Bartronics India

Main Products Main Customer Industries
Solutions provider for Automatic Identification and Data Capture (AIDC), Radio Frequency Identification (RFID); manufacture of Smart Cards Auto, Infrastructure, Healthcare, Logistics, Retail, Telecom
Bullish Arguments Bearish Arguments
Pioneer and market leader in AIDC & RFID technologies in India. It has set a scorching pace of growth. Sales from the AIDC &RFID business (excluding smartcards) has grown at a CAGR of over 70% High Leverage. D/E stands at ~1.8. Continued investments in business expansion leave not much room for improvement
Exports contribute ~35% of revenues from South Asia and US markets Dependency on external suppliers for most key material and hardware components
RFID is a hot technology for Manufacturing and Retail sectors Huge potential in Smart Cards especially in Govt projects bound to attract significant competition, even global players. The UID project will in all likelihood be awarded based on a global tender (with thin margins?).
80mn smartcard producing capacity âcaters primarily to SIM cards for all mobile operators Significant deterioration in Sundry debtors position leading to tight Working Capital
Entry Barriers Interesting Viewpoints
Strong customer relationships built by virtue of its solutions business across Auto, Telecom, Logistics, Healthcare positions Bartronics far ahead of Competition Advertisement and Fees revenue stream from the "Aapke Dwar" project for 2000 G2C (government to citizen) Kiosks in Delhi (to be set up by Oct 2010) from 2011 onwards alone projected at Rs.500 Cr per year (remember hoardings ban in Delhi )
Govt UID project might be a big revenue trigger for smartcards from 2010
Healthy order book position with Rs. 130 Cr from Smart Cards and Rs. 600 Cr from the AIDC Solutions business

The story looks promising, for sure, especially the captive Aap Ke Dwaar project. But there are equally significant risks, perhaps

1. Very high debtors - FY09 debtor days stands at 211 days. Interestingly this has been the pattern over the years. just look at the past 5 years. It had made improvements in FY08, but again has faltered on this count

Debtor Days 197.46 214.06 418.01 97.26 211.55

2. Highly Leveraged - Debt to Equity stands at ~1..8. This isn't coming down any time soon due to huge project specific costs on Aap Ke Dwar project. The company might have to raise additional debt to fund the project. Not sure when project specific advertisement revenues, etc. start accruing, which might offset the pressure a bit.
3. Significant Equity dilution - Regular FCCB bonds conversion has meant outstanding shares has gone up from ~1.8 Cr shares in Mar 2007 to ~3.12 Cr shares in Oct 2009. With $55mn FCCB bonds outstanding (FY09) , if bond conversions take place as scheduled, the total outstanding shares would shoot up to ~4.5 cr shares

Bartonics - Any management concerns?

Bartronics management looks fairly suspect to me. Their earnings numbers were inflated by a significant margin last year, which was restated. That was reason enough for me to get out and stay out of this company.

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I would advice to be very cautious on this one. The BS is highly leveraged, high detors, consistent negative cash flows, frequent dilutions etc don’t make up a good case.

Until and unless the person knows the company inside out, he shouldn’t bet on the EPS game :wink:

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I have been with this stock for almost 2 yrs and have made a decent 3 bagger and have learnt a lot all the way along. Will like to share it with everyone.

Bartronics mgmt was extremely active between 2007-08 in forecasting fast growth and talking about huge opportunities in smart cards, RFID that lied in front of them. Being only company of its kind in India and a first mover it had all the advantages with it. They have consistently underperformed against their own forecasts.

But I think, eventually they could not manage it well financially and operationally also. Debt kept on increasing because they never converted debtors into the cash as much as they added to the debtor positions, they’ve invested in Aap ke Dwar project and still need some more investment (that’s what I read somewhere). They could not materialize on UID project even though Sudhir Rao was bragging about Bartronics being first company to provide consultations to government on UID. I think they lost out on execution abilities on a high scale.

They have FCCBs US$6m@ Rs 140 and US$ 50 @ Rs 290 coming due in FY 12 & 13 which will act as a dampener to the so called promised revenue coming in from Aap ke Dwar in near term.

Interestingly Sudhir Rao is almost absconding now when compared to his regular media appearances back in 2007-08.

What scares me most is the two facts that 1) promoter holding that went on reducing all this period and the amount of pledging that kept on increasing (right now 65% of the meagre 31% promoter shareholding is pledged…leaving them with single digit unpledged shareholding in the company) and 2) frequent issues with auditors stating in their limited reviews that earnings have been overstated…promoters not being able to come up with audited results for March 2010 yet and having asked permission to delay holding the AGM till Dec 2010.

Although, I have made money on this stock, I have also learnt that it was more due to the right timing and not due to the business lying underneath or my craftmanship. :slight_smile:

I doubt if the FCCBs will be converted given that the shares are trading at 100 at CMP and do not see big time trigger to go to 290 levels which is almost tripple from here…which means they will have to pay off $55mn…which will be even more difficult since the core business is not throwing out cash and new loans/equity may not come easily given the already leveraged balance sheet.

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Thanks a lot Nilesh for sharing your experience. Another good example of why one needs to be wary of Promoters who love to talk up the stock!

Ofcourse this one had too many red flags, like you pointed out!

Recently it was suggested to me by a veteran of 25+years, well-respected name in the industry that Yes Bank is viewed in the same vein of Promoters loving to talk up the stock -not that its shares other red flags, that I am aware of.




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