The company has pioneered itself in AIDC technologies including RFID in India. The company has positioned itself as a complete solution provider and its business model is similar to a consultancy business. The company provides solution through the whole product life- cycle, thus enabling the company to retain its clients.

Key Investment Rationale:

Aapke Dwar Project: The Company started its first kiosk for Aapke Dwar project during Q4FY10. Revenues from this project are expected to come by Oct 2010-11. The management expects revenues amounting to Rs 300-350cr during the current

Shift in Focus: The Company has diverted its focus from barcode technology to more advanced RFID, which is expected to find its application in the fast growing manufacturing industry.

Order Book: The company has an order book of about Rs 750 crore. This does not include revenues from the Aapke Dwar project. It is also handling projects for Indian Railways and is bullish on getting more government projects in both Indian and Singaporean markets.

Net Profit up 201% Y-o-Y: Bartronics Q4 net profit increased by a massive 201% to Rs 28.84cr, on account of 60% jump in company's top-line.

Future Valuation:

At the current price of 140, the stock is trading at just 5.45 times of our estimated FY11 earnings. We thus recommend a `BUY' with a Price target of 184.

During the quarter ended 31st March, 2010, the total revenue of the company, on a consolidated basis, increased by 59.5% to Rs 264.93cr as against Rs 166.1cr during the previous quarter last year. On a sequential basis it has managed to grow at 10.95% from Rs 238.78cr. Revenues from India, Singapore & USA stand at Rs 189cr, Rs 25cr & Rs 51cr respectively.

The operating profit of the company witnessed an increment of 46.2% to Rs 74.91cr as against Rs 51.25cr during the corresponding quarter last year. During the quarter, company registered a forex gain against a forex loss of Rs
7.27cr last year. The total expenditure of the company witnessed an increment of 85.8% to Rs 199.87cr as against Rs 107.58cr last year. On a sequential basis the company managed to grow its operating profit marginally by
2.60% from 73.01cr.

However, the operating profit margin of the company witnessed a contraction of 1058bps to 24.65% against 35.23% during the corresponding quarter last year. This is the consequence of higher expenditure primarily due to the raw material consumed, while OPM contracted by 318bps from 27.83 on Q-o-Q basis.

The Net profit of the company saw a massive jump of over 200% to Rs 28.84cr as against Rs 9.56cr largely on account of higher operating profit, while both interest cost & depreciation increased by 28.4% & 19.3% to Rs 12.38cr &
13.14cr as against Rs 9.64cr and Rs 11.01cr respectively during Q4 of FY2009.

For FY2010, revenues were up 44% at Rs 845.04cr as against Rs 588cr, which is below the management expectations of Rs 900 - 1000cr. The capacity utilization of smart card segment stands at 95% as against 75% earlier.

During FY10 the operating profit grew by a whopping 198% to Rs 277.01cr as against Rs 92.97cr during last year, largely due to cost control measures applied by the management. OPM improved 1300bps at 28.3% on the back of Rs 52cr of forex losses booked in other expenditure for FY2009. Other Income for FY10 was at Rs 38.02cr against Rs 2.64cr in the previous year on the back of forex gain of Rs 30.19cr and bad debt provisioning of about Rs 7.8cr written back

The net profit of the company jumped by a massive 417% to Rs 106.66cr as against Rs 20.65cr during FY09, largely on account of higher operating profit recorded by the company.

Management Guidelines:

For the Fiscal Year 2011, the management of Bartronics has a revenue guidance of Rs 1400cr, an increment of over 65% from the revenue reported for FY10 at Rs 845cr. The company has a contract to operate the kiosks on build-operate-transfer basis for about nine years and has been working on the project with targeted revenue of about Rs 5,000cr over the contract period. Bartronics is pinning hopes on the space it gets in and around the kiosks for displaying advertisements.

"We are finding significant business opportunity in using the technology for animal tagging. Though it is still to catch up in India, we are already witnessing revenue flows from this market. The animal tagging market is expected to be at about $7 billion in 2017. We are well positioned to capture our share in the market," he said.

Why to invest in shares of Bartronics Limited?

Industry Overview

AIDC Segment: During the year, the AIDC Industry has seen acceleration in adoption of RFID technology for various applications. With increased demand seen in the manufacturing and the logistics sectors, the writing is clear on the wall - `RFID is here to stay'. Biometrics as a technology play is also catching up fast mainly due to increasing security requirements. More and more organizations are adopting Biometric based systems to safeguard their key assets. Under AIDC, RFID acts as a base in automated data collection, identification and analysis systems worldwide. The technology is growing rapidly and is gradually entering into the high value and high volume market segments. The global market of RFID is expected to be more than $6 bn by the end of this year from around $1.4 Bln in 2005. In India, the segment is expanding at a CAGR of 40% and offers immense growth opportunities due to heavy demand in Retail, Telecom, Healthcare, Banking and large information based implementation projects by the Central and the State governments eg. BPL Cards project (Govt of India), Bhamashah project (Rajasthan Govt.) etc. Bartronics, with highest market share and first mover advantage is expected to be the biggest beneficiary. The Company has penetrated into most of the industrial belts in India during the last few years.

Smart Card - Moving Aggressively

Smart Cards which so far had been restricted as a technology play to the telecom sector, have now become a key technology play in the Indian Industry. Many of the projects announced by the Government of India during the past few years are now being implemented at the grass roots level. Bartronics has positioned itself to take advantage of the market, which is opening up thereby acquiring a major share of the Government's consumption of smart cards during the year. Key Government initiatives, which saw smart cards being used were the Bhamashah Project in Rajasthan, Smart Cards based ticketing in Indian Railways, Financial Inclusion Schemes in some of the eastern states and the Employee State Insurance Scheme. Going ahead, there are some key initiatives of the Government like the National Identity Card Project which would further increase the demand for smart cards in the country. To capture the demand for smart cards estimated at more than 150 million units per year and growing at a CAGR of 48%, BIL set up the first smart card manufacturing plant in India having a capacity of 80 million units. With the stabilization of production after the initial teething problems, the Company is set to maximize the benefits arising out of a booming market.

International Presence:

The company is all set to cater to international markets, with its strategic presence in the US and South East Asian market through wholly owned subsidiaries in USA & Singapore. This gives tremendous advantage to the company by not only increasing its revenue but also in ensuring a better access to technology to maintain its position.

SUBSIDIARY COMPANIES:

Bartronics Asia Pvt Ltd.

The Company has incorporated a Wholly Owned Subsidiary Company named M/s. Bartronics Asia Pvt Ltd on June 14, 2007 in the Republic of Singapore with a share capital of S $1000 to capture Asian market and to provide better after sales services.

Bartronics America Inc. The Company incorporated a Wholly Owned Subsidiary Company named M/s. Bartronics America Inc. on November 16,
2007 in the State of Delaware in USA under Registration No: 0334318 with the share capital of US$1500. M/s.

FUNDAMENTALS:

UID the next big thing: The Indian government is expected to spend around Rs 25000cr on its ambitious project of Unique Identity, under which GOI will issue identity card to every citizen in order to establish their record for security purposes. The project, which would also cover children, is aimed at establishing citizenship, reducing identity related frauds, addressing security issues and preventing leakages in different government schemes. Eliminating duplication under various schemes is expected to save the exchequer upwards of Rs. 20,000 crores a year. The company has Rs 130cr orders in hand under the segment.

Financial Sector: The company is expecting a significant chunk of its domestic revenues from the financial inclusion efforts by several banks and financial institutions. The banking sector is expected to switch from the current magnetic tape to smart cards. This provides a huge opportunity for the company to take its slice of cake from the rapidly growing Indian financial sector.

3G Spectrum: The new voice of Indian telecommunication is 3G technology, Bartronics Ltd is all set to reap the benefits from 3G auctions. The company is in the process of manufacturing 3G sim cards for state owned BSNL. Bartronics is also expecting orders from Bharti Airtel and Vodafone, as the realizations from 3G cards are about 20% higher than 2G cards.

Strong order Book: The company has an order book of about Rs 750 crore. This does not include revenues from the Aapke Dwar project. It is also handling projects for Indian Railways and is bullish on getting more government projects in both Indian and Singaporean markets.

No- competition: In the field of AIDC & RFID the company has a competitive advantage over other players, as it provides solution to its clients throughout the entire product life cycle. In the domestic market, Bartronics does not have much competition as such.

Key Concerns:

Technology: The Company operates into business where technological changes are rapid. Thus, investments done in developing one technology have to be written off as it become outdated. Thus, the company has to be very circumspect to any technological improvements.

Competitive Pressure: The Company is well placed to reap good dividend from growing RFID and UID from government. However, the company might face competition from new entrants that will reduce its margins.

High Debt/Equity Ratio: The Company is planning to raise Rs 600cr through Debt and 50cr through issue of FCCBs for the completion of Aapke Dwar project. This will result in higher Debt/Equity ratio of the company.