JUGANOO - Multibagger Idea

16Sep10

Bilcare Ltd.
INVESTMENT IDEA

Bilcare
Web: www.bilcare.com
Risk Price (Rs.)
Market Cap (Rs.Crs.) 52 High / Low (Rs.) Sales/MCap Book Value (Rs.) BSE NSE Reuters Bloomberg Key Financials Consolidated (Rs Crores) FY09 856.02 Net Sales 194.21 PBIDT 39.25 Interest 37.84 Depreciation 82.94 Net Profit 48.19 EPS (Rs) 70.18 CEPS (Rs) 10 F.V. (Rs) 25 Dividend (%) 17.21 Equity Capital 13.30 PE (x)

Investment Theme
Innovation driven by R&D is key driver for the growth 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, major growth will come from US markets, where shifting from bottles to Blister packaging willboostdemandforitsproducts.Companyisreadytotap thispotentialwithrequiredDMFfilingsandFDAapprovals. 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 using non 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 is not giving any valuation to this company for its strong R&D capabilities and unique patented technologies. Acquisition led inorganic growth is yet to be discounted. BUYwithtargetofRs950/in12months.

LOW 641
1454 662.70/352 0.72 344.5 526853 BIL.BO BILC IN

FY10 1047.48 259.7 43.89 53.55 116.87 51.51 75.11 10 0 22.69 12.44

%Chng

22.4 33.7 11.8 41.5 40.9 6.9 7.0 0.0 -100.0 31.8 -6.4

Latest Quarterly Results Consolidated Q1FY10 Q1FY11 (Rs Crores) 238.47 Net Sales 308.54 55.77 PBIDT 76.45 22.84 Net Profit 30.67 17.21 Equity 22.69 13.27 EPS 13.52 Shareholding Pattern (%) Mar-10 33.08 Foreign 1.55 Institutions 6.12 Corp. Holding 35.4 Promoters Public&Others 23.85

%Chng

29.4 37.1 34.3 31.8 1.9

TechnicalTrends

Jun-10 32.14 1.89 6.22 35.4 24.35

Chng -2.8 0.0 1.6 0.0 2.1

Anand Rathi

Research

JUGANOO - Multibagger Idea

16Sep10

Bilcare Ltd.
INVESTMENT IDEA
Background

Consolidated Projections [Without INEOS clubbing]

Key Financials (Rs Crores) Net Sales PBIDT Interest Depreciation Tax Net Profit EPS (Rs) CEPS (Rs) F.V. (Rs) Dividend (% ) Equity Capital FY10 1047.48 259.7 43.89 53.55 45.53 116.87 51.51 75.11 10 0 22.69 FY11E FY12E

1342 1745.0 349 471.0 52 60.0 95.0 66 64 90 167 226.0 73.60 99.60 102.69 141.47 10 10.0 22.69 22.7

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, wineproducersandalsotoanyexpensiveitempronetopiracy.This NonClonableIDtechnologycanalsobeusedinpreventingmenace ofcounterfeitcurrencyanddevelopedcountriesarelookingtoadopt suchtechnologytopreventcirculationofthecurrencynotes. CompanyhasmanufacturingfacilitiesinIndia,Singaporeandsupport andresearchcentersinUK,USandItaly.

Corporate Structure

Business Outlook and Potential

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.

Singapore Bilcare (100%)

International Labs (50%)

BilcareUS(100%) BilcareUK(100%)]BilcareClinical BilcareGmbHSupplies(Europe) (Germany100%) BilacreBrazil(100%)

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 innovativesolutionstopharmaceuticalindustry.

Anand Rathi

Research

JUGANOO - Multibagger Idea

16Sep10

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 and Singapore facilities andcompany is expecting 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 binding agreement 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.

Consolidated Projections [With INEOS clubbing]

(Rs Crores) Net Sales PBIDT Interest Depreciation Tax Net Profit EPS (Rs) CEPS (Rs) F.V. (Rs) Dividend (% ) Equity Capital PE (x) FY10 1047.48 259.7 43.89 53.55 45.53 116.87 51.51 75.11 10 0 22.69 12.08 FY11E FY12E

2902 3445.0 458 624.0 71 93.0 141.0 95 81 111 210 279.0 92.55 122.96 134.42 185.10 10 10.0 22.69 7.06 22.7 5.32

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.CompanyhasoperationalanddistributionalfacilitiesinIndia, US, Singapore, Europe and Asia. It derives 15% of sales from this activityandexpectsthisbusinesstogrowattherateof4550%for comingmanyyears.

Anand Rathi

Research

JUGANOO - Multibagger Idea

16Sep10

Bilcare Ltd.
INVESTMENT IDEA
Financial Restructuring and Outlook
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 FCCBs worth$116mn ($90mn Bilcare Singapore and $26mn Bilcare India) so leaving only$ 12mn FCCBsofBilcareIndiaaspending.Thiswasdone bytaking$30mndebtinBilacreSingapore.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).Asthiscompanyis 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. Thoughwefailedtomeetmanagementpostthis acquisition, to get clear idea, we hope soon we will be able to meet them and get clarity on acquisitionledprofitgrowth. The growth 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 of counterfeit 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 technologysegmentislikelytoimprovethesalesandprofitprojections significantly.

Recommendations

We think stock is highly undervalued and deserves rerating. Marketisnotgivinganyvaluationtothiscompanyforitsstrong R&Dcapabilitiesanduniquepatentedtechnologies.Acquisition Technically, in weekly chart stock looks ledinorganicgrowthisyettobediscounted.BUYwithtargetof Rs950/in12months. poisedforbigriseinnextfewquarters.

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 not guarantee 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 other derivatives 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 in related 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 in related 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 securities or 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 such securities, 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 may adversely affect the value, price or income of any security or related investment mentioned in this report.

Anand Rathi

Research