bilcare_0910

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JUGANOO - Multibagger Idea16Sep10

Bilcare Ltd.

INVESTMENT IDEA

Anand Rathi Research

Bilcare I n v est m e n t Th e m e Innovationdriven by R&D is key driver for thegrowth of all

the business segments of this company. The major

contributor is and will remain the Pharma packaging

solutions,whichaccountsfor85%ofsales

Company offers comprehensive range of innovative

packaging solutions, consisting of blister films, aluminum

foils,coldformedblistersandwrapsystems.

Apart form domestic demand, majorgrowthwillcome from

USmarkets,whereshifting frombottles toBlisterpackaging

willboostdemandfor itsproducts.Company isreadytotap

thispotential

with

required

DMF

filings

and

FDA

approvals.

Another important growth area will be Global Clinical

services business. Here company is offering various services

inclinicaltrialsphasetocutcostsaswellastimeperiod,with

itsinnovativeproducts&services.

Company caters to 3540 global clients for 6070 drugs in

variousstagesofclinicaltrailsandthesenumbersarelikelyto

grow significantly in coming years. This will be the fastest

growingsegmentwithhighestmargins.

Company has developed anti counterfeit solutions in

packaging

usingnon

clonable

security

technology

(NST)

which can revolutionize the packaging arena, by offering

solutionsacrossnumberofindustriestowardofthemenace

ofpiracy.

Companys recent US acquisition is earnings accretive and

drivethetoplineandbottomlinesignificantly.

Wethinkstockishighlyundervaluedanddeservesrerating.

Market isnot givingany valuation to this company for its

strongR&D capabilitiesanduniquepatented technologies.

Acquisition led inorganic growth is yet to be discounted.

BUYwithtargetofRs950/ in12months.

TechnicalTrends

Web: www.bilcare.com

(Rs Crores) FY09 FY10 %Chng

4Net Sales 856.02 1047.48 22.

PBIDT 194.21 259.7 33.7

Interest 39.25 43.89 11.

Depreciation 37.84 53.55

Net Profit 82.94 116.87 40.

EPS (Rs) 48.19 51.51 6.

CEPS (Rs) 70.18 75.11 7.

F.V. (Rs) 10 10 0.

Dividend (%) 25 0 -100.

Equity Capital 17.21 22.69 31.

PE (x) 13.30 12.44 -6.4

(Rs Crores) Q1FY10 Q1FY11 %Chng

Net Sales 238.47 308.54 29.4

PBIDT 55.77 76.45 37.1

Net Profit 22.84 30.67 34.3

Equity 17.21 22.69 31.8

EPS 13.27 13.52 1.9

(%) Mar-10 Jun-10 Chng

Foreign 33.08 32.14 -2.8

Institutions 1.55 1.89 0.0

Corp. Holding 6.12 6.22 1.6

Promoters 35.4 35.4 0.0

Public&Others23.85

24.352.1

Key Financials Consolidated

NSE

Reuters

Bloomberg

-

BI

BILC IN

BSE

662.70/352

344.

52685

52 High / Low (Rs.)

Latest Quarterly Results Consolidated

Shareholding Pattern

LOW

145

Sales/MCap

Risk

Price (Rs.)Market Cap (Rs.Crs.)

Book Value (Rs.)

8

41.5

9

9

0

0

0

8

L.BO

0.72

5

3

6414

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Bilcare Ltd.

INVESTMENT IDEA


Corporate Structure

Backg round

Bilcare is pre dominantly a research oriented innovative

pharmaceutical packaging company, focused on customization of

formulations packaging for pharmaceuticals manufacturers. It

understands and customizes the packaging needs for different

formulationsandprovidescompletepackagingsolution.Itholds62%

marketshareofblisterpackaginginIndia.

Company is also into the business of clinical supplies, to global

MNCs engaged in new drug development activities. It provides

clinical trial materials support, service and complete project

management;

for

clinical

studies

in

developed

markets

like UK

and

US.

Company holds patented Non Clonable ID finger prints based

technology, to counter the anti counterfeiting by providing security

and brand protection solutions to pharmaceuticals, fashion &

consumerproducts,autocomponants, luxurygoods,agrochemicals,

wineproducersandalsotoanyexpensive itempronetopiracy.This

NonClonableIDtechnologycanalsobeused inpreventingmenace

ofcounterfeitcurrencyanddevelopedcountriesarelookingtoadopt

suchtechnologytopreventcirculationofthecurrencynotes.

Companyhas

manufacturing

facilities

in

India,

Singapore

and

support

andresearchcentersinUK,USandItaly.

Bus iness Out look and Pot en t ia l

Companys all business segments have strong long term growth

potential and growth will be mainly driven by innovative low cost

solutionineachsegment.

Company derives 55% of the revenues from domestic market and

45% from global markets. The biggest contributor to the sales is

packaging solution business contributing 85% to the sales and rest

15% come from global clinical supply business. While the most

exciting

and

innovative

of

Non

clonable

ID

based

technology

solutions business will be able to contribute significantly in coming

years.

PackagingSolutionbusiness

Thecomprehensiverangeofcompanysinnovativepackagingconsists

of blister films, aluminum foils, cold formed blisters and wrap

systems. Company uses 4 distinct manufacturing processes, viz.

dispersion coating technology, dry polymer lamination technology,

aluminum process technology and sliting technology. Company has

extensive in house R&D capabilities todevelop, test and offer

innovativesolutions

to

pharmaceutical

industry.

Consolidated Projections[Without INEOS clubbing]

(Rs Crores) FY10 FY11E FY12E

Net Sales 1047.48 1342 1745.0

PBI DT 259.7 349 471.0

I nterest 43.89 52 60.0

Depreciation 53.55 66 95.0

Tax 45.53 64 90

Net Profi t 116.87 167 226.0

EPS (Rs) 51.51 73.60 99.60

CEPS (Rs) 75.11 102.69 141.47

F.V. (Rs) 10 10 10.0

Dividend (%) 0

Equity Capital 22.69 22.69 22.7

Key Financials

Singapore Bilcare (100%) International Labs (50%)

BilcareUS(100%)

BilcareUK

(100%)]

Bilcare

Clinical

BilcareGmbH Supplies(Europe)

(Germany100%)

BilacreBrazil(100%)

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Bilcare Ltd.

INVESTMENT IDEA


In domestic market it garners 62% market share of blister

packaging in India; with focus on quality, stability and improving

shelf life the demand for innovative packaging will continue to

growindomesticmarket.Butthemostexcitingopportunitywillbe

in US market, where due to shifting from high cost bottle

packagingtolowcostblisterpackagingby2012,willgeneratelarge

demand for blister packaging from generic formulation

manufacturers. But in US one needs to file the DMF for even

packaging material with US FDA, before supplying the packaging

materialtoformulationunits.Bilcarehasalreadydonethatandis

readytoexploittheemerging opportunityinUS.Alreadyalmost50

global

pharma

companies

have

audited

companys

Indian andSingapore facilitiesandcompany isexpecting longtermcontracts

for packaging material from many of them. Therefore we expect

theglobalpharmaceuticalbusinesstogrowattherateofover40%

incoming34years.

Bilcare also provides innovative packaging solution for new drugs

at faster pace and low cost, there by attracting new drug

manufacturers to source its solutions named as Optima, which

offers stability test in 46 weeks (against many months taken by

conventional methods). Company uses its patented materialized

polymer film based solution named as Patina, for advanced

applications.

Company

has

recently

entered

into

bindingagreement to acquire global packaging films business of INEOS

group which is having operations in North America, Europe and

Asia. This acquisition will new client relationship in

pharmaceuticalsandgiveaboosttocompanyspackagingsolution

business, as the size of this business is much bigger than the

companys existing packaging solution business. As the acquired

business is profitable one, this will be earnings accretive. With

scope to improve the margins of this business, the growth in

profitsfromthisbusinessinthecomingyearswillbesuperb.

GlobalClinicalSupplybusiness(GCS)

Inthevaluechainofnewdrugdiscoverytheclinicaltrailphaseis

costliestandmaximumtimeconsumingactivityandthereforeany

serviceproviderwhichcanhelpthediscoveryfirmstocuttimeand

cost of this phase, can find large number of service seekers.

CompanysGCSoffersendto endclinicalsuppliesmanagement

services to global client base including protocol design,

regulatory compliance, batch manufacturing, packaging design,

clinicalpackaging&randomization,storageandglobaldistribution

etc.Companyhasoperationalanddistributional facilities in India,

US, Singapore, Europe and Asia. It derives 15% of sales from this

activityandexpectsthisbusinesstogrowattherateof4550%for

comingmany

years.

Consolidated Projections[With INEOS clubbing]

(Rs Crores) FY10 FY11E FY12E

Net Sales 1047.48 2902 3445.0

PBI DT 259.7 458 624.0

I nterest 43.89 71 93.0

Depreciation 53.55 95 141.0

Tax45.53

81 111Net Profit 116.87 210 279.0

EPS (Rs) 51.51 92.55 122.96

CEPS (Rs) 75.11 134.42 185.10

F.V. (Rs) 10 10 10.0

Dividend (% ) 0

Equity Capital 22.69 22.69 22.7

PE (x) 12.08 7.06 5.32

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Bilcare Ltd.

INVESTMENT IDEA


In last couple of quarters the stock under

performed the market, due to the hang over of

outstanding FCCBs worth $128mn (Bilcare India

$38mnandBilcareSingapore$90mnasonMarch

FY09). In last quarter of financial year 2010,

company concluded the buy back/ restructuring

of these outstanding FCCBs and bought back

FCCBsworth$116mn($90mnBilcareSingapore

and$26mnBilcare India)so leavingonly$12mn

FCCBsof

Bilcare

India

as

pending.

This

was

done

bytaking$30mndebt inBilacreSingapore.Mean

while the conversion price of Bilcare India FCCB

wasalsoloweredfromRs.704toRs.483.30.

Nowthecompanymayberequiredtoraisesome

more debt to pay for the new acquisition of

packagingfilmsunitofINEOSgroupforthecostof

approx.Euro100mn(~600cr).Asthiscompany is

havingrevenueofaroundRs.1450cr(2009),and

profitable at net level; one can expect this

acquisition to be earning accretive for the

company.

Company expects to pay for this acquisition

mainly from internal accruals and rest from the

debt,withoutanyequitydilution.Thismayresult

intoasignificantboostinconsolidatedrevenueas

alsoinprofit.

Wethinkgoingforward,financialperformanceof

company will improve very significantly, making

stocktooattractiveatcurrentprices.

Though

we

failed

to

meet

management

post

thisacquisition, to get clear idea, we hope soon we

will be able to meet them and get clarity on

acquisitionledprofitgrowth.

Technically, in weekly chart stock looks

poisedforbigriseinnextfewquarters.

Thegrowth

potential

for

the

business

is

significantly

high (market

size

maygrowfrom3bnnowto5bngoingforward)asmoreandmoredrug

developerswillstartusingthesekindofservicestocutthetimeandcost

of the clinical trails. This is a high margin business and we expect this

businesstocontributeappreciablytothebottomlineinfuture.Company

catersto3540globalclientsfor6070drugsinvariousstagesofclinical

trailsandthesenumbersarelikelytogrowsignificantlyincomingyears.

NonClonableIDtechnologybasedsolutions

Company has developed anti counterfeit solutions in packaging using

non clonable security technology (NST) which can revolutionize the

packaging

arena, by

offering

solutions

across

number

of

industries

to

wardofthemenaceofpiracy.Tobeginwithcompanymayofferthiskind

of solutions in pharma packaging, to reduce the menace ofcounterfeit

drug (there by protecting the genuine pharmaceutical manufacturers

from the menace of fake/ spurious drugs which eats into their sales,

profitsanddamagesthebrandimage).Butthesametechnologycanbe

used across various sectors which are affected from fake/ spurious

product threats, viz fashion & luxury goods, auto components, wines,

jewelleryetc.

In non pharma applications, Bilcare has already collaborated with

SandenJapan($2.63bnautoancillarycompany)andamajorsupplierof

automotivecompressorstoprotectitsrangeofautomotivespareparts.

ThisNonclonableIDtechnologycanalsobeusedinpreventingmenace

of counterfeit currency. The developed countries are looking to adopt

such technology to prevent counterfeiting and countries like India can

also think of adopting such technology to thwart the threat of rapidly

expandingcounterfeitcurrency.

ThecompanyhasalsorecentlysignedastrategicrelationshipwithTCIL

to address the diverse needs of security particularly in government

related projects in India and abroad. Any positive development in this

technologysegment is likelyto improvethesalesandprofitprojections

significantly.

Recommenda t ions

We think stock is highly undervalued and deserves rerating.

Marketisnotgivinganyvaluationtothiscompanyforitsstrong

R&Dcapabilitiesanduniquepatentedtechnologies.Acquisition

ledinorganicgrowthisyettobediscounted.BUYwithtargetof

Rs950/ in12months.

DISCLAIMER:This report has been issued by Anand Rathi Financial Services Limited (ARFSL), which is regulated by SEBI. The information herein was obtained from various sources; we do notguarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities, options, future or otherderivatives related to such securities (related investment). ARFSL and its affiliated may trade for their own accounts as market maker/ jobber and /or arbitrageur in any securities of this issuer(s) or inrelated investments, and may be on the opposite side of public orders. ARFSL, its affiliates, directors, officers, and employees may have a long or short position in any securities of this issuer(s) or inrelated investment banking or other business from, any entity mentioned in this report. This research report is prepared for private circulation. It does not have regard to the specific investment objectives,financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial situation and the particular needs of any specific investing in any securitiesor investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from suchsecurities, if any, may fluctuate and that each security's price or value may rise or fall. Past performance is not necessarily a guide to future performance. Foreign currency rates of exchange mayadversely affect the value, price or income of any security or related investment mentioned in this report.

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