October 16 2009 Update Bartronics India Ltd

Bartronics Upgrade to BUY: Good Yield/Good Credit with GA Rating 1

FCCB Description
BARTRONICS INDIA USD
BARTRONICS INDIA USD 0.000
BOND NAME 0.000 '12 (BAIL IN )Iss'd /20
'13 (BAIL IN )Iss'd /20 USD50m
USD25m
COUPON (% p.a) 0 0
ISSUE SIZE ($m) 50 25
AMOUNT OUTSTANDING( $m) 50 6
MATURITY 1/4/2013 6/11/2012
TOTAL REDEMPTION AMT.($m) 71.5 8.6
REDEMPTION AT MATURITY 143.01 143.01
YTM & YTP 16.48 0.81
CONVERSION PRICE (INR) 232 112
PARITY 60.79 130
INDICATIVE BOND PRICE 85 140
PREMIUM 0.4 8
COUPON YIELD 0 0
CMP (in INR) 164 164

Bartronics India Ltd (Bartronics) is the only organized player providing end-to-end solution in Automatic Identification and Data Capture (AIDC)
domestic market including both smart cards and RFID products. Its most recent results have again surprised on the upside and continue to
show its resilience against cyclical economic downturns having posted stronger results for both its domestic and overseas operations for the full
year to Mar’09 and more significantly in the 1Q’10. The company remains in a strong position as it has de-risked its revenues by concentrating
on several industry verticals with its products covering identity cards, credit cards and social security cards which cater to the private and
public sectors. The company’s order book remains robust and having won several prestigious long term contracts (see Kiosk contract), we see
clear revenue visibility and have improved our forecasts for overall revenue growth significantly whilst remaining well below market and
company forecasts.

The Company had raised two FCCBs a $ 50mn issue maturing in 2013 (all remains outstanding as conversion price well above CMP) and a $
25mn issue maturing in 2012 ($ 19mn having been converted as the conversion price which was reset downwards is well below the CMP - so we
expect the remaining $6m to be converted also). We have improved our rating and now assign a Global Absolute Bond Rating of 1, based on
a clearer visibility of earnings, higher domestic sales growth, improved foreign sales which appear protected from the economic downturn,
and the winning of recent longer term contracts. Although the FCCB Redemption cover only improves from the 5 yr average of 0.55x to 1.5x in
the year of maturity of the 2013. Thus, we believe the company will be able to refinance relatively easily should it require to do so, within the
time frame as its debt to equity ratio is expected to improve over the next 3 years and its asset base should become far stronger following its
new Kiosk contract. Therefore, we recommend a BUY on Bartonics 2013 FCCB as good yield/credit supported by a high chance of refinancing
towards the maturity date, if required, and strong cash flows of almost $38m per annum to 2013.
 
 October 16 2009 Update Bartronics India Ltd

Equity Background
Bartronics India Ltd (Bartronics) is the pioneer in Automatic Identification and Data Capture (AIDC) technology industry in India. It provides
solutions to a variety of verticals based on AIDC technologies, namely Barcodes, Biometrics Identification, Radio Frequency Identification,
Radio Frequency Data Communication, Electronic Article Surveillance, Point of Sale and Smart Cards. It provides end-to-end solution, and is
the only organized player in the domestic market. Currently, it derives bulk of revenue comes from the domestic market (64% of total revenue),
while the remaining comes from the overseas market. It has recently started its smartcards manufacturing facility in India, having a capacity of
80 million smart cards pa. The industry in which the Company operates is still in its initial growth stages, so being the first mover in this space,
Bartronics enjoys a monopoly position in the domestic market.

Quarterly Results Summary (Rs. in Mn)

Particulars Q1'10 Q1'09 Chg (%) FY09 FY08 Chg (%)

Sales 1,629 1,195 36 5,880 2,708 117

Other Income 1 3 -73 26 11 132
Total Income 1,630 1,199 36 5,906 2,720 117
Total Expenditure 1,112 863 29 4,979 2,065 141
EBITDA 518 336 54 928 655 42
Margin (%) 31.76 28.02 3.74 15.71 24.08 -8.37
Depreciation 102 30 292 32
EBIT 415 306 36 636 622 2
Interest Expenses 87 30 185 218 38 477
EBT 329 276 19 417 584 -29
Taxes 90 41 121 211 110 91
Net Profit 239 235 2 206 474 -56
Margin (%) 14.65 19.62 -4.97 3.50 17.44 -13.94

Quarterly Highlights

• Bartronics reported a jump in sales by 36% to Rs. 1.62bn in Q1’10 compared to Rs. 1.19bn in Q1’09. The Indian operations contributed
around 76% of total sales in the quarter the balance coming from Singapore based Asian operations and their USA subsidiary.
• EBITDA grew by around 54% to Rs. 518mn as compared with Rs. 336mn in Q1’09. The margin increased by 374bps.
• Net Profit was up marginally by around 2% to Rs. 239mn as compared to Rs. 235mn in Q1’09, but margin was down by -4.97% on
account of higher depreciation and interest expenses.

Overall Performance for FY09

• In FY09, the company performance was above our expectation and again confirms the company’s ability to grow in the bleakest of
economic times due to its specialized technical product base, which is proving to be highly resistant to economic cycles.
• The company also won some major order book, which includes setting up of around 2,000 kiosks of Municipal Corporation of Delhi
(Kiosk Project), which has the potential to generate around Rs. 50bn of revenues over the next 9 years.
• Although the yr to Mar’09 has been poor for many companies, Bartronics, net sales for FY09 were up by around 117% to Rs. 58.8bn as
compared to Rs. 27.08bn in FY08. The standalone (Indian Operations) sales were up by around 104%. Besides this, the sales from
overseas also grew by around 107%, with the sales from its USA subsidiary reporting a growth of around 300%.
 October 16 2009 Update Bartronics India Ltd

Sales Forecasts:
For our forecasts which remain below those of the company and market, we have projected its revenues to grow by a CAGR of around 35%
from FY09-FY13E, and the bottomline to grow by around 68%. Bartronics has order backlog of around Rs. 7bn, which will be executed in the
next 16 months.

Based on its order book and Kiosk project we have assumed the following earnings stream:
The revenue growth from FY09 to FY13e in CAGR is around 30% (exclusive of Kiosks business).

Sales Projection
2008 2009 2010E 2011E 2012E 2013E
Gross Sales Break-up
Indian Operations 1833 3759 6475 6563 10200 10800
Kiosk Project 278 3056 4722 5000
Asia PTE Ltd. 647 569 626 846 1057 1216
America Inc. 404 1603 1684 2273 2614 3006
Total Sales 2884 5932 9063 12736 18593 20021

We expect the major revenues contribution from its Kiosks business to start from FY12E onwards and would be a major growth driver in term
topline and bottomline. Looking into the growth of the industry and Bartronics being first mover, our sales projects are conservative enough,
and if the global economy recovers faster than expected, the sales and its margin would grow beyond our estimates.

Kiosk Project
Bartronics has recently bagged a highly prestigious order from Delhi government for setting up 2,000 kiosk in the city, ‘Aapke Dwar project’. .
The kiosks will act as a data bank of local consumers, service providers and businesses, with various facilities like utility bill payments, and air,
train and cinema ticketing. The project is a BOT basis for period of 9 years, and the Company expects minimum revenue of around Rs. 50bn
cash to be generated over the project period.

The deal also confers on Bartronics the right to advertising revenues from these kiosks. With the Commonwealth Games set to begin in Delhi in
2010, the scope for substantial advertising revenues makes this deal even more lucrative. Besides this, Bartronics has a higher chance of
winning the most ambitious government of India project for Multi-purpose National Identity (smart) Card (MNIC) to the citizens in the country.

The order is expected to be executed in 3-4 phases of which phase-1 will be executed in 3Q10 itself with 300 kiosks. This would require an initial
capital outlay of about Rs. 7.5bn. The company is looking at financing this primarily by raising debt. The company would raise around Rs. 2bn in
FY10E and another Rs. 5bn in FY11E from debt to fund the project.

In addition, the roll out of such a large scale project may help the company win bigger and higher margin projects in its other core growth
areas of Asia and USA.

Debt Analysis
The Company’s current debt to equity ratio is at 1.76x, is a bit high, due to its capex. By FY13, we expect the Company’s debt/equity ratio to
decline substantially to 1.77x, thus further improving its ability to refinance its debt obligations if required. We expect an average annual cash
inflow of USD 35mn, from the company’s operations upto the redemption date.

Debt Structure Projection

Particulars (Rs. in Mn FY09 FY10E FY11E FY12E FY13E
Loans from Banks (Secured)
Term Loans 1390 2879 6079 5679 5179
Working capital Loans 1183 2011 2722 3746 4012
Other Loans 1.07 1.00 1.00 1.00 1.00
FCCB (Unsecured) 2922 2814 3023 3231 3468
 October 16 2009 Update Bartronics India Ltd

Liquidity Position Projection

Particulars (x) 2009 2010E 2011E 2012E 2013E
Debt/Equity 1.76 2.15 2.70 2.14 1.67
Debt/Fixed Asset 1.09 1.20 1.15 1.02 0.99
Debt/Fixed Asset + Net Current Asset 0.62 0.69 0.71 0.60 0.54
Debt/Fixed Asset + Cash 1.06 1.16 1.04 0.85 0.70

Company has high debt due to strong initial capex in FY09 as its working capital requirement increases on the back of a higher order book
demand and its roll out of the first phase of its Kiosk Project, where although they are building valuable long term assets there will remain a short
lag phase for revenues to support this debt.

Most of its capital expenditure in the core manufacturing of RFID division is also completed in FY09..As a result in FY09, debt/equity ratio is
around 1.76x, which is at a comfortable level, as compared with the industry, however, the debt will increase as its asset build up continues
over the following 2-3 years. As the operations grow through 2011-2013 the profitability on the kiosks project should then kick in to support the
debt burden carried by this division and the interest cover should improve. We therefore believe the company should be able to refinance, if
required, the redemption of the 2013 bonds relatively easily based on a strong core revenue growth and the stable cash trail for the remaining
life of the Kiosk BOT project.

Recent developments
Bartronics gets Three US Patents for RFID Technology - Bartronics India Ltd has informed BSE that Bartronics America Inc., a wholly-owned
subsidiary of Bartronics India Ltd has received three new patent ribbon copies from the United States Patent Office for RFID wristbands which
can be used in the healthcare and leisure and entertainment industries. Patent number 7,535,356 describes a conducive fastener that
connects the RFID wristband while patent number 7,579,950 describes a technique to extend RFID antenna around the holes used to snap the
wristband together. Patent number 7,562,445 has been granted for describing a method to manufacture a two-layer secure RFID wristband
which reduces the manufacturing cost of RFID wristband significantly which propels Bartronics America Inc. to the leadership position within the
RFID wristband market.

Bartronics subsidiary bags order from Singapore-based firm - Bartronics Asia Pte Ltd, a wholly owned subsidiary of Bartronics India Ltd has
bagged the prestigious RFID tracking project from Avitar, a Singapore based group with global operations. The solution is specific to a typical
mobile distribution warehouse with automatic scanning and reading during outbound dispatch. The Company also aims to "productise" the
application to jointly market the solution in the future.

Verayo, Bartronics To Deliver 'Unclonable' RFID Tags In India - Verayo, a security and authentication solutions provider, has partnered with
Bartronics India (Bartronics), a bar code and RFID technology company, to provide cost-effective RFID offerings to the Indian market. The
strategic partnership not only strengthens the long-term co-operation between the two companies, but also would address the need for
differentiated solutions targeting anti-counterfeiting and low-cost authentication.

Bartronics India becomes India's first RFID Company to be certified by ICAR - Bartronics India Ltd has informed BSE that : "The International
Committee for Animal Recording (ICAR) has approved the samples submitted by the Company and certified their conformity with the code
structure and technical concepts given in ISO 11784 and ISO 11785. Bartronies is the only Indian Company to have got the certification. Other
global companies whose RFID tags are also certified include Texas Instruments, Nedap and Saint Gobain.

The certification will enable Bartronics to bid globally for animal tagging applications which is projected to reach US$7 billion in 2017 by
IDTechEx. In India, a number of state governments are considering compulsory tagging of livestock where ICAR certification is mandatory. The
first phase of implementation of RFID based animal identification in India will kick-start during 2009."
October 16 2009 Update Bartronics India Ltd

Financial Summary
Name of Company: Bartronics India Ltd
SECTION 1: CASH INFLOW ESTIMATE (Rs.) Rs. Mn Exch. Rate 48.5
Particulars Mar-09 Mar-10E Mar-11E Mar-12E Mar-13E
Net Sales 5,880 9,063 12,736 18,593 20,021
EBITDA 928 1,852 2,969 4,285 4,526
Less: DA 292 500 801 969 998
Less: Prov. For FCCB Reserves - 209 209 209 209
EBIT 636 1,143 1,959 3,107 3,319
Less: Interest 218 440 726 778 781
EBT 417 703 1,233 2,329 2,538
Less: Tax 243 425 804 876
Net Profit after tax 417 461 808 1,526 1,662
Cash from Operations 709 1,169 1,817 2,704 2,869
Cash from Operations (USD) 15 24 37 56 59

Section 2: Working Cap and Investment/Capex

Working Capital Changes (1,691) (886) (861) (678) 486
Changes from Investing/Capex Activities (1,493) (2,172) (4,024) (1,184) (339)
Net Cash from W/Cap and Investment/Capex (3,183) (3,058) (4,885) (1,862) 148
Net Cash from W/Cap & Invest/Capex ($mn) (66) (63) (101) (38) 3

Section 3: Financing Activities

Change in Equity & Share Premium 2 - - - -
Changes in Debt 1,948 2,210 4,119 832 3
Net Cash from Financing Activities 1,731 1,561 3,184 (154) (987)
Net Cash from Financing Activities ($mn) 36 32 66 (3) (20)

Section 4: Net Cash Available for FCCB

Opening Net Cash Balance 165 138 219 1,027 2,453
Net Cash Flow For the Year (27) 81 808 1,426 2,765
Closing Net Cash Available for FCCB 138 219 1,027 2,453 5,218
Closing Net Cash Available for FCCB ($mn) 3 5 21 51 108

SECTION 5: FCCB REPAYMENT LIABILITY

Original Issue Size (USD) 75 75 75 75 50
Less: Amount already converted (USD) 19 25 25 25 -
FCCB O/S (USD) 56 50 50 50 50
Add: Premium on Redemption 4 4 4 4
October 16 2009 Update Bartronics India Ltd

Total Payable on maturity date (USD) 60 58 62 67 72

Total Payable on maturity date (Rs.) 2,922 2,814 3,023 3,231 3,468

SECTION 6: RATIO ANALYSIS

Current M Cap Rs. Mn 4,791
Current M Cap USD Mn 99
Networth (Rs) 3,117 3,578 4,385 5,911 7,573
Networth (USD) 64 74 90 122 156
Debt (Rs.) 5,496 7,706 11,825 12,657 12,661
Debt / Equity 1.8 2.2 2.7 2.1 1.7
EBITDA / Debt 0.2 0.2 0.3 0.3 0.4
Interest Coverage Ratio 2.9 2.6 2.7 4.0 4.2
SECTION 7: FCCB COVER
FCCB redemption ratio 0.05 0.08 0.34 0.76 1.50
FCCB Lia / Current M Cap 0.59 0.57 0.61 0.65 0.70
 Global Absolute Research Pvt. Ltd.

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