate a round Rs. 50bn o f revenue s ove r the next 9 years.

• Althoug h the yr to Ma r’09 has bee n poo r for many c om pa nies, Bartronics, net sales for FY09 were up by a round 117% to Rs. 58.8bn a

compared to Rs. 27.08bn in FY08. The standalone (Indian Operations) sales were up by around 104%. Besides this, the sales fromove rsea s also grew by a round 107%, with th e sales from its USA subsidiary repo rting a grow th of a round 300%.



Oc tober 16 2009

Sales Forecasts:

For our foreca sts which rema in below tho se of the c omp any a nd m arket, we have projecte d its revenues to g row by a CAGR of around 35%from FY09-FY13E, and the b ott om line to g row b y around 68%. Bartronics has orde r backlog o f around Rs. 7bn, which will be exec uted in the

next 16 months. Based on its orde r bo ok and Kiosk projec t we have a ssume d the following e arnings stream :The reve nue growth f rom FY09 to FY13e in C AGR is around 30% (exc lusive of Kiosks business).

Sales Projection

2008 2009 2010E 2011E 2012E 2013E

Gross Sale s Break-up

Indian Operations 1833 3759 6475 6563 10200 10800

Kiosk Project 278 3056 4722 5000

Asia PTE Ltd. 647 569 626 846 1057 1216

America Inc. 404 1603 1684 2273 2614 3006

Tota l Sales 2884 5932 9063 12736 18593 20021

We exp ec t the ma jor reve nues contribu tion from its Kiosks business to start from FY12E onw ard s and wo uld b e a ma jor growt h d river in termtop line a nd bo ttomline. Looking into the g rowth o f the industry and Bartronics being first mo ver, our sales projec ts are c onservative eno ugh,and if the g loba l eco nomy rec overs faster than expe cte d, the sales and its ma rgin wo uld grow b eyond our estimates. Kiosk ProjectBartronics has rece ntly ba gg ed a h ighly prestigious orde r from Delhi gove rnment fo r setting up 2,000 kiosk in the c ity, ‘Aapke Dwar project’. .The kiosks will ac t a s a da ta ba nk of loc al c onsumers, service p roviders and businesses, with va rious fac ilities like u tility bill paym ents, and air,train and c inema ticketing . The p rojec t is a BOT ba sis for period o f 9 yea rs, and the Com pany expec ts minimum reve nue o f around Rs. 50bnca sh to be generated over the projec t period. The d ea l also c onfe rs on Bartronic s the right to ad vertising revenu es from the se kiosks. With the Comm onwea lth Game s set to beg in in Delhi in2010, the sc op e fo r sub stantial a dvertising revenues makes this de al ev en m ore luc rative. Besides this, Bartronics has a highe r cha nc e o f

winning the m ost a mb itious government of India project for Multi-purpose Na tional Identity (sma rt) Card (MNIC) to the citizens in the c ountry. The o rder is expe c ted to b e e xecuted in 3-4 pha ses of which p hase-1 will be exec uted in 3Q10 itself with 300 kiosks. This wo uld require a n initiacapital outlay of about Rs. 7.5bn. The company is looking at financing this primarily by raising debt. The company would raise around Rs. 2bn FY10E and another Rs. 5bn in FY11E from d eb t to fund the projec t. In ad dition, the roll out of such a large sca le project m ay help the c omp any win b igger and higher margin projects in its other c ore growtharea s of Asia a nd USA.

Debt AnalysisThe C omp any’ s current d eb t to eq uity ratio is at 1.76x, is a bit high, due to its c ap ex. By FY13, we expec t the Com pa ny’s deb t/e quity ratio tdecline substantially to 1.77x, thus further improving its ability to refinance its debt obligations if required. We expect an average annual cashinflow of USD 35mn, from the co mp any’ s op erations upto the rede mp tion da te. Debt Structure Projec tion

Particulars (Rs. in Mn FY09 FY10E FY11E FY12E FY13E

Loans from Banks (Secured)

Term Loans 1390 2879 6079 5679 5179

Working c ap ita l Loa ns 1183 2011 2722 3746 4012

Othe r Loans 1.07 1.00 1.00 1.00 1.00

FCC B (Unsec ured) 2922 2814 3023 3231 3468



Oc tober 16 2009

Liquidity Position Projection

Particulars (x) 2009 2010E 2011E 2012E 2013E

Deb t/ Equity 1.76 2.15 2.70 2.14 1.67Debt/ Fixed Asset 1.09 1.20 1.15 1.02 0.99

Deb t/ Fixed Asset + Net Current Asset 0.62 0.69 0.71 0.60 0.54

Deb t/ Fixed Asset + Ca sh 1.06 1.16 1.04 0.85 0.70

Com pa ny has high d eb t due to strong initial ca pe x in FY09 as its working c ap ital req uireme nt increases on the ba ck o f a highe r orde r boo kde ma nd a nd its roll out o f the first phase of its Kiosk Projec t, whe re although they a re building v alua ble long term a ssets there w ill rema in a sholag pha se fo r revenue s to supp ort this de bt. Most of its capita l expend iture in the c ore m anufac turing of RFID d ivision is also c om p leted in FY09..As a result in FY09, de b t/ eq uity ratio isaround 1.76x, which is at a co mfortab le level, as co mp ared with the industry, howeve r, the d eb t will increa se a s its asset b uild up co ntinuesove r the following 2-3 years. As the o perations grow through 2011-2013 the p rofitab ility on the kiosks projec t should then kic k in to support thede bt b urde n c arried b y this division and the interest co ver should imp rove. We the refore b elieve the c omp any should b e a ble to refinanc e, ifreq uired , the redem ption o f the 2013 bond s relatively easily ba sed on a strong c ore revenue g rowth a nd the stab le ca sh trail for the rema inin

life of the Kiosk BOT projec t. Recent developments Bartronics gets Three US Paten ts for RFID Tec hnolo gy - Bartronics India Ltd has informed BSE tha t Bartronics America Inc., a w holly-owne dsubsidiary of Bartronics Ind ia Ltd has rece ived three ne w p at ent ribb on c op ies from the United Sta tes Pa tent O ffice fo r RFID wristbands whic hca n b e used in the hea lthcare a nd leisure and entertainment industries. Pate nt numb er 7,535,356 describe s a co nduc ive fastener thatconne c ts the RFID wristba nd while pa tent numb er 7,579,950 describes a te chnique to extend RFID antenna a round t he ho les used to snap thewristba nd tog ether. Pate nt numb er 7,562,445 has been granted for describing a metho d to m anufa cture a two-layer sec ure RFID wristba ndwhich reduces the manufacturing cost of RFID wristband significantly which propels Bartronics America Inc. to the leadership position within thRFID wristband market. Bartronics subsidiary bag s orde r from Singa po re-based firm - Bartronic s Asia Pte Ltd , a w ho lly ow ned subsidiary of Bartronics Ind ia Ltd ha sba gg ed the prestigious RFID tracking p rojec t from A vitar, a Singap ore b ased group with g loba l op erations. The solution is spe cific to a typica lmob ile d istribution wa rehouse w ith automa tic sca nning and read ing during o utbo und d ispa tch . The Co mp any a lso a ims to "produc tise" theap plica tion to jointly market the solution in the future.

Verayo, Bartronics To Deliver 'Unclonable' RFID Tags In India - Verayo, a sec urity a nd authe ntica tion solutions provide r, has pa rtnered withBartronics India (Bartronics), a bar code and RFID technology company, to provide cost-effective RFID offerings to the Indian market. Thestrate gic p artnership not o nly strengthens the long-term c o-op eration be twee n the tw o c omp anies, but also wo uld ad dress the nee d fo rdifferentiated solutions targeting anti-counte rfeiting a nd low-co st au thentica tion. Bartronics India b ec om es India's first RFID Com pa ny to b e c ertified by ICAR - Bartronics India Ltd ha s informed BSE tha t : "The Inte rnationa lCom mittee for Animal Rec ording (ICAR) has ap proved the sam ples submitted by the Co mp any a nd c ertified their c onformity with the co destructure and technical concepts given in ISO 11784 and ISO 11785. Bartronies is the only Indian Company to have got the certification. Otherglobal companies whose RFID tags are also certified include Texas Instruments, Nedap and Saint Gobain. The c ertification will enab le Bartronics to b id g loba lly for a nimal tag ging ap plica tions which is projecte d to reac h US$7 billion in 2017 byIDTechEx. In India, a number of state governments are considering compulsory tagging of livestock where ICAR certification is mandatory. Thefirst phase o f imp lementa tion o f RFID based a nima l identifica tion in India w ill kic k-sta rt during 2009."

http://www.topnews.in/bartronics-subsidiary-bags-order-singaporebased-firm-2213913

http://www.topnews.in/bartronics-subsidiary-bags-order-singaporebased-firm-2213913



Oc tober 16 2009

Financial Summary

Name of Company: Bartronics India Ltd

SECTION 1: CASH INFLOW ESTIMATE (Rs.) Rs. Mn Exch. Rate 48.5Particulars Mar-09 Mar-10E Mar-11E Mar-12E Mar-13E

Net Sa les 5,880 9,063 12,736 18,593 20,021

EBITDA 928 1,852 2,969 4,285 4,526

Less: DA 292 500 801 969 998

Less: Prov. For FCCB Reserves - 209 209 209 209

EBIT 636 1,143 1,959 3,107 3,319

Less: Interest 218 440 726 778 781

EBT 417 703 1,233 2,329 2,538

Less: Tax 243 425 804 876

Net Profit a fte r ta x 417 461 808 1,526 1,662

Ca sh from Op era tions 709 1,169 1,817 2,704 2,869

Ca sh from Op era tions (USD) 15 24 37 56 59

Sec tion 2: Working Cap and Investment/ Cap ex

Working Ca p ital Cha nge s (1,691) (886) (861) (678) 486

Cha nges from Investing/ Ca pex Ac tivities (1,493) (2,172) (4,024) (1,184) (339)

Net Cash from W/Ca p and Investment/ Cap ex (3,183) (3,058) (4,885) (1,862) 148

Net Ca sh from W/C ap & Invest/ Ca pex ($mn) (66) (63) (101) (38) 3

Sec tion 3: Financ ing Ac tivities

Cha nge in Equ ity & Share Premium 2 - - - -

Cha nges in Deb t 1,948 2,210 4,119 832 3

Net Cash from Financing Activities 1,731 1,561 3,184 (154) (987)

Net Ca sh from Financ ing Ac tivities ($mn) 36 32 66 (3) (20)

Sec tion 4: Net Cash Available for FCCB

Op ening Net Ca sh Bala nc e 165 138 219 1,027 2,453

Net Ca sh Flow For the Yea r (27) 81 808 1,426 2,765

Closing Net Cash Available for FCCB 138 219 1,027 2,453 5,218

Closing Net Ca sh Ava ilable for FCCB ($mn) 3 5 21 51 108

SECTION 5: FCCB REPAYMENT LIABILITY

Origina l Issue Size (USD) 75 75 75 75 50

Less: Am ount a lready conve rted (USD) 19 25 25 25 -

FCCB O/ S (USD) 56 50 50 50 50

Add : Premium on Red emp tion 4 4 4 4



Oc tober 16 2009

Tota l Paya ble on ma turity dat e (USD) 60 58 62 67 72

Tot a l Payable on ma turity date (Rs.) 2,922 2,814 3,023 3,231 3,468

SECTION 6: RATIO ANALYSIS

Current M Ca p Rs. Mn 4,791

Current M Ca p USD Mn 99

Net worth (Rs) 3,117 3,578 4,385 5,911 7,573

Net worth (USD) 64 74 90 122 156

Deb t (Rs.) 5,496 7,706 11,825 12,657 12,661

Deb t / Equity 1.8 2.2 2.7 2.1 1.7

EBITDA / Deb t 0.2 0.2 0.3 0.3 0.4

Interest Co verag e Ra tio 2.9 2.6 2.7 4.0 4.2

SECTION 7: FCCB COVER

FCC B redem ption ratio 0.05 0.08 0.34 0.76 1.50

FCC B Lia / Curren t M Ca p 0.59 0.57 0.61 0.65 0.70



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