Bartronics India Limited, is a Hyderabad based company that started with providing solutions in bar coding; one of the oldest automatic identification and data capture (AIDC) technologies. Subsequently the company has forayed into smart cards, biometrics, RFID, RFDC, EAS and point of sales technologies, creating a niche for itself across industries.
BIL products include a wide range of AIDC and RFID cards, handheld terminals, printers and scanners, having applications in the logistics, security, education, HR, healthcare, hospitality, finance and other industries. The company?s expertise in the products, technologies, implementation skills and understanding of the market places it in a dominant position in the domestic market.
BIL offers services that enable automatic identification of products and persons and creates the infrastructure to keep track of their movement.
BIL has so far focused on the manufacturing sector and has a clientele that includes frontline players in several industries.
Sudhir Rao, Managing Director, Bartronics India Limited holds a Post Graduate Diploma in Management (P.G.D.M) from the Indian Institute of Management (1989-91), Ahmedabad, and a Bachelor?s Degree in Economics and Advanced Accountancy from Osmania University, Hyderabad. He worked with Tata Consultancy Services, Shalina Laboratories Private Limited, Core Healthcare limited and VMF SoftTech Limited before joining Bartronics in the year 2001. During his professional tenure with the above organizations, Mr. Rao has worked in the areas of Business Process Reengineering, Strategic Planning and Control, Quality Assurance, Materials Management, Information Technology and Marketing, Sales and Distribution. Mr. Rao has had the experience of dealing with multiple funding agencies including Venture Capitalists, Term Lending Institutions, Bankers and Foreign Financial Institutions.
Replying to Anil Mascarenhas of India Infoline, Sudhir Rao says, ?Overall the financial goal is to achieve a turnover of Rs10bn annually over the next 2-3 years.?
You started operations as a distributor of barcoding equipment in India. Briefly explain to us your business model. How do you see it changing in the years to come? What steps have you taken to derisk your model?
The Company has moved from being a distributor of equipments to a total solutions provider in the AIDC industry. The current business model of the company is similar to a consulting business model, where any intervention starts with a problem identification stage. Once the problem has been defined, the company?s engineers design a solution architecture, which defines the various elements of a proposed solution. Based on the solution architecture, the company sources the relevant hardware and develops the software application for the desired solution. The software is then integrated with the hardware and the entire solution is then integrated with the back-end of the customer?s systems. Post implementation, the company provides an after-sales service to the customer to support the solutions over the long run.
Moving forward, the solutions thrust of the company is likely to continue with the same business model as described above. However, recently the company has entered into manufacturing of smart cards. The business model for this part of the business is purely manufacturing. However, the company intends moving up the value-chain in this segment of the business too capitalising on the early mover advantage to emerge as a total solutions provider in the Smart Cards space too.
Being a fairly broad-based model, the company is highly de-risked in terms of being effected by any kind of vertical specific business cycles.
What is the size of the Indian automatic identification and data capture (AIDC) market? What growth rates are you seeing?
The AIDC (Automatic Identification and Data Capture) technology industry provides solutions based on these technologies to its customers. The scope of the intervention is fairly well-defined ? as processes dealing with data ? identification and capturing. The industry does not provide enterprise-wide software solutions and hence differentiates itself from the general software industry.
Some studies have been conducted on the industry that indicates the current market for AIDC industry to be around Rs1-1.2bn with a growth rate of around 35% every year.
What are the changing trends?
Usage of the technologies under the AIDC umbrella has been changing fairly rapidly over the years. What began as an industry where bar-coding was the only technology being used, today; the industry has adopted Radio-Frequency Based Identification (RFID), Biometrics and Smart Cards. All these technologies co-exist meaning each technology has a role to play depending on the type of application that it is used for.
To what extent has awareness increased? What are the opportunities?
In terms of opportunities, increasing awareness of Indian corporate to the benefits of using AIDC technology for improving the reliability of the information systems is a definite advantage. Newer technologies have rapidly increased the breadth of applications where these technologies can be used. Global adoption of the technology over the past 4-5 years has clearly demonstrated benefits for the customers.
In India, further opportunities are clearly visible primarily driven by the implementation of VAT and also by the immense growth in the retail industry. Bartronics being the pioneer and also the fore-runner in terms of introduction of the latest technologies stands to gain from the expansion of the markets.
The major threat that the company faces is due to its relative size to the Indian Industry. The fairly small current size of the company makes it vulnerable to be over-ridden by a large player in a very short time period. Hence, the company is taking steps to quickly scale up its operations through organic and inorganic growth options so that within the next 2-3 years, the company attains a formidable size to combat any kind of threats in the future.
How do you compare with domestic and global peers? What is your USP?
Bartronics is a fairly small company from a global perspective. Globally, the major players in this industry are firms with a manufacturing and solutions expertise. Some of these firms have patents, which are extensively used in the products that form an integral part of all solutions based on AIDC technologies. Bartronics is emerging as a significant global player comparable to the best internationally.
In the domestic market, Bartronics has been the pioneer and market leader since its inception. The company continues to drive its leadership position through being early entrants into the latest technologies. With a strong customer base built up over the years, most of whom have an Annual Maintenance Contract with the company, the company enjoys the advantage of access to any new requirements for implementing its solutions to the existing customers.
The USP of the company is its ability to provide end-to-end solutions including a comprehensive post implementation support to its customers. With an ISO 9000 certified After Sales Service function, the company?s engineers are ranked amongst the best in the world in addressing any hardware/software related problems that the customer may face after implementation.
What is the potential in the market and what share do you have at present? What steps are you taking to increase your market share?
As mentioned earlier, the market potential for AIDC solutions is around Rs1.20bn while that of Smart Cards is approximately Rs1.50bn for the present. The company has adopted an early mover strategy and thereby has been able to maintain the leadership position in the market over the past two decades.
Name some of your clients. What is the contribution by the top 5 in terms of revenue and profit?
The Company has over 1600 customers spread across almost all verticals. Most of these are blue-chip companies - to name a few ? TISCO, TELCO, HLL, ITC, Whirlpool, Dr. Reddys, Mahindra and Mahindra, Tetrapak, Gati, Pantaloons, FabIndia, etc. The company does not depend on any single customer as the revenue is project based and the list of top 5 customers changes every year. In general the top 5 customers would account to approximately 30% of the company?s revenue and profits.
Brief us about your capex plan.
The Company went ahead with an ambitious expansion plan during the year 2007 by committing to invest about Rs2.70bn into state of the art Smart cards ? cum ? RFID tags manufacturing unit. Apart from this capex, the company intends investing about US$50 million into its overseas operations including acquisitions which are expected to push the company into a different league in terms of size.
Brief us on your latest financials and your outlook going ahead? Any financial goals?
For the financial year ending March 08, the company intends crossing the milestone of Rs2bn in terms of revenue. Overall the financial goal is to achieve a turnover of Rs10bn annually over the next 2-3 years. This in turn envisages a growth rate of over 100% every year. The targeted profitability is 20%.
What is the revenue break-up? How are the margins various segments? What is the outlook on margins?
The Company has been declaring its results under single segment viz. AIDC solutions. From the current financial year, manufacturing of smart cards will form the second segment. The revenue break-up across the two segments are likely to be 50%-50%. The company expects to make a net profit margin of about 18-20% across all its businesses.
What is the latest shareholding pattern and who are the major investors?
The promoters along with their associates hold approximately 44% of the paid-up share capital. The institutions hold about 21% while the rest is with the general public. Among the institutions are DSP Merrill Lynch, BOB and UTI.
What are the entry barriers in this business?
The solutions side of the business is difficult for any company to emulate. The reason is primarily because; it is a knowledge-oriented business. The company has successfully harnessed its expertise in understanding and implementing solutions based on the technologies for over 15 years. This knowledge has been encapsulated in some form in the company?s R&D and Technology Centre.
Further, the company has built up relationships with some of the leading global players in the industry like Intermec Corporation, Datalogic, Escorts Memory Systems, IdMicro and Synel Industries. These relationships spanning more than 5 years on an average gives tremendous strength to the company?s efforts in identifying and deploying solutions based on the latest technologies.
In the smart cards side of the business, the main barriers to entry are investment and customer access. Every customer requires a gestation period of 6-8 months for a card to be built tailor made for the application for which it is expected to be used. Since Bartronics has entered into the field first, it is able to address almost 95% of the requirement of smart cards in India that leaves almost nothing for a new entrant to break-into. Being a close-knit market, it is extremely difficult for a new entrant to develop relationship with the same set of customers and out-do Bartronics which already has a proven track record in providing top-class service.
What is your current order book? By when would it be executed?
The current order book of the company for its solutions stands at approximately Rs1.35bn to be executed over a period of next 18 months. The capacity for smart cards is totally booked up to March ?09.
What is your capacity and utilization? Post expansion what would be the utilization and capacity?
The current and final capacity of the smart cards manufacturing unit is 80mn units. We are expecting to run the unit at about 50% capacity utilisation for the year ending March ?08 and at 100% utilisation for the year ending March ?09.
Tell us more about your JVs.
The Company has marketing and sales relationships with companies based out of India specifically in Sri Lanka and Bahrain. These entities are expected to develop the respective markets for AIDC technologies over a period of time. The company does not have any other JVs.
To what extent has emerging technologies like radio frequency identification (RFID) and biometrics changed the scenario for various industries?
RFID has made significant in-roads into the logistics and supply chain management areas. Industry verticals who have adopted RFID in India are Automobiles, Steel, Courier/Transport, Retail and Pharmaceuticals. The biggest advantage of adoption of RFID technology has been the significant benefit which the customer gets for tracking and managing inventories. The pay-back period in some cases where Bartronics has implemented RFID has been as low as 30 days.
Biometrics, on the other hand is a technology based on human identification. Primarily the application where biometrics has been used in India has been the Access-Control application. Hence, the major customers include high security installations, server rooms in major companies etc. Increasingly, biometrics is being recognised as a mode for error-free identification. Future applications where pilots are already being done include National Identity Card Programme (MNIC programme of the Government of India), Passport/Emigration control etc.
What is your market share in the domestic AIDC market? How many regional and overseas distribution centres do you have?
Though there aren?t any formal studies done by independent organisation in the Indian market, our internal studies shows that we enjoy a dominant market share in all the technology areas that we operate in. This includes a 25% market share in the barcoding area, 95% in the RFID segment, 25% in the biometrics segment and 100% in the Smart Cards segment.
The company currently operates through its Head Office based in Hyderabad and 10 other branch offices spread throughout the country. In addition, the company also has an office in Singapore, Sri Lanka and Bahrain.
You currently have three divisions. What are the growth prospects in each of these and going ahead are you planning any more verticals or divisions?
We have basically the solutions and the smart cards segments of the business. Growth prospects, market shares etc. have been mentioned above in answers to some of the other questions. Moving forward additional verticals/divisions may be added to the company?s operations depending on the opportunities that they provide and the company?s ability to maintain its leadership position which is the driving force behind most of the company?s decisions.
What are your backward integration plans? Is there a major advantage in cost too?
The Company has been working over the last one month on a backward integration project for manufacturing of modules for the Smart Cards segment of the business. Based on our understanding we should have a cost advantage ranging from 5-8%.
Brief us on your exports. What is the current and future contribution to revenues from exports?
Currently, almost 50% of the company?s business comes from its overseas operations. Moving forward, this trend is likely to contribute through the revenues from each of the countries may change significantly from year to year depending on the focus.
You also mange inflow logistics of the pilgrims of Lord Balaji at Tirupati. Tell us your experience here.
The Company introduced the ?Sudarshanam Token? system for queue management and ran it successfully over two years. About a year back the system has been handed over to the Temple Management for continuing the service.
There are concerns of companies adopting a delaying attitude to adopt bar codes. This has more to do with service issues? What are your views? How are your clients adjusting with the infrastructure costs at implementation stage?
A customer will give an order to Bartronics for implementing a solution based on AIDC technologies only if Bartronics is able to show a positive Return-on-Investment (ROI) to the customer. Hence, the delay, if any, will have to do with the prototyping and demonstration of the proposed solution to the customer. With the increasing awareness of viability of such solutions, more and more customers are now open to using AIDC technologies. Any AIDC technology implementation pre-supposes a computerised environment. Fortunately, Bartronics? engineers are trained to integrate their solutions to any kind of hardware/software. Hence, implementation of AIDC technology based solutions does not require the customer to invest into additional physical infrastructure.
With changing technology, do you fear some of your technologies could be obsolete?
Newer technologies emerge in the AIDC Industry every 3-4 years. However, the newer technologies do not replace the earlier ones. They in fact, increase the usability of the technologies i.e. increase the application areas where AIDC technologies can be used.
In the last 4 decades there has not been any case of technology obsolescence that the industry has seen anywhere globally.
When it comes to retail chains, they may always try out better and more cost effective options. How are you handling this issue?
The retail industry is fairly matured in terms of adoption of technology in the developed countries. In other words, experimentation has already been done on the use of appropriate technologies in other markets. In India, the retail industry is still nascent and poised for an exponential growth.
You are dependent on external suppliers for many key materials and hardware components. How do you ensure quality and timely delivery? How do you manage the logistics?
Bartronics, being the pioneer in introduction of AIDC technologies in India has been fortunate to enter into arrangement with some of the global leaders in this industry. In most cases, the partners are the original patent holders for various technologies. Bartronics also believes in nurturing relationships ? both with vendors as well as customers. As a result, most of the vendor relationships are more than 5 years old. Given these facts, quality and delivery have not been a matter of concern for Bartronics. As regards logistics, Bartronics has been able to streamline its procurement and delivery functions over the years. With an in-house continuous improvement program, the company?s officials look for small-small incremental improvements in their business process on a daily basis. Such initiatives are implemented once they are found to be efficient or cost effective. Bartronics also has a recognition programme in place which helps it in rewarding deserving employees through a combination of cash and stock options.
What are the current debtor days? Any steps to reduce this?
Currently, the debtor?s days is over 180 days. This is due to the fundamental nature of the business where the business model is tailored around a consulting framework. With the manufacturing and sales of Smart Cards during the current year, the debtor days are likely to come down to about 120 days.
Any plans to sell stake, raise money?
The promoters do not intend selling stake in the near future. The company has been raising capital to fund its expansion plans and would continue to do so if it is in the long-term interest of its shareholders.
What is your dividend policy?
As the company is on an aggressive growth track, it is unlikely to generate sufficient surplus for distribution as dividends. All the surpluses are being ploughed back as investments for the moment.
Your message to shareholders?
Bartronics believes in transparency and efficient governance. Accordingly, the company has set-up an Investor Service Centre immediately after the IPO in December 2005. All queries are addressed immediately and the company intends continuing the practise in the future.
As a high growth company, the shareholders are expected to gain significantly over the years once most of the expansion plans of the company become operational. A large size also gives the benefits of economies of scale thereby improving the operational performance. Finally, the company?s endeavour to scale up quickly is helping the company to create newer opportunities thereby ensuring that the company continues its leadership position in the Industry besides influencing the future directions of the industry.