Bartronics India

Bartronics is in the Automatic Identification and Data Capture (AIDC) business. AIDC is the industry term used to describe the identification, and/or direct collection of data into a microprocessor controlled device such as a computer system or a programmable logic c controller (PLC), without the use of a keyboard. The technology supports two fundamental requirements - eliminating errors associated with identification and/or data collection and accelerating the throughput process. The key application of the technologies is in tracking and traceability of products/articles, product and item identification and sorting, information and data processing, security and access control and inventory management. The AIDC technology covers six distinct groups of technologies and services. They are: Card Technologies, Data Communications Technologies, Bar Code Technologies, Radio Frequency Identification Technologies, Emerging Technologies, and the Support and Supplies which serve the industry.

After its debut on the bourses in January 2006, Bartronics India did not do too well as its share price fell all the way to Rs 46 within a year. The slide in the share price was attributed to its high valuations in the context of its net profit being fairly low at Rs 5.33 crore and a turnover of Rs 29.5 crore in FY06.

But the company has justified its worth to the market by recording a substantial jump in its earnings.

In FY07, the company registered a sales growth of 120 per cent at Rs 63.5 crore and a net profit growth of 150 per cent at Rs 13.46 crore.

Recognising this change, the market has re-rated the stock with its price moving back to 131 and subsequently shooting up to 173. I started tracking this scrip on 8^th July 2007; it has gone up to 173 since then because institutional investors are buying in bulk. Somebody will initiate coverage after it probably touches 250 levels. There could be further upside as the company would continue to growth quite fast on the strength of its products mainly focused on the booming retail sector.

As supply chains improve in technology and retail majors take them over through backward integration, a spurt in usage of innovative technologies is highly likely.

The company has been around for the past fifteen years and was listed only recently. RFID is emerging as a sunrise domain and they are into production of RFID tags already and have a first mover advantage. The buoyancy in exim trade (15% CAGR for container traffic) will propel the logistics sector to which it supplies barcode solutions apart from the latest RFID technology is also expected to see a boom. The company has already established itself as an expert in bar code technology. So we can expect the topline to grow from the new technology as well as the regular barcode business.

I have conservatively estimated that their topline grows by 30% although the industry CAGR is expected to be between 35-50%. Even under this assumption the stock looks incredibly cheap. It trades at a forward P/E multiple of 13.1 for FY08 and 9.9 for FY09. From their website it looks like their management is also reasonably good.

While the upside potential is high and could push the stock up to 250 - 300, the downside is quite low.