Bilcare has its foot firmly in the pharmaceutical testing and packaging business, which offers a high growth potential.
The company came into the limelight in 2007, when the news of a series of events took its share from Rs 600 to its highest closing ever, at Rs 1,700 on 31 December 2007. Since then, it has retraced virtually all of its gains of last year, and seems to have found a bottom at Rs 630. It currently trades at around Rs 715, a price at which we believe it merits consideration.
Bilcare provides testing and other services to pharma companies in the pre-launch phase. Pharma packaging is another strong area where the company has several proprietary products—essentially laminates of plastic and/or paper, structures to offer optimum barrier properties to medicines according to their formulation. For example, some medicines are extremely hygroscopic, attracting water easily, and so the packaging has to block out moisture, while some products may need robust child-protection packaging.
Having helped design packaging, Bilcare also undertakes stability studies and packaging audits to see how the product holds up in simulated storage conditions.
In clinical research, Bilcare offers supplies management to pharma companies, which includes preparing the batches for field testing, labelling and distribution, and gathering feedback through interactive voice recording systems (IVRS).
At the manufacturing end, Bilcare consults to manage packaging solutions, including machinery design and procurement, and audit of on-going production facilities. To capitalise on the possibility of a recurring revenue stream, Bilcare also has a packaging material facility, which supplies the tested and approved material to its clients.
Financials. This appears to be a highly robust business model, and the company now has a total of eight international subsidiaries that help either round out the product offering, or provide innovative technology—the latest being Singular ID, a Singapore operation which has developed finger-printing technology to combat counterfeit drugs (India is the largest source of fake drugs).
In the five years from financial year (FY) 2003 to FY08, Bilcare has seen its turnover go up from Rs 87 crore to Rs 650 crore, a compounded annual growth rate (CAGR) of exactly 50 per cent. Net profit has grown even more strongly, from Rs 7 crore to Rs 81.55 crore, a CAGR of 63 per cent.
During the first quarter of the current fiscal the turnover increased by 43.31 cent when compared to corresponding quarter last year, while the net profit has grown by 27.52 per cent.
Valuations. Listed only on the Bombay Stock Exchange, the company has a small capital base of only 16.4 million shares of Rs 10 each. The latest Q1 earnings, therefore, translate into Rs 50.68 per share (on a trailing twelve months basis). This means that the current market price discounts earnings at 14 times. Given the company’s track record, we think it makes for an attractive entry.
As for the fears of worldwide cash crunch and economic slowdown, we think Bilcare is unlikely to be substantially hit by these. Pharma majors tend to be extremely cash-rich, and are at present desperately looking for ways to improve their product offerings. The company has around 500 pharma companies on its client list, including the world’s largest—Pfizer, GlaxoSmithKline, Aventis, Abbott, Merck and Novartis, and the home-grown Cipla and Ranbaxy.
(Source: Internet)
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