Bharatiya Global Infomedia is coming out with an IPO of 67,20,000 equity shares

Bharatiya Global Infomedia

• Bharatiya Global Infomedia is coming out with a 100% book building; initial public offering (IPO)  of 67,20,000 equity shares of Rs 10 each in a price band Rs 75-82 per equity share.
• Up to 50% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to mutual funds; up to 15% would be available for the non institutional bidders and 35% for the retail individual bidders.
• The issue opens on July 11, 2011 and closes on July 14, 2011.
• The shares will be listed on BSE as well as NSE.
• The face value of the share is Rs 10 and is priced 7.5 times of its face value on the lower side and 8.2 times on the higher side.
• Almondz Global Securities is the book running lead manager and Karvy Computershare is Registrar to the issue.
• Compliance Officer for the issue is Kumar Pushkar.

Profile of the Company:

Bharatiya Global Infomedia, an ISO9001:2008 certified for compliance in respect of IT based safety security and automation products/solutions, was incorporated as Bhartiya Global Financial & Allied Services Limited on November 24, 1994.

Rakesh Bhatia and Arti Bhatia are the promoters of company. BGIL is a technology based company focusing on the sectors such as Information Technology security and compliance automation software solutions and technology related to media & entertainment industry with focus on Research & Development. 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”).It has in-house developed software ERP product, customized software development, training, consultancy, trading, animation and RFID based solution. The company develops small animated capsules for various projects of the clients. It also designs & develops WAP enabled products for clients and mainly focus on building RFID technology.

The products/solutions offered by BGIL are customized as per clients requirement. The company develops products in house in its R&D centre in Noida using Radio Frequency Identification (RFID) technology. RFID is the key technology and used for identification and tracking of the identity, location and conditions of assets, tools, inventory, people using radio waves.

BGIL’s Studio at Andheri (West), Mumbai offers services ranging from visual effects, digital film lab (digital intermediate, high-resolution film scanning and film recording) and editing and motion control to High Definition production. Thus, it helps clients to define their style and design through an ongoing interaction and close relationship coupled with the experienced inputs during each and every project which ultimately translates into a special customized product being delivered to its clients.

IPO Grading:

CARE has assigned “CARE IPO GRADE 2”, indicating below average fundamentals to the Initial Public Offering of the Company.

Proceeds are being used to:-

• Setting up of  Corporate office at Noida & Branch Office at Mumbai;-Purchase of owned Corporate office at Noida & relocation of Branch Office at Mumbai-Upgradation of Digital Post Production Studio and Investment in IT division
• Expansion of R&D technology centre;
• Repayment of bank borrowings;
• Meeting long term working capital requirements;
• Meeting general corporate purposes; and Issue Expenses

Industry Overview:

IT-BPO sector has become has become India’s growth engine over the past decade. The sector is estimated to aggregate revenues of USD 88.1 billion in FY2011. IT-BPO sector has achieved significant milestones in terms of revenue growth, employment generation and value creation, in addition to becoming the global brand ambassador for India. More than 2.5 million people are employed directly or indirectly in this sector. The 2008 worldwide recession affected the industry performance as the clients cut their IT budgets, cancelled deals, delayed payments and deals, went bankrupt while others renegotiated pricing, looking for severe pricing cuts and stretching the dollar. By 2009 the industry recovered and also commenced its journey to achieve its aspirations in view of the altered landscape.

IT services is expected to grow by about 3.5 per cent in 2011 and 4.5 per cent in 2012. By FY2015, the Indian IT-BPO industry is expected to contribute about 7 per cent to annual GDP and create about 14.3 million employment opportunities (direct and indirect). Export revenues are estimated to gross $59 billion in FY2011. This industry is not only growing in the urban India but also has begun to look for expansion across various non-metros both to control costs and have access to a large talent pool. This has resulted in the development of a local talent pool and the physical and social infrastructure. The move to rural India is creating employment opportunities and improving living standards, thus leading to balanced regional growth.

Media & Entertainment Industry (M&E) grew from Rs 579 billion in 2008 to Rs 587 billion at a rate of 1.4 percent. The filmed entertainment sector had grown by over 15 percent between 2006 and 2008, year 2009 witnessed a significant de-growth for the industry. In 2009 the industry is estimated to have declined by nearly 14 percent to Rs 89.3 billion from Rs 104.4 billion in 2008. This was largely on account of lower domestic theatrical collections in 2009 compared to the previous year. The Animation and VFX industry has seen an overall growth of 13.6 percent over 2008 and is expected to grow at a CAGR of 18.7 percent in the coming years to reach Rs 46.6 billion by 2014.

Pros and strengths:-

Product development services for all stages of the product life cycle- The company provides a range of solutions to its customers that sustain throughout the full product life-cycle. It offer services designed to address the customers’ specific needs as products move from different stages of maturity across early to end-of-life. Its services range from identifying, developing, testing, consulting services, support and maintenance. The services focus of the company and its ability to manage smaller products, to service customers and its delivery model makes the product offering competitive.

Cost-effective solutions- The company’s solution eliminates manual efforts and costs that otherwise may be required to become secure and compliant. It provides solutions that identifies and helps correct security vulnerabilities and non-compliant configurations, speeds the investigation of security incidents, and reduces the costs associated with demonstrating compliance. It enables its customers to use fewer solutions and services to achieve and maintain compliance in a cost-effective manner.

Strong relationships with customers- The company has built strong relationships with customers over the year on its successful execution of prior engagements. The quality of its products and services has been recognized and the customers have given it repeat orders. Company’s track record of delivering solutions and its product development experience has helped it in building relationships with its customers.

Experienced promoters and memberships with Industrial Associations - The company has executed several contracts during the last 5 years period and has developed experience in line of operations.  All the senior management of the company are having rich experience in their field. Also the company is having some memberships of industrial associations such as Association of Motion Pictures & T.V. Programme Producers (AMPTPP), Asian Professional Security Association, Indian Motion Picture Producers Association (IMPPA), and Association of Motion Picture Studios for our BGIL Studio.

Risks and Concerns:-

Company’s expansion in Media & Entertainment division might not be helpful- From its different businesses, Media & Entertainment division has contributed around 5% only during last three years. Out of total IPO proceeds (excluding general corporate purposes and issue expenses), the company plans to spend Rs 13.65 crore in upgradation of Digital Post Production Studio which is 29.66% of the total issue proceed. Out of total revenue of Rs 33.60, Rs 46.34 crore and Rs 71 crore during 2008-09, 2009-10 and 2010-11 respectively, Media & Entertainment Division earned revenue of Rs 1.67 crore, Rs 2.72 crore and Rs 2.53 crore respectively, which is 4.98%, 5.87% and 3.57%. Any failure on company’s part to successfully implement its upgradation plan could adversely affect the business and financial operations.

Revenue dependence on few customers- The company derives a significant portion of its revenue from a few customers and is dependent on a limited number of customers for a significant portion of its revenues. The top ten and top five customers contributed 49.11% and 35.81 % respectively of its total revenue during 2010- 11. Any loss of business or significant reduction in the volume of work from the top customer(s) could adversely affect its revenues and profitability, business, financial condition and results of operations.

Geographical concentration- The company’s operations are geographically located in three states as its operations are based at New Delhi, Noida(Uttar Pradesh) and Mumbai (Maharashtra) in addition to the off-site locations. As a result, any localized social unrest, natural disaster, adverse weather conditions, earthquakes, fires, explosives, power loss, or breakdown of services and utilities in and around their respective States could have material adverse effect on the business, financial position and results of operations. Further, any failure of the systems or any shutdown because of operational disruptions, natural disaster or other factors, could disrupt the services and adversely affect the result of operations and financial condition.

Legal and compliance issue- Apart from some legal issues the company’s name along with its three Promoter Group Companies viz. Number One Finsec Private Limited, Bhhatia Investments & Finance Private Limited and Grindlay Finman Private Limited are appearing on 'watchout investors.com' irespect of rejection of application for certificate of registration as NBFC as on July 31, 2004. The reason for rejection of applications was that the Company failed to comply with the requirement of Section 45-1A(3) of the Reserve Bank of India Act, 1934 i.e. increasing the minimum Net Owned Funds to Rs 25.00 lakhs within the time period allowed by RBI.

Outlook

Bharatiya Global Infomedia technology based company focusing on the sectors such as Information Technology security and compliance automation software solutions and technology related to media & entertainment industry. The company’s management are quiet experienced, the company offer a wide service range that sustain throughout the full product life-cycle. The solutions provided by the company are cost effective and the company has also built good relationship with its customers.

On the concern side, there are some legal issues pending against company and if they goes against it might put the reputation and financial condition under trouble. The company is planning to spend almost one third of its issue proceed for expansion in Media & Entertainment division, which generates merely 5-6% of total revenue. Also the company is highly dependent on few of its customers, with top five contributing almost 50% of total revenue.

The company is coming with an initial public offer of 67,20,000 equity shares of face value of Rs 10 each for cash in a price band of Rs 75-82 per equity share. Issue will constitute 42.42% of the fully diluted post issue paid up capital of the company. During FY10, the company has reported a turnover of Rs 51 crore and net profit of Rs 1.78 crore. Based on the EPS of Rs 4.99 for the fiscal years ending March 31, 2011 the P/E comes at 15.03x at the lower price band while, it comes at 16.43x at the upper price band. Though, other peers like Bartronics India and Prime Focus are available at better valuation. Bharatiya Global Infomedia’s current business operations consist of information technology based solutions-RFID & smart card and digital post production studio. The IT division of the company contributed about 94% of its total revenues in FY10, the IT products and solution markets are highly competitive.  And its competitors include large multinational technology firms, Indian IT services firms, software firms etc. The IT industry is experiencing rapid changes that are affecting the competitive landscape, including acquisitions that have resulted in consolidation within the industry. Further going these changes may result in larger competitors with significant resources. Also the company is having an average order book (till March 2011 the total order book was of Rs 27.84 crore) with limited number of clients and limited size of operations. Though, the company has reported good sales growth during the passing fiscal on the back of increase in product offering. The company is in the business of Radio frequency identification an enabling technology, which is finding its way in the toll management system and the parking management systems for buildings and hence holds a good growth prospect. But the business entails long operating cycle as well as low entry barriers, hence our outlook for the issue would be cautious.