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Bharatiya Global Infomedia Ltd IPO Review (Avoid)

Review By MLR Securities Private Ltd on Jul 12, 2011

Issue Period: 11th July to 14th July
Price Range: INR 75-82
Issue Size: INR 50-55 Cr
Mcap: INR 119-130 Cr
IPO Grading: CARE IPO Grade 2
Grey Market Premium: INR 3-3.5
BRLM: Almondz Global Sec
Promoter: Mr Rakesh Bhhatia & Mrs Arti Bhatia

BGIL is into information technology based security and compliance automation systems majorly based on Radio Frequency Identification (RFID) platform (IT division) and has a technology‐based digital post production service (entertainment division). The IT division operations of BGIL are carried out from Noida and Mumbai branch office and the entertainment division operations are carried out from the Mumbai‐based digital post production studio. The IT division applications of the BGIL are majorly built on the RFID platform. RFID allows a tagged object to be identified when it comes in the radius of the RFID reader. The technology is used for automation of toll booths, parking management and asset tracking.

Apart from RFID technology, BGIL provides the automation solutions based on technologies such as smart cards, bar code, biometrics etc. BGIL procures the hardware equipments required in building the automation system and uses in house developed software to deliver the systems to customer. BGIL bags sub‐contracts from bigger automation players like Honeywell Automation Ltd. and iemensBuilding Technologies Ltd. Apart from the said sub‐contracts, BGIL derives revenues from relatively smaller contracts won directly from the end customers.

Mr Rakesh Bhhatia, the main promoter, is a Company Secretary by qualification and has business interests in varied fields of information technology, financial consultancy, entertainment, and related activities.

Objects of the Issue

  • Upgradation of digital post production studio & Investment in IT division - Rs 22 Cr
  • Purchase of Corporate office at Noida & Branch Office at Mumbai - Rs 10 Cr
  • Expansion of R&D technology centre - Rs 7 Cr
  • Repayment of bank borrowings - Rs 3 Cr
  • To fund long term working capital requirements - Rs 5 Cr

 

 

  • In FY11, IT division contributed about 96% of revenues while the rest is from the Media & Entertainment division. BGIL's total revenue grew at a CAGR of 18% to Rs 71 Cr in FY11 in the last five years while bottomline grew at CAGR of 11% to Rs 4.5 Cr in FY11. BGIL's margins are quite volatile in the range of 13‐17% at EBITDA level with single digit PAT margins at 6.4% in FY11.
  • The operating cycle of BGIL is high mainly due to high collection period on account of delayed realization. The company is almost debt free with debt equity level of 0.2:1. The RoE improved to 14.2% in FY11 from 10.4% in FY10 on the back of improvement in earnings.
  • The company is asking for a market cap of Rs 130 Cr on an upper price band of Rs 82. The price earnings multiple is 15‐16.5 times its FY11 pre-issue EPS which will expand to 26-28 post issue. The P/BV is 1.5 times its post issue book value on an upper price band of Rs 82. The EV/EBITDA is quite high at 12.4 times its FY11 EBITDA. The valuations are quite aggressive compared to its closest peer Bartronics India ltd with a similar business model its trading at a TTM P/E of 2 with a market cap to sales ratio of just 0.3 while BGIL's market cap is 1.8 times its FY11 sales.

 


Conclusion / Investment Strategy

BGIL is asking for valuations of 26‐28 times FY11 EPS which is quite expensive to its closest peer Bartronics ltd which is trading at a TTM P/E of just 2. We recommend investors Avoid this issue.

The recommendation does not factor in any listing gains arising due to speculative interest considering its small issue size.

 

Reviewer recommends Avoid to the issue.

Review By MLR Securities Private Ltd on Jul 12, 2011