Friday, May 11, 2012

Bartronics Falls 17% as Religare Sells 3.16 Lakh Shares

Sudhir Rao, Managing Director,
 Bartronics India Ltd.
By Staff Reporter:

(Editor's Note: This news story was updated at 08:35 AM on Saturday, 12th May 2012 with more details. No information in the original story was corrected.) 

Bartronics India Ltd (BSE: 532694, NSE: BARTRONICS) stock, on Friday, May 11th 2012, fell by 17%, as Religare Finvest Ltd sold off 3.16 lakh shares of the small-cap technology company in NSE.

This was disclosed by National Stock Exchange after trading hours on Friday.

Religare’s sell amounted to nearly 37% of the total volume traded in the stock in NSE on Friday. The volume in NSE was also 9 times the average daily volume for the past 30 days, thereby revealing that this NBFC’s sell was indeed behind the steep fall.

The sell appears to be due to a failed margin call on pledged Bartronics shares, from the fire-sale nature of the offloading, as well as the similarity to events from the stock’s recent past.

It will be known in the coming days, if this was indeed an invocation by Religare, as statutory filings need to be done by the company as well as the entities that had pledged these shares.

Earlier, in the quarter ending December, certain promoter group entities had lost a hefty 4.6% stake in the company, when NBFCs including Religare and JM Financial invoked pledged shares.

Interestingly, none of these shares were picked up by institutional investors back then, but ended up in public or non-institutional hands.

As per the latest available share holding pattern (SHP), promoters held only 22.80%, of which 57.80% is still pledged with financial institutions.

Friday’s sell of Religare amounted to 0.93% stake of the company. The NBFC has raised just Rs. 82.70 lakh by the sale, but the event was enough to erase Rs. 17.78 crore from Bartronics India's market cap.

On the fundamental side, Bartronics India's headline numbers have been good for the first three quarters of FY'12 with consolidated revenue growing by 56.34% and consolidated net profit jumping by 104%. The company has recovered from the sluggish growth seen in FY'11, largely due to the uptick in its India operations compared with the overseas business.

However, Bartronics has been facing pressure due to high debt, and it especially has a problem in an FCCB that is maturing in this fiscal. With the conversion price being much higher than the current market price, the market rightly fears about how the company might address the problem.

The stock also had significant dilution between FY'07 and FY'10, with the equity base doubling, which together with with the debt issue and poor FY'11, had ensured a kind of free-fall from its all-time high of Rs. 294.50 recorded on 7th January 2008 at the peak of the last bull run in the Indian market.

This once high-flying mid-cap technology stock now stands corrected by an unbelievable 91.32% from its peak.

Bartronics is a pioneering and leading player in the AIDC and Smart Cards business with manufacturing facilities for contact cards, contact-less cards, combi Cards, micro chip modules for Telecom, Banking and e-Governance Smart Cards, and RFID cards, tags etc. Its problems seems to have arisen when it tried to grow too fast on higher debt and equity, that too by diversification into non core-competency areas, when its core smart card business failed to grow as intended.

Apart from all its problems what seems to have upset the market the most is the promoters steadily decreasing their stake. Even after the equity dilution was over in March 2010, the promoter stake had fallen from an already low 31.06% to 27.40% within a year's time. And soon to follow was the invocation of pledged shares in December 2011 that reduced their stake to 22.80%.

The ease with which the promoters have parted with their Bartronics shares have raised the doubt on even the current valuations. This is especially so, since all through these stake sales, institutional investors had not cared to pick up any stake. Total institutional holding now stands at a poor 1.47%, dominated by IFCI at 1.11%. 

If Friday's sell is indeed an invocation by Religare, it clearly shows that this pattern of promoters not protecting their stake is continuing at lower and lower levels, which is an alarming trend.

Recently, Bartronics India had announced that it is extending its FY'12 from March 31st to September 30th, which seems to have send the latest round of warning signals to investors.

The company is set to announce its Q4 results on Monday, 14th May 2012. It is noteworthy that Religare's sell has come in just before this. The NBFC seems to be concerned with the stock's trajectory towards a new 52-Week Low, after rebounding from the current low of Rs. 22.20 recorded on 16th December.

On Friday, Bartronics India closed trade at Rs. 25.55 in NSE, down by 17.05%. 

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