Bartronics Company Report1

Initiating Coverage
IT Enabled Solutions
Bartronics India Ltd.

India Research
The “Smart” way of doing business
Sanju Verma
Executive Director
& Head - Institutional Business
sanju.verma@hdfcsec.com
91-22-6661 1859
Sanjeev Kumar Singh Saurabh Rathi

sanjeev.singh@hdfcsec.com saurabh.rathi@hdfcsec.com September 18, 2008
91-22-6661 1916 91-22-6661 1714
HDFC Securities Limited, Trade World, C. Wing, 1st Floor, Kamala Mills Compound, Senapati Bapat Marg,
Lower Parel, Mumbai 400 013 Phone: (022) 66611700 Fax: (022) 2496 5066
Table of Contents
Page No.
Executive Summary .......................................................................................................................................................................... 3
SWOT Analysis ................................................................................................................................................................................. 4
Key Assumptions .............................................................................................................................................................................. 5
International Peer Comparison ....................................................................................................................................................... 6
Outlook & Valuation .......................................................................................................................................................................... 7
Investment Arguments ..................................................................................................................................................................... 8
Business Model of the Company ................................................................................................................................................... 10
Company Snapshot ........................................................................................................................................................................ 11
Industry Overview ............................................................................................................................................................................ 14
Financial Summary ........................................................................................................................................................................ 22
Financial Statements ...................................................................................................................................................................... 24
September 18, 2008 Page 2

BUY Executive Summary

Bartronics with ~ 90% and 95% market share in smart card and RFID segments offers
all AIDC solutions under one roof. Its early entry into Smart Card manufacturing, will
help to retain its dominance in the area. The fast growing AIDC technology in India will
CMP Rs. 153 further boost its order book and top line.
Target Rs. 234 Early mover advantage to capture smart card market share
Stock Return 53%
Capital Appreciation 53%
As an early entrant and the only manufacturer of smart cards in India, Bartronics India
Dividend Yield 0% Ltd (BIL) with almost 90% market share will benefit from the tremendous growth in the
use of smart cards in the country. The total size of the smart card industry is US $70
mn, which is growing at a CAGR of almost 40 per cent. BIL’s recent launch of an 80 mn
smart cards facility (largest in South Asia) is well timed to take the advantage of escalating
growth. Its smart card capacity has already been booked for the next two years.
Nifty 13316
Sensex 4038 End-to-end AIDC solutions provider
Bartronics is the only company in India and among a handful in the world offering end-
to-end Automatic Identification and Data Capture (AIDC) solutions. This capability is
Key Stock Data strengthening its order book position. In the AIDC solutions segment its order book
Sector IT Enabled Solutions position stands at Rs 5100 mn. BIL has over 1600 clients including blue chip companies.
Reuters Code BARI.BO
BLOOMBERG Code BAIL IN Government projects to drive growth for smart cards
No. of Shares (mn) 28.36 The government and banks will be major consumers of the multifunctional smart cards.
Market Cap (Rs bn) 4.34 The Government of India has giant projects in the pipeline including the Multipurpose
Market Cap ($ Mn) 94
National Identity Card (MNIC) project. The banking industry too plans to replace magnetic
Avg. 6m Vol.(‘000) 340
strip cards with smart cards in the next 2-3 years. BIL recently bagged orders from the
Governments of Rajasthan and Bihar and the Employees State Insurance Corporation
Stock Performance (%) for the supply of smart cards. The total order book for government projects stands at Rs
52 - Week high / low Rs.295/125 5880 mn and this will start contributing to revenues from FY10 onwards.
1M 3M 6M
Absolute (%) -14 -34 -5 Outlook & Valuation
Relative (%) -5 -18 5 Bartronics has a monopoly in the smart card market in India with almost 90% market
share. It also has the capability to provide end-to-end AIDC solutions that is set to swell
Shareholding Pattern (%) its order book and topline. The revenues and profits of the company are expected to
Promoters 37.3 grow at CAGR of 72% and 78% over FY08 to FY10E. At the CMP of Rs 153, it is trading
FIs & Local MFs 6.8 at 6.5x and 3.8x its FY09E and FY10E FDEPS. We have arrived at a DCF based target
FIIs 6.2 price of Rs 234, an upside of 53% from current levels. While our bull case target price
Public & Others 49.7 is Rs 339 (upside of 122%), the bear case target price is Rs 147 (downside of 4%) from
Source : Company
current levels.We initiate coverage with a BUY rating on the stock.
(Rs mn) FY06 FY07 FY08 FY09E FY10E
Sensex and Stock Movement Net Sales 290 635 2697 4916 7935
Bartronics BSE_SENSEX Operating profit 74 169 652 1377 2222
300 25000 Operating profit (%) 25% 27% 24% 28% 28%
250 20000 Net Profit 53 135 484 894 1540
200 Net Profit (%) 18% 21% 18% 18% 19%
15000
150 FDEPS 1.41 3.55 12.76 23.60 40.64
100 10000 P/E (X) 108.6 43.1 12.0 6.5 3.8
50 5000 EV/EBDITA (x) 26.5 16.7 10.9 5.0 2.3
Nov-07
Mar-08
Sep-07
Oct-07
Jan-08
Feb-08
Apr-08
Jun-08
Jul-08
Aug-08
Debt/Equity (x) 0.1 0.1 1.1 0.8 0.2

RoCE (%) 8% 11% 10% 16% 22%
RoE (%) 8% 11% 16% 21% 20%
Source : Company, HDFC Sec. Research

Swot Analysis
Strengths
S • First mover advantage in smart card technology gives it an advantage over others in the smart
card industry, which is set to grow from USD 70 mn at present to USD 200 mn by 2010-11.
• As the only company to provide end-to-end AIDC solutions in India, it is likely to benefit from
W •
strong and sustained client relationship.
Strong technical tie-up with the global majors including EMS, ID Micro & Watch Data
Technologies to provide access to the latest technology.
O
• High customer base of more than 1600 clients reduces client concentration risk. Its top 5
clients including HLL group, ITC group, Telco, Tata Steel, Ashok Leyland contribute just 10% of
revenues.
• Monopoly in smart card & RFID technology in domestic market with 90-95% market share in
T both, which in turn will swell its order book.
Weaknesses
• The management has no prior experience in smart card manufacturing business.
A • Huge equity dilution of 69% [33% dilution on account of 1st FCCB allotment in June 2007 (Rs
1038 mn) and (32% & 4% dilution on account of 2nd FCCB allotment in January 2008 (Rs 2100
mn)] and allotment of ESOPs in July 2008.
N • High debtors days in the AIDC segment of almost 200 days which accounts for 61% and 57%
of the total revenues in FY09E and FY10E.
Opportunities
A • The government of India is working on adopting the MNIC (Multipurpose National Identification
Card) nationwide. If the MNIC project is approved, then every individual must have this I-card
(like the ration card). This will create an opportunity for the supply over 700mn smart cards over
L
a period of 5-6 years.
• The banking industry is planning to replace the magnetic strip technology with smart card
technology by the year 2010.
• The government of India favors FDI in the retail sector. Barcode technology plays a very important
Y role in this sector. The hardware and software tools of this technology have become essential
for retailing.
• With AIDC technology becoming affordable, tracking of goods and people is likely to be a big
S business opportunity.
Threats
I
• Technological obsolescence is a threat to hi-tech companies like Bartronics. It will have to
invest in R&D on a sustained basis to keep abreast of the latest trends in the industry.
• Potential competition from global players including Gemalto, Schlumberger, Gemplus in the
smart card space is a risk; but imported cards are ~16% costlier, which is a relief for the
S ·
company.
Direct entry by the company’s overseas partners (from whom Bartronics sources some
products), into the Indian market is also a risk.

Key Assumptions
Assumptions FY09E FY10E
Smart Card Segment
Capacity Utilization 80% 95%
Smart Card Production in mn 64 76
Revenue Rs mn 1920 3420
As % of Sales 39% 43%
Smart Card Realization
Avg. realization/telecom card in Rs 30 30
Avg. realization/Govt. Project card in Rs 0 60
AIDC Segment
AIDC solutions -29% 20%
USA Subsidiary
Revenue Growth 5% 70%
Singapore Subsidiary
Revenue Growth 3% 50%
Sensitivity of Sales to Cost on FY09E EPS

Base Case EPS - 23.60 Sales Growth %
Cost (% Chg) -5 -10 5 10
2.5 16 11 27 32
5 14 9 25 30
-5 22 17 33 38
-2.5 20 15 31 36
For every 5% increase in topline and 2.5% rise in cost, the FY09E EPS would change
to Rs 27 as against our base case EPS of Rs 23.60.
Sensitivity of Capacity Utilization on FY09E EPS

70% 75% Base Case (80%) 85% 90%
EPS 22.14 22.87 23.6 24.32 25.05
EPS Growth -6% -3% 0% 3% 6%
For every 5% increase/decrease in capacity utilization, the FY09E EPS would increase/
decrease by 3% against our base case EPS of Rs 23.60.
DCF Assumptions
Explicit Growth Rate 11%
Terminal Growth Rate 3%
Risk Free Rate 9%
Market Premium 8%
Beta 1.1
Cost of Equity 18%
We 55%
Wd 45%
Cost of Debt 11%
WACC 14%
Source : HDFC Sec. Research

International Peer Comparison

Particulars Gemalto Intermec Oberthur Bartronics
P/E (x)
FY09E 15.9 30.8 11.7 6.3
FY10E 12.1 20.4 9.2 3.7
EV/EBIDTA (x)
FY09E 8.7 13.8 5.0 4.9
FY10E 7.1 9.9 4.1 2.3
P/BV (x)
FY09E 1.7 2.4 2.0 1.1
FY10E 1.5 2.2 1.7 0.7
RoE (%)
FY09E 9.9 7.1 16.1 21.3
FY10E 12.2 10.2 19.2 19.6
Source : Bloomberg, HDFC Sec. Research
In the domestic market Bartronics does not have any major competitor. But in the AIDC
segment, the closest competitor is Barcode India Ltd, which is an unlisted entity.
When compared to international peers, BIL is the cheapest with the lowest P/E of 6.3x
for FY09E and 3.7x for FY10E.
Key Risk & Concerns

• As a new business for the management, any drop in capacity utilization of the
smart card facility could affect its levels adversely.
• In the AIDC segment it has higher debtors days of around 200 days, which is a
concern for the company, mainly because of its recognition policy, which allows it
to book revenues only after project completion.
• Technological obsolescence is a major risk for the company. To keep abreast with
the latest technology it has its own R&D centre in Hyderabad
• Other players may also join the business due to the profit potential offered by the
government’s MNIC programme if it gets through, as this would create a market
for 700 million cards.
• Short pay back period of 3.5 years may also lure other players into the business,
which may intensify competition.

Outlook & Valuation

Bartronics’ recent diversification into smart card business is well timed. This is reflected
in its healthy market share of almost 90% in India. The demand for smart cards has
begun to pick up in India with the increasing awareness of this technology. Further, the
government of India’s MNIC project for which BIL is a strong contender and the plan of
banks to replace magnetic strip cards with smart cards will provide a favorable market
for the company. Its capability to provide all AIDC solutions under one roof makes it the
preferred choice as the company’s over 1600 clients, including blue chip companies,
testify. The AIDC segment has an order book of Rs 5100 mn executable over a period of
1.5-2 years. The AIDC solution’s RFID is the most preferred technology in which BIL
has a 95% market share. Its presence in various countries through its subsidiaries will
help it to grab market share and enhance its topline due to the low base of operations.
Revenues and profits are projected to grow at a CAGR of 72% and 78% respectively. At
the CMP of Rs 153, it is trading at 6.5x and 3.8x its FY09E & FY10E FDEPS. We have
arrived at a DCF based target price of Rs 234, an upside of 53% from current levels. We
initiate coverage with a BUY rating on the stock.
Scenario Analysis
Scenario EPS PE Target Price Variation
Base Case 24 10 234 0%
Bull Case 5% increase in Sales and 2.5% decrease in cost 31 11 339 45%
Bear Case 5% decrease in sales and 2.5% increase in cost 16 9 147 -37%
Bull Case 5% increase in sales and 2.5% increase in cost 27 11 297 27%
Bear Case 5% decrease in sales and 2.5% decrease in cost 20 9 182 -22%
1yr rolling forward PE band

450
400 11.5x
350
9.5x
300
250 7.5x
200
5.5x
150
3.5x
100
50
0
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Source : HDFC Sec. Research

Investment Arguments
Capitalizing on early mover advantage

As an early entrant into smart card manufacturing, BIL will benefit from the tremendous
demand for smart cards in India. The plant which has the capacity to manufacture
80mn cards/annum is the largest in South East Asia. Presently, the company caters to
the entire GSM market in India by issuing cards to Giesecke & Devrient (G&D), which
acts as a system integrator. For FY09, the entire capacity will address the demand of
the telecom market, as SIM cards presently account for 95% of the total smart card
market in India. With more government projects opening up, the company will gradually
shift its focus to government projects from FY10. It already has an order book worth Rs
5880 mn for government projects that will start contributing revenues from FY10 onwards.
The company’s entire smart card capacity is booked for FY09 and FY10. It also has
projects in the pilot stage, such as National Identification card, PAN card, and railways
smart cards among others, which will create additional demand for smart cards. Further,
the smart card plant has an ‘export oriented unit’ status for the next 9 years, which will
reduce the overall tax burden and enhance net margins.
Recently, the company bagged three projects worth Rs 5880 mn from the governments
of Rajasthan and Bihar and the Employees State Insurance Corporation, which will be
executed over 2-3 years where it will issue biometric smart cards to families ‘below
poverty line’. It has also put in bids for similar projects in different states and the
management is confident of bagging most of them. These projects are part of the
financial inclusion process announced by the government of India, in the budget 2008-
09. Many other projects are also in the pipeline including the MNIC project. The banking
industry too is planning to replace magnetic strip technology with smart card technology
in 2-3 years, because of the higher security and data storage capability it offers over the
magnetic strip. These projects will provide a huge opportunity for smart card
manufacturers like Bartronics.
The company recently received a MIFARE certification for cards used in the transportation
sector. Consequently, BIL will be able to bid for and supply cards for large projects
where MIFARE is the standard used. This move will help boost its revenues going
ahead.
Only company with end-to-end AIDC solutions capability in India

BIL is the only end-to-end AIDC solutions provider in India. It identifies a problem,
prepares a solution architecture, integrates hardware and software to the needs of
customers. This capability has attracted many clients, taking its client portfolio beyond
1600. These include blue chip companies like Tata group, HLL, and ITC to name a few.
Its total outstanding order book in the AIDC solutions segment is Rs 5100 mn executable
over 1-2 years. It has strong tie ups with global majors in the AIDC solutions space, like
Intermac and EMS which keep it abreast of the latest technology.

Present order book structure

Particulars Rs mn Execution period
Domestic AIDC solutions 3500 2 years
US Subsidiary 1000 1 year
Singapore subsidiary 600 1 year
Total 5100
Source: Company
BIL’s domestic market share in various AIDC technologies

AIDC Technology Market share %
Barcode 20-25 %
Biometric 80%
RFID 95%
Source: Company
International operations next area of growth

BIL has two subsidiaries, Bartronics America Ltd and Bartronics Asia Ltd. Both provide
AIDC solutions. Recently, its American subsidiary received 4 patents for design and
manufacture of non-reusable tamper resistant identification device, which can be used
as wristbands or bracelets and are useful for cash less transaction linked to credit/debit
card systems. It has bagged a pilot project with Comic-con International, a company
based at California for deployment of its patented RFID wristband product. The
management expects these subsidiaries to provide 80-90% growth opportunity because
of their current low base of technology. RFID technology accounts for 90% of the US
subsidiary’s operations while biometric technology accounts for 60% of its Singapore
operations. The outstanding order book from its US and Singapore subsidiaries presently
stands at Rs 1000 mn and Rs 600mn respectively, executable over a one year period.

Business model of the company

Bartronics provides solutions based on Automatic Identification and Data Capture
technologies which includes Barcodes, Biometrics Identification, Radio Frequency
Identification, Radio Frequency Data Communication, Electronic Article Surveillance,
Point of Sale and Smart Cards. With a 70% growth rate, RFID is the fastest growing
segment. Looking at the boom in application space like government, retail, telecom,
and healthcare, its business is expected to grow multifold. Its business is divided into
two segments
Providing AIDC solutions

The AIDC business is more like a consulting business. After identifying a project problem
it prepares a solution. It sources the hardware for which it has a tie-up with international
companies. It also develops application software and integrates it with the hardware as
per customers’ demand. Unlike its competitors, with presence in only one of the
processes, BIL provides all services as an end-to-end AIDC solutions provider. In this
segment, it recognizes revenues on project completion basis, which has resulted in
higher debtors days of around 200. It has more than 1600 clients including blue chip
companies. The margins in these segments vary depending upon the type of project.
Margins are higher in case of RFID technology as compared to traditional AIDC
technologies like Barcodes, Biometrics, EAS, POS, etc.
Smart Card Segment

BIL has recently set up a smart card manufacturing facility near Hyderabad, which has
the capacity to produce 80 mn cards annually. The company currently addresses the
entire telecom market (GSM players) in India through Giesecke & Devrient, a German
company which acts as a system integrator that provides the technology to Bharti,
Idea, Tata, and Hutch. The realization per smart card is Rs 30 in case of telecom
players, and upto Rs 60-70 in case of government projects. The realization depends
upon the architecture and configuration of the card. The software loading process on
these chips is very different from that for the GSM application. It varies from project to
project, because it has to consider security, software application and operating system
needed for the card. The company has a 45-day payment agreement with its customers
for smart cards including government and telecom players. After a year, the company
intends to cater to government projects, which has already started pouring in money in
a big way. BIL already has a few prestigious government projects in hand worth Rs 5500
mn. It has the capability to produce smart cards in the range of 8K to 256K. For chip
manufacturing, the company has a technology tie-up with ST Microelectronics, which
is one of the largest firms in the chip business for smart cards. The pay back period for
the smart card project is 3.5 years. This business has a margin of 27-30%.

Company Snapshot
Incorporated in 1990, Bartronics is a Hyderabad based company. It offers services that
enable automatic identification of products and persons and creates the infrastructure
to keep track of their movement. It offers tailor made AIDC (Automatic Identification and
Data Collection) and RFID (Radio Frequency Identification) based solutions and offers
consulting services pertaining to Barcode, Biometrics, RFID, RFDC and Electronic
Article Surveillance (EAS). The company also provides business and technology
strategy, systems design and architecture, applications implementation, network and
systems integration in this field. In the solutions segment, Bartronics is the only company
in India to provide end-to-end solutions. That is the reason its client list includes most
of the Blue chip companies. Its state-of-the-art 80 mn smart cards manufacturing facility
(biggest in south east Asia) located near Hyderabad manufactures smart cards for the
Indian telecom sector and a variety of government projects.
Bartronics Presence
Automatic Identification & Data

Capture Technologies (AIDC)
Radio Frequency Electronic Article

Bar Codes Magnetic Cards Identification Smart Cards Surviellence Biometrics
(RFID) (EAS)

Brief profile of promoters & MD
Bartronics was founded in 1990 by Mr. R K Mehta. The company was later acquired by
Mr. ABS Reddy and Mr. Satish Reddy 2000.
Mr. ABS Rdddy has more than 15 years of experience in the engineering industry and
has worked with various organizations including Krupp India Ltd and M/s spiral tools Pvt
Ltd.
Mr. Satish Reddy is a Mechanical Engineer and has over 45 years of experience, in
working with companies including TCS and M/s Mega Flex Laminations (P) Ltd.
BIL is run under the able guidance of Mr. Sudhir Rao (MD) who has over two decades of
experience in the industry. He has held prestigious positions in organizations like TCS,
Shalina Laboratories Pvt. Ltd, Core Healthcare Ltd and VMW Soft Tech Ltd. He joined
Bartronics India Ltd in 2001.
BIL is involved mainly with the manufacturing sector and has implemented a number of
projects across companies in their manufacturing set-ups. The projects primarily involved
inventory & logistics management, time & attendance and asset tracking systems.
• It offers product-tracking services to companies focusing on logistics to improve

profitability

• The company has over 1600 customers spread throughout India, Malaysia,
Bangladesh, Sri Lanka and Dubai. It has executed large-scale turnkey projects in
bar coding, Radio Frequency based Identification (RFID) and biometrics
technologies
• Bartronics primarily sells products and solutions for data capture in the areas of
logistics and inventory management, time and attendance management and asset
tracking operations
• Bartronics is presently concentrating on the manufacturing sector whether it is

pharmaceutical, automobiles or consumer goods
• It has two wholly owned subsidiaries Bartronics America Ltd and Bartronics Asia
Ltd. The two subsidieries also provide AIDC based solutions
BIL today is a top-notch provider and high end supplier of a variety of products like
Barcoding Printers and Scanners, HHTs, DCTs, Media Supplies like Direct Thermal
Labels, Thermal Transfer Labels and Tags. BIL gets these products from international
players like EMS, ID Micro & Watch Data Technologies with whom it has technology
tie-ups.
BIL Clients
The company has a strong client base of more than 1600 clients.
Domestic Clients
• Telco, Tata Steel, Hindustan Lever group, ITC group, Tata Motors, Ranbaxy,
Whirpool, Pantaloon Retail, Dr Reddy, BPCL, Videocon
International Clients
• Panasonic, IBM, Mercedes Benz, Compaq, General Motors etc.
Organisational Structure
Bartronics India Ltd. Activity :

(Holding Company) End-to-End AIDC solutins provider
Subsidiaries
Bartronics America Ltd. Bartronics Asia Pte Ltd.

(100% subsidiary) (100% subsidiary)
(US) (Singapore)

Raw material for smart cards

The raw material needed for smart cards are silicon and plastic, which the company
intends to source from two German companies called Klonkner and Pentoplast. Raw
material sourcing is not a problem for the company as there are many suppliers. A
microprocessor (chip) module constitutes 40% of the total cost of the smart card. The
company has its own chip manufacturing facility, which is the main component of the
smart card. The chip, which company intends to manufacture, will be based on the chip
architecture designed by ST Micro with whom BIL has a technical tie-up.
Revenue Break up of BIL for FY09E Geographical breakup of Revenue for FY09E
Smart card Singapore

39% 10%
USA
31% India
AIDC 59%
technology
61%
Source: Company, HDFC Sec. Research

Industry Overview- Smart Cards

India has seen continued boom in the smart card market in the past couple of years.
The total market for smart cards in India in 2007-08 was about $70 million, which is
expected to reach $200 million by 2010-11, registering a CAGR of almost 40%. However,
looking at the current rapid growth in the Indian smart card market, these estimates
appear to be conservative. According to the research firm Frost & Sullivan, three areas
are expected to power the expansion of the Indian smart card market. These are SIM,
national ID & driving license and vehicle registration certificates, with SIM being the
most prominent.
Smart card applications in conjunction with mobile communications, biometrics, RFID

and e-Payments are fast penetrating many socio-economic spheres and regions of
India. Smart cards are rapidly moving into newer application areas in the country including
National ID, Access Control, Driving licence and Vehicle Registration, e-Passport, Retail,
Loyalty, Banking and Finance, Closed User Group Applications, Healthcare, Transit
and Fare Collection, Toll Collection, apart from others.
In Budget 2008-09, as part of the financial inclusion efforts, the Finance Minister
announced a new policy that would require every branch in semi-urban and rural areas
of every bank to have 250 new households as their customers and take financial services
to them. It is due to this move that the company has bagged two prestigious government
orders worth Rs 5880 mn. It is expected to bag more orders as it already has 11
projects in the bidding process and the management is confident of bagging 4 projects.
This move will provide the much needed boost to the demand for smart cards in the
country.
The smart card industry is still in the initial stages of growth in India. The recent
developments on the National ID card indicate that there is a need to supply more than
700 mn multipurpose national identification smart cards over a period of 5-6 years. If
this project is implemented, BIL will be the foremost beneficiary as it has the advantage
of being an early entrant in this segment.
Market research firm Frost & Sullivan (F&S) puts the value of the smart card market in
India at $5.1 billion in the next few years, and a compounded annual growth rate of
40%. India’s fast growing cellular market is a key driver of this usage as it alone accounts
for over 95 percent of smart card usage by way of SIM cards in mobile phones. This
potential would be much more if these cards were to be upgraded to support more
applications.

Automatic Identification and Data Capture (AIDC) Techniques

AIDC also refers to the methods of recognizing objects, getting information about them
and entering that data or feeding it directly into computer systems without any human
involvement. Automatic Identification and Data Capture technologies include barcodes,
RFID, magnetic strips, smart cards and biometrics.
Bar code
Barcode is perhaps the oldest of the AIDC technologies. A barcode is a message that
holds information, which is encoded into spaces and bars of various widths. Barcodes
can be produced easily and inexpensively. Typical data content capacity varies from 8
to 30 characters. The barcode industry size in India is estimated around Rs 2.5 bn and
is growing at over 30-35 % every year. The proliferation of malls and food bazaars is
driving the growth in this segment. Logistics contributes around 10% to the barcode
industry. Retail contributes around 40% and nearly 50% comes from all other industries
like auto, pharma etc. The auto industry uses barcoding for auto data capture of
information about its materials and supplies during receipt, storage, Work In Progress
(WIP), dispatch and sales operations.
Currently there are more than 400 barcode symbologies in use. Some are alphanumeric,
while others contain numeric data. Only 10 are standardized and prevalent in industry.
They can be printed on most dot matrix, laser, and thermal transfer printers depending
on the quality requirement. Barcodes can be read by optical scanners called barcode
readers or scanned by a special image.
Merits of barcodes
• Some items do not need information changed frequently and this may well be an
example of when a bar code will do the job needed
Demerits of barcodes
• The most obvious limitation is the amount of data that can be stored in a linear
barcode
• The hardware required for barcode technology is not manufactured in India, and
the heavy duty imposed makes import of such hardware quite an expensive
proposition
• Two areas that bar codes do not perform well at are changing data and harsh
environments

Magnetic Strip Technology

With an infrastructure that encompasses every store in the high street giving them an
ability to read the information on the magnetic strip, the technology is everywhere.
Although some limitations exist in the amount of information that can be stored on the
stripe and the security of the data, solutions to solve these problems exist from various
vendors. With the advent of new technologies, many people have predicted the demise
of the magnetic strip.
These types of cards find their usage in the following fields

Banking Applications
• Credit Cards
• Debit Cards
• ATM Cards
Non-Banking Application
• Access Control Systems
• Petro Cards
• Loyalty Cards
• Club Cards
Magnetic strip Vs Smart cards

Compared to the magnetic strip, smart card is more secure. By having a chip on the
card, a smart card protects the information stored from damage or theft. Current magnetic
strip cards have limited capacities to copy information.
By using smart cards that have greater capacity, customer profiles can be broader and
information can be easily added or deleted from the memory. In addition, smart cards
can perform decision making due to the powerful processing capabilities, such as data
encryption.
Biometric technology
It includes identifying the human and getting information about him. It involves getting or
acquiring the information and identifying the characteristics such as finger image, palm
image, facial image, iris print or voice print. The Rs. 1.5 bn market in India is growing at
a rate of 70- 100%. While there is a growing demand for both physiological and behavioural
biometrics devices, fingerprint recognition is the current hot favourite. Most of the
biometrics hardware in India is imported from USA, Germany, Israel and in recent times
from China.
Smart Card
Smart cards are credit card sized plastic cards that contain relatively large amounts of
information in an embedded microprocessor chip located within it along with memory.
There are several terms used to identify cards with integrated circuits embedded in
them. The terms chip card, integrated circuit card, and smart card really all refer to the
same thing. Now the card actually has the ability to make decisions about the data
stored on the card. The card is not dependent on the unit to which it is attached to
make the application work. A multi use card is possible with this technology. As there

is a microprocessor on the card, various methods can be used to prevent access to the
information on the card to provide a secure environment. This security has been touted
as the main reason that smart cards will replace other card technologies. The biggest
advantage is of course the amount of data that can be stored and the security that can
be built into the card.
Schlumberger, Gemplus, G&D, Obethur, VCT and Orga are the globally recognized
card manufacturers in the Indian market. ST Microelectronics, Philips, Infineon, Reneseas
and Atmel are the chip manufacturers who are already present in the country. Though
the SIM card market has driven the growth in the last 5 years, the rate of growth in
banking and retail sector is expected to be larger in the coming years. However, the
industry is looking at government usage and the much-awaited national ID project for a
spiraling growth in the next few years. There are two types of smart cards.
Contact smart card

Contact smart cards must be inserted into a smart card reader. They have a small gold
plate about half inch in diameter on the front. When the card is inserted into a smart
card reader, it makes contact with electrical connectors that transfer data to and from
the chip.
Contactless smart card

Contactless smart cards are passed near an antenna to carry out a transaction. They
look just like plastic credit cards, which consists of a transponder (antenna), which is
located inside the card. The transponder consists of a chip, which is attached to an
antenna. The contact less smart card communicates with the reader via electromagnetic
waves. These components allow the card to communicate with an antenna unit without
a physical contact. Contactless cards are the ideal solution when transactions must be
processed very quickly, as in mass transit or toll collection activities.
Depending upon the application, different chips are used in smart cards. Chips are
distinctive according to the type of memory, CPU and their interface to the reading
devices.
The smart cards industry, growing at a CAGR of almost 40 percent in India, is set for a
boom in the coming years. Smart cards are expanding into newer areas in the country
like national ID, access control, driving license and vehicle registration, e-passport,
retail, loyalty, banking and finance, close user group applications, healthcare, transit
and fare collection, toll collection and others.
SIM Cards: GSM / CDMA RUIM cards

These smart cards are used for telecom applications and are generally known as SIM
cards. There are three types of telecom smart cards GSM, CDMA RUIM and GSM
CDMA combo. Typically these cards vary from 16K to 256 K types. The most popular
cards are 16K, 32K and 64K type. The GSM cards are the most popular used by GSM
mobile service providers; CDMA mobile service providers use the RUIM cards. The third
type i.e. combo cards are used by some service providers who want to offer the flexibility
of both GSM and CDMA to their customers.

Smart cards are used in the following fields

Government
• Citizen ID cards
• Advanced drivers license registration
• Voter registration cards
Financial services
• Electronic money and E-commerce
• Secure remote banking access
• Electronic signature and verification
Travel and Transportation

• Ticketless airline boarding
• Tunnel access monitoring
• Highway & Bridge toll collection
Telecommunications
• SIM cards
• Internet access and payment
Health care and Health Insurance

• Medical profiles and treatment applications
• Health and benefits applications
• Hospitals
Education
• Administration
• Library function and bookstores
• Access control
Advantages of smart cards

• Smart cards differ from magnetic strip cards in two ways – the amount of information
that can be stored is much greater, and some smart cards can be reprogrammed
to add, delete or rearrange data
• As there is a microprocessor on the card, various methods can be used to prevent

access to the information on the card to provide a secure environment. This security
has been touted as the main reason that smart cards will replace other card
technologies

Radio Frequency Identification (RFID)

RFID technology provides a wireless, over the air interface. RFID uses an integrated
microchip and antenna that reads information. The combination of the chip and antenna
is called an RFID transponder or tag. When the RFID transponder is placed in the field
of an RFID reader, information is transmitted to the reader and processed by a computer.
The hot technology in the AIDC arena is RFID, which is growing at 70% every year.
Bartronics has captured 95% of the RFID market in India. RFID provides a means of
obtaining information on an item without making direct contact. Reading distances can
vary from a few millimeters to several meters depending on the technology variation
used. The tags themselves come in a variety of forms from credit card sized plastic
cards, to tiny injectable glass transponders for tracking animals. The actual technology
used to implement RFID varies depending on the manufacturer and application, with
frequencies used varying from 125kHz to 5.8GHz.
Bartronics announced a tie-up with the US based Escort Memory Systems (EMS) for
bringing the latest Radio Frequency Identification (RFID) technology to India. According
to the agreement, EMS will be the technology provider and Bartronics the integration
and implementation partner.
Process of RFID
• A reader/interrogator/scanner transmits Radio Frequency wave to a Tag. The tag
hears the RF wave, and responds with some data.
• The Tag or Transponder can be either active or passive. It responds to a signal

from the Interrogator (reader/writer/antenna), which in turn sends a signal to the
computer.
• The Tag comes in a variety of shapes. It is made up from a chip (IC) and an
antenna. Depending on the application, it may be embedded in glass, in a label,
or a card.
A typical RFID tag consists of following hardware: -

• RFID Reader
• RFID Antenna
• RFID tags
• RFID printer
RFID operates in several frequency bands

• 125 - 134 kHz
• 13.56 MHz
• UHF (400 – 930 MHz)
• 2.45 GHz
• 5.8 GHz

Data on RFID tags can be changed many times. Information can be stored and updated
as a tag moves through a process, keeping the important information with the tag (and
the item) and so making it available at any point in its life. RFID systems can be used
just about anywhere, from clothing tags to missiles to pet tags to food — anywhere that
a unique identification system is needed. The tag can carry information as simple as a
pet owner’s name and address or the cleaning instruction on a sweater to complex
instructions on how to assemble a car. Some auto manufacturers use RFID systems to
move cars through an assembly line. At each successive stage of production, the RFID
tag tells the computers what the next step of automated assembly is.
The world’s largest retailer Wal-Mart and the US Department of Defence, have been
asking their vendors to supply merchandise that are RFID compliant since 2005. Indian
firms supplying merchandise to Wal-Mart also have had to be RFID-compliant since
2005. Firms in Europe may also insist on RFID tagging very soon. A comprehensive
RFID solution can generate an additional 2 to 7 per cent increase in revenue, improve
handling productivity by 20 to 30 percent, reduce operating expenses by 2 to 5 per cent
and reduce days in inventory by 1 to 2 percent. Financial improvements such as these
are significant, and it is for this reason that many companies are moving forward with
RFID, sooner than later.
RFID has entered into other applications such as toll payment, supply chain management,
cashless payment, ticketing, brand authentication, security access, patron identification
and amusement parks. This technology can ensure tremendous cost savings in many
areas of application, most notably in supply chain management. It is estimated that by
deploying RFID nationwide, the US economy can save $500 billion annually in inventory
management.
Most RFID projects are in the supply chain sector. Whenever there is a need for tracking
movement of material or men, the technology is invaluable. For example, in ITC, the
RFID tagging ensures that the raw material which goes into manufacturing of cigarettes
are tracked properly to ensure they don’t get mixed up during the manufacturing process.
The data transmitted can provide information on identity, location, the product details
like batch number, colour, date of purchase, shelf life, time on the shelf, price, date of
manufacture, time spent in transit, location of the distribution centre, name of last
person to hold the item along the supply chain among other details depending on the
level of information required on the tag for different product categories.
RFID has made significant inroads into logistics and supply chain management areas.
Industry verticals that have adopted RFID in India are Automobiles, Steel, Courier,
Transport, Retail and Pharmaceuticals. The biggest advantage of adopting RFID
technology has been the significant benefit, which the customer gets for tracking and
managing inventories.

RFID tags provide far greater security than alternatives such as barcodes and magnetic
strips. Barcodes can be easily duplicated by printing out a copy. A magnetic strip also
is easy to duplicate. There are numerous instances of money being stolen from ATM
accounts by copying the magnetic strip of the victim’s ATM card through a process
called skimming. RFID will coexist and integrate with the other auto ID technologies —
for instance, with barcode for product identification and biometrics for personnel
authentication.
There are other technologies that use RFID for providing an integrated and complete
solution — GPS/GIS for vehicle identification and location, GSM/CDMA for enabling
and authenticating mobile commerce, GPRS and wireless for remote data
communication, sensors and controls for identifying and recording different parameters,
automation systems and PLCs for integrated production system. Bartronics have been
working on solutions for the Indian market using GIS/GPRS. These technologies are
expected to become commercially viable over the next couple of years.
Applications of RFID
• Asset tagging and Identification
• Asset locating and tracking
• Employee tracking
• Library Management
• Supply Chain management
• Mass transit
• Postal and courier services
• Food Industry
• Healthcare, pharmaceutical industry
• Access management
• Toll collection
• Airline baggage handling
• Document tracking
• Cashless payment

Financial Summary
the revenue of the company is expected to grow at a CAGR of 72% over FY08 to FY10E
to Rs 7935 mn, due to its order book position and growing smart card business. In
FY09, the revenue contribution from smart card business will be 39% which will move
up to 43% in FY10. BIL intends to gradually shift its focus to government related
projects, which have higher realizations of Rs 60-70 per card against Rs 30 for telecom
SIM cards. While AIDC segment will contribute 61% of the total revenue in FY09, this is
expected to scale down to 57% in FY10.
Revenues
9000
7935
8000
7000
6000
4916
(Rs. mn)
5000
4000
2698
3000
2000
1000
0
FY08A FY09E FY10E
Operating profit will grow at a CAGR of 85% over FY08 – FY10E period to Rs 2222 mn.
In FY09, operating margins will improve by 383 bps to 28%, mainly due to the full-
fledged operations of its higher margin smart card business while in FY10 we expect it
to remain the same.
EBIDTA & EBIDTA margin

2500 29
28 28
28
2000
27
1500 2222
26
1000 24 25
1377
24
500
652 23
0 22
FY08A FY09E FY10E
EBIDTA (Rs mn) EBIDTA margin %

Net profit will grow at a CAGR of 78% over FY08 – FY10E to Rs 1540 mn, while Net
margins will improve by 148 bps to 19.41% in FY10. The company has adopted a free
pricing approach in the sense that it works backwards from a targeted net profit in the
range of 18% to 20% and then arrive at the target price. So the net margins remain
constant in the said range of 18% to 20% across the business groups including
geographic markets.
PAT & PAT margin

1800 20
1600 19
20
1400
1200 19
1000
18 1540 19
800 18
600 18
400 894
484 18
200
0 17
FY08A FY09E FY10E
PAT (Rs mn) PAT margin %

Financial Statements
Income Statement
Rs Mn FY06 FY07 FY08 FY09E FY10E
Net Sales 290 635 2697 4916 7935
(Increase)/ Decrease in stock -34 18 -448 0 0
Consumption of raw material 221 395 2284 3196 5158
Staff cost 15 25 92 147 238
Other expenditure 14 28 118 197 317
Total expenditure 216 466 2046 3540 5713
EBIDTA 74 169 652 1377 2222
Depreciation 10 17 32 157 192
EBIT 64 152 619 1220 2030
Interest 8 13 37 132 151
Other income 5 9 11 3 0
Exceptional items 0 0 3.527 0 0
PBT 61 148 590 1091 1879
Total tax 8 13 107 196 338
PAT 53 135 484 894 1540
Balance Sheet
Rs Mn FY06 FY07 FY08E FY09E FY10E
Share Capital 146 178 275 307 379
Share Application Money 0 60 0 0 0
Reserves & Surplus 538 998 2692 3895 7463
Net Worth 684 1236 2967 4202 7842
Secured Loans 83 91 801 1261 1261
Unsecured Loans 0 0 2432 2124 0
Total Borrowings 83 91 3233 3385 1261
Deferred Tax Liabiltiy 14 18 18 18 18
Total Liabilites 781 1345 6218 7604 9121
Gross Block 119 166 3566 4266 4266
Less: Depreciation/Amortisation 33 49 82 238 430
Net Block 86 116 3484 4027 3835
Capital work in progress 161 109 109 109 109
Inventories 64 83 168 291 470
Sundry Debtors 170 559 1256 1980 3196
Other Receivables 0 168 0 0 0
Cash & Bank Balances 358 2 330 1151 1843
Loans & Advances 12 705 1133 492 397
Total current Assets 605 1517 2887 3913 5906
Current Liabilities 65 399 224 388 626
Provisions 5 14 54 74 119
Total current Liabilities 70 413 278 462 745
Net Current Assets 534 1104 2609 3452 5160
Miscellaneous Expenses 0 16 16 16 16
Total Assets 781 1345 6218 7604 9121

Cash flow statement

Rs Mn FY06 FY07 FY08E FY09E FY10E
PBT 61 148 590 1091 1879
Depreciation 10 17 32 157 192
Others 3 4 26 129 151
Operating profit before working capital changes 74 169 648 1377 2222
Change in Working Capital -76 -935 -1178 -22 -1016
Cash generated from operations -2 -767 -529 1355 1206
Other Income 5 9 11 3 0
Tax paid -8 -13 -107 -196 -338
Cash flow from operating activities -5 -770 -624 1162 868
Decrease /(Increase) in Fixed Asset -20 -47 -3400 -700 0
Others -161 36 0 0 0
Cash flow from investment activities -181 -11 -3400 -700 0
(Decrease)/ Increase in Share Capital 102 33 97 32 72
(Decrease)/ Increase in Share premium 433 325 1211 308 2028
FCCB amount received / (transfer to reserves) 0 0 2432 -308 -2124
(Decrease)/ Increase in Working Long term borrowings -49 0 710 460 0
Others 50 55 -97 -132 -151
Cash flow from financing activities 536 412 4352 359 -175
Net increase/decrease in cash and cash equivalents 350 -369 328 821 692
Cash at the beginning of the year 0 358 2 330 1151
Cash at the end of the year 358 2 330 1151 1843
Ratio Analysis
FY06 FY07 FY08E FY09E FY10E
Profitability Ratios
Gross Profit Ratio 25% 27% 24% 28% 28%
Net Profit Ratio 18% 21% 18% 18% 19%
RoE 8% 11% 16% 21% 20%
RoCE 8% 11% 10% 16% 22%
Growth Ratios
Sales 0% 119% 325% 82% 61%
PBT 0% 142% 300% 85% 72%
PAT 0% 152% 259% 85% 72%
Valuation Ratios
P/E 108.6 43.1 12.0 6.5 3.8
P/BV 3.3 2.2 1.4 1.1 0.7
EV/EBIDTA 26.5 16.7 10.9 5.0 2.3
EV/Sales 6.7 4.4 2.6 1.4 0.7
Market Cap/sales 7.7 4.3 1.6 1.0 0.7
Per Share Data
EPS 3.7 7.6 17.6 29.2 40.6
FDEPS 1.4 3.6 12.8 23.6 40.6
BVPS 46.9 69.4 107.9 137.0 206.9
CEPS 4.4 8.5 18.8 34.3 45.7
Turnover Ratios
Inventory Turnover 0 6 16 15 15
Debtors Turnover 0 2 3 3 3
Creditors Turnover 0 2 7 12 11
Inventory Days 0 57 30 30 30
Debtors Days 0 210 170 147 147
Creditors Days 0 182 40 40 40
Leverage Ratios
Debt/Equity 0.1 0.1 1.1 0.8 0.2
Interest Coverage 8.3 11.3 16.7 9.2 13.4

RATING SYSTEM
BUY = Expected to outperform the BSE Sensex by 15% or more over a 12 months’ time frame.
MO = Market Outperformer - Expected to outperform the BSE Sensex by 10% or more over a 12 months’ time frame.
MP = Market Performer - Expected to be a neutral performer relative to the BSE Sensex over a 12 months’ time frame.
MU = Market Underperformer - Expected to underperform the BSE Sensex by 10% or more over a 12 months’ time frame.
SELL = Expected to underperform the BSE Sensex by 15% or more over a 12 months’ time frame
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Initiating Coverage

Bartronics India Ltd.

The “Smart” way of doing business

Sanjeev Kumar Singh Saurabh Rathi

Executive Summary .......................................................................................................................................................................... 3

SWOT Analysis ................................................................................................................................................................................. 4

Key Assumptions .............................................................................................................................................................................. 5

International Peer Comparison ....................................................................................................................................................... 6

Outlook & Valuation .......................................................................................................................................................................... 7

Investment Arguments ..................................................................................................................................................................... 8

Business Model of the Company ................................................................................................................................................... 10

Company Snapshot ........................................................................................................................................................................ 11

Industry Overview ............................................................................................................................................................................ 14

Financial Summary ........................................................................................................................................................................ 22

Financial Statements ...................................................................................................................................................................... 24

September 18, 2008 Page 2

BUY Executive Summary

Debt/Equity (x) 0.1 0.1 1.1 0.8 0.2

September 18, 2008 Page 3

T both, which in turn will swell its order book.

September 18, 2008 Page 4

Sensitivity of Sales to Cost on FY09E EPS

Sensitivity of Capacity Utilization on FY09E EPS

September 18, 2008 Page 5

International Peer Comparison

Key Risk & Concerns

September 18, 2008 Page 6

Outlook & Valuation

1yr rolling forward PE band

Source : HDFC Sec. Research

September 18, 2008 Page 7

Capitalizing on early mover advantage

Only company with end-to-end AIDC solutions capability in India

September 18, 2008 Page 8

Present order book structure

BIL’s domestic market share in various AIDC technologies

International operations next area of growth

September 18, 2008 Page 9

Business model of the company

Providing AIDC solutions

Smart Card Segment

September 18, 2008 Page 10

Automatic Identification & Data

Radio Frequency Electronic Article

Source : Company, HDFC Sec. Research

• It offers product-tracking services to companies focusing on logistics to improve

September 18, 2008 Page 11

• Bartronics is presently concentrating on the manufacturing sector whether it is

Bartronics India Ltd. Activity :

Bartronics America Ltd. Bartronics Asia Pte Ltd.

Source : Company, HDFC Sec. Research

September 18, 2008 Page 12

Raw material for smart cards

Smart card Singapore

Source: Company, HDFC Sec. Research

September 18, 2008 Page 13

Industry Overview- Smart Cards

Smart card applications in conjunction with mobile communications, biometrics, RFID

September 18, 2008 Page 14

Automatic Identification and Data Capture (AIDC) Techniques

September 18, 2008 Page 15

Magnetic Strip Technology

These types of cards find their usage in the following fields