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Business Overview
Bhartiya Global is technology based company focusing on the sectors such as IT security
and automation software solutions related to media & entertainment industry. Current
business operations consist of Information Technology Based Solutions-RFID & Smart Card
and Digital Post Production Studio (Digital Post-Production Studio at Andheri West,
Mumbai namely “BGIL Studio”). The company has developed in-house software ERP
product, customized software development, training, consultancy, trading, animation
and RFID based solutions. The company also designs & develops WAP enabled products for
clients.
Strengths
Cost-effective Solutions: The company enables its customers to use fewer solutions and
services to achieve and maintain compliance in a cost-effective manner. These solutions
eliminate manual effort and costs that otherwise may be required to become secure and
compliant.
Relationships with Customers: The company has relationships with customers built on
the successful execution of prior engagements. The quality of products and services is
demonstrated by the fact that customers have given the company repeat orders. This
track record of delivering solutions and product development experience has helped the
company in building relationships with its customers.
Experienced and Qualified Management: The company has executed several contracts
during the last 5 years period. Mr. Sanjeev Kumar Mittal, one of the Directors, is having
around 18 years of experience in the field of computer hardware and software. The past
experience and qualified management provides a stable path for further growth of the
company.
Strategy
Continue to Expand Product and Services: The products are currently customized to
meet client specific requirements. The company intends to invest in technology that will
allow decreasing the level of customization needed to meet a particular client's needs,
thereby saving on implementation time and costs. The company is in the process of
launching products like Mobile applications, Tokenless Two Factor Authentication (TTFA),
automatic number plate recognition system and ticket dispensing system.
Creation of New Products: The company intends to continue investing in R&D
capabilities for designing software engineering tools that enhance its ability to execute
large, end-to-end projects and develop software solutions that address clients in specific
industries. This investment in new product development and in R&D will help the
company in mitigating business risk by reducing the dependence on the success of
individual products.
Increase the Customer Base: The company plans to continue to acquire new customers
by addressing their security and compliance needs with its existing and new solutions.
The company plans to pursue new customers in industry verticals where it has
recognition, expertise and existing customer base, as well as in new verticals where
growing regulatory requirements and security threats create demand for its solutions.
Strengthening its Brands: The company plans to invest in developing and enhancing
recognition of its brands, through brand building efforts, communication and
promotional initiatives such as interaction with industry research organizations,
participation in industry events, public relations efforts. These initiatives will enhance
the visibility of its brands and strengthen its recognition in the Indian IT solutions
industry.
Developing Alliances: The company plans to grow and strengthen its technology
alliances with leading technology companies. These alliances typically involve systems
integration, joint product development and joint "go to market" strategies. Currently,
the company is working for various technology companies like Honeywell Automation
India Limited, Johnson & Controls India Private Limited, Cements Building Technologies
Private Limited, HCL Infosystems Limited, Schneider Electric India Private Limited for
their RFID and smart card services.
Risk Factors
Orders for 81.48% of Plant & Machinery for the Proposed Expansion Yet to be Placed:
The total cost of plant and machinery and other equipments proposed to be installed is
estimated at `28.61 Crs., out of which the company has placed an order for equipments
worth `5.3 Crs only. This exposes the company to risks of increase in price of machinery
and other equipments required for the proposed expansion. Any delay in placing such
orders may also delay the implementation schedule further affecting the cost, revenue
and profitability of the company.
Significant Portion of Revenue from a Limited Number of Customers: The top ten and
top five customers contribute 49.11% and 35.81 %, respectively of the total revenue of
the company during 2010-11. Any loss of business or significant reduction in the volume of
work from the top customer(s) could adversely affect the revenue and profitability.
Increasing Intense Competition: The IT products and solution markets is highly
competitive and the competitors include large multinational technology firms, Indian IT
services firms, software firms etc. Growing competition may force the company to
reduce the prices of its products and services, which may reduce its revenues and margins
and/or decrease its market share, any of which could have a material adverse effect on
the business, financial condition and results of operations.
Easy Termination of Client Contracts: The clients of the company retain it through nonexclusive
service agreements. These contracts can be terminated with or without cause,
with 0 to 30 days notice and without termination related penalties. Additionally, these
agreements are without any commitment to a specific volume of business or future work.
The clients may demand price reductions, change their outsourcing strategy by moving
more work in-house or to the competitors or replace their existing software with
packaged software supported by licensors. Any of these factors could adversely affect
the revenues and profitability of the company.
Liable to Claims by Customers: Many of the contracts involve providing products and
services that are critical to the operations of the clients business. Any failure or defect or
malfunctioning in the provided software or products, networks or computer systems
could result in a claim against the company for substantial damages. Further, the
company does not have any product liability insurance coverage. Any such claims could
damage the company's financial condition, market perception, and diminish its clientele.
Industry Overview
Domestic IT-BPO revenues are expected to grow at almost 16 % to reach `78,700 Cr in
FY2011. Strong economic growth, rapid advancement in technology infrastructure,
increasingly competitive Indian organisations, enhanced focus by the government and
emergence of business models that help provide IT to new customer segments are the key
drivers for increased technology adoption in India. In 2011, growth will reflect new
demand for IT goods and services, and not pent-up demand from prior years. 2011 will
also see a major surge in the use of cloud and mobile computing on a variety of devices
and through a range of new applications. Hardware is likely to grow the fastest at about 7
per cent. Shipments of app-capable, non-PC mobile devices (smartphones, media
tablets) are expected to outnumber PC shipments.
Valuation
Considering the P/E valuation on the upper end of the price band of `82, the stock is
priced at pre issue P/E of 16.45x on its annualised FY11 EPS of `4.99. Post issue, the stock
discounts its FY11 annualised earnings per share of `2.87 by 28.57x. Looking on to P/B
ratio at `82, the stock is priced at P/B ratio of 2.34x on the pre issue book value of `35 and
on the post issue book value of `54.94, the P/B comes to 1.49x.
On the lower end of the price band of `75, the stock is priced at pre issue P/E of 15.05x on
its annualised FY11 EPS of `4.99. Post issue, the stock discounts its FY11 annualised
earnings per share of `2.87 by 26.13x. Looking on to P/B ratio at `75, the stock is priced at
P/B ratio of 2.14x on the pre issue book value of `35 and on the post issue book value of
`54.94, the P/B comes to 1.37x.
Outlook
The IT hardware as well as software industry is highly competitive and is heavily
influenced by large players. Moreover, the company does not have a very long track
record of operations. The financials of the company do not justify the valuations of the
company either. Only investors with a very high risk appetite may consider the issue.
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