Raising the bar

IPO REVIEW

Bartronics, a leader in the bar coding business, is set to see handsome growth and its public offer is also reasonably priced

Bartronics India, one of the leading players in the booming business of automatic identification and data capture (AIDC) is entering the capital markets with an IPO of 65,00,000 shares of Rs 10 each.

The price band for the issue has been fixed at Rs 63 to Rs 75. Based on the FY05 EPS of Rs 5.47, the issue commands a P/E of 11.52x at the lower end of the price band and 13.71x, at the upper end of the price band.

The company intends to deploy the net proceeds of the issue for funding the capex requirements for setting up the R&D technology centre, establishing branches in India and abroad and for repaying high cost loans.

'Killer application'

Bartronics started its business in the field of bar coding and smart card technology, following which it entered into the AIDC segment. Bartronics' main business is the AIDC segment, where it currently has a 25 per cent market share.

AIDC is the industry term used to describe the identification or direct collection of data into microprocessor controlled device such as a computer system or a programmable logic controller, without the use of the keyboard.

According to industry sources, it is already being talked of as the next 'killer application.' The technology increasingly prevent in retail and manufacturing segment eliminates errors associated with identification and data collection and accelerating the throughput process.

The key application of the technology is in supply chain management systems, viz, tracking and traceability of products, product identification, sorting, security & access control, inventory management etc.

The company has over 1000 clients, most of them in the manufacturing segment. The client list includes such companies as ITC, HLL, Tata Steel, Tata Motors, Rnabaxy, Compaq, Ispat etc. The projects primarily involve inventory & logistics management, time and attendance and asset tracking systems. Bartronics acts as a complete solution providers in the segment, including supply of equipment. 20 per cent of the revenues are generated from after sales functions. 60 per cent of the revenues come from repeat business. The company also has provides logistical support to important pilgrimage centres such as Tirupati Devasthanam and Vaishno Devi.

The Indian market in the bar coding segment is estimated to be about Rs 100 crore in FY05. The market has been growing at an estimated CAGR of over 50 per cent over the past few years. According to Sudhir Rao, managing director and CEO of Bartronics, the bar coding industry is likely to witness a 30-40 per cent growth in the coming years.

The company is betting big on the next technology revolution in the segment, viz, radio frequency identification (RFID). The company is the market leader in this segment and has a 90 per cent market share.

According to analysts, the RFID market is expected to jump from $1.4 billion annually this year to as much as $6.1 billion by 2010. In advanced economies such as US, the use of RFID technology is widely prevalent in government as well as big retail such as Wal-Mart, which is an indication of the market potential.

Financials

The company reported a 43.60 per cent rise in sales in FY05 to Rs 18.05 crore, while operating profit advanced 24 per cent to Rs 2.64 crore. Net profit for the year stood at Rs 2.39 crore. The company is well on the way to beating the FY05 numbers this fiscal. 

FINANCIALS
(In Rs crore)	FY05	FY04	% Change	H1FY06
Sales	18.05	12.57	43.6	12.77
Other income	0.12	0.01	-	0.04
Operating profit	2.64	2.13	23.94	2.72
OPM (%)	14.63	16.95	-	21.3
Net profit	2.39	1.35	77.04	2.68
Net margin	13.24	10.74	-	20.99
EPS (Rs)	5.47	3.09	-	-
P/E@Rs 63		11.52
P/E@Rs 75		13.71

For the half year ended September 30, 2005, it has posted a sales of Rs 12.77 per cent and a net profit of Rs 2.68 crore. Given the estimated growth rates the issue valuation at 11-13x at both ends of the price band looks pretty attractive.

The company has a strong brand equity among its clients. Analysts also note that apart from competition in the unorganized segment, there is no other company which provides the range of solutions offered by Bartronics.

Also, the national IT task force has laid down a clause, making the use of barcodes mandatory for all products within a time frame of five years. Thus the growth in the segment is an opportunity waiting to be tapped. Another positive factor is the big growth witnessed in the retail segment over the past few years.

The retail segment is a big customer for bar code applications and the continuing growth in the sector is only expected to add to the business momentum.

However, on the downside, technology obsolescence as well as entry of global players in to Indian markets could prove to be a set back for the company, which is yet to attain the scale to withstand big shake outs.