Business
Incorporated in 1990 as marketing organisation for barcode-related products, BIL has over the years moved up the value chain providing end-to-end solutions and even manufacturing smart cards.
AIDC Division
BIL provides AIDC solutions based on several technologies starting with bar coding, the oldest one, to recent emerging technologies like radio frequency identification (RFID), bio-metrics, point-of-sale (POS) and smart cards.
The company's products include a wide range of AIDC and RFID cards, handheld terminals, printers and scanners having application across verticals like logistics, retail, security, education, healthcare, hospitality, finance and other industries. BIL has strong business alliances with market leaders for sourcing products and technology.
BIL is a dominant player in the domestic AIDC market with 25% market share in bar-coding which finds extensive use in retail, manufacturing & logistics industries for stock and inventory process management and control.
BIL enjoys 95% market share in emerging RFID space which is used for electronic article surveillance (EAS), access control, goods tracking and automated toll collection. BIL offers biometric solutions for security applications in defence, government and IT segments.
BIL has recently set up its subsidiaries in Singapore and US, financed through FCCB route to expand its operations and serve the South-East Asia & US markets. BIL through its subsidiaries is evaluating opportunities in leisure and entertainment verticals like amusement parks, casinos & sporting events by offering cash-less solutions utilising RFID techniques.
These subsidiaries are expected to contribute significantly to BIL revenues. "Singapore should generate about Rs 60 crore in FY09 while US is on track to clock in a turnover of over Rs 160 crore in FY09," said Sudhir Rao, MD of BIL.
Going forward, AIDC division (including overseas subsidiaries) would contribute around 55-60% to the sales revenues while the balance will be from the smart cards division.
Smart cards division – major growth driver
BIL has recently forayed into smart cards business by setting up first-ever smart card manufacturing unit in India near Hyderabad with an installed capacity of 80 million cards per annum. This unit, which commenced production from July, 2007, is currently having capacity utilisation of around 50% which is expected to reach 95% in FY09.
Currently, in the smart cards segment, BIL caters to the telecom sector, manufacturing GSM SIM cards for companies like Airtel and Idea. BIL's capacity is booked till FY2009 as it has signed a two-year agreement to supply 50% of the capacity in the first year of operations and 70% in the second year to German system integrator G&D.
This division would contribute to around Rs 108 crore to revenues in FY08 with average realisations for telecom SIM cards being around Rs 30-35. This division has opportunities in other verticals like banking smart cards and MNIC (multi-purpose national ID Cards), which offer higher realisations of Rs 70-100. This is expected to drive strong revenue growth with still better revenues from FY10.
BIL has also ventured into manufacturing silicon chips and commence production by August, 2008. These chips are currently imported and BIL will be the first in India to manufacture them. This backward integration will help to get raw material for smart cards and improve profitability.
BIL has strong local and international presence with wide list of more than 1,600 clients including Tata Steel, Tata Motors, M&M, ITC, Voltas, Whirlpool, Dr Reddy's, Wipro, GE Medical and Pantaloons. Thus BIL has diversified offerings catering to various segments, which de-risks its business from slowdown in any particular sector. Investment rationale
AIDC industry is growing at 35-45% with the new technologies of RFID & biometrics making their presence in large way. Organised retail industry in India is all set to grow at a strong pace going ahead with all major players like Tata, Reliance, Future group, Bharti coming up in small and medium towns also.
Given that such technologies are still in the initial stages of adoption, the scope for growth is significant. BIL having the first mover advantage is set to take advantage of rising demand for such technologies in the organised retail, manufacturing and logistics Industries. The smart cards market also appears to grow exponentially with demands coming from MNIC and banking.
Concerns
BIL being dependent on external suppliers for most of its key materials and hardware components, any delay in supplies would affect the business. Also with major growth in its revenues, its debtor's days have increased significantly leading to tight working capital. BIL being in technical field needs to be technology-updated and faces competition from new entrants thereby affecting margins.
Valuations
BIL with its unique business model covering the entire gamut of RFID, AIDC solutions and smart card business would continue to show huge growth momentum backed up by the growth in retail, telecom and banking industry going forward.
BIL's revenues are expected to grow at CAGR of 139% over FY07-FY10E and net profit at CAGR of 129% between FY07-10E. At CMP of Rs 195.9 it trades at a PE of 12.4x its FY08 earnings and at 7.46x & just 4.40x its FY09E & FY10E earnings respectively. Considering the strong revenue growth and good margins, BIL looks attractive at current level.
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