Bilcare can be a good bet with its overseas business booming

Bilcare Ltd is a Pune-based company providing niche services in the entire pharmaceutical value chain.

It has research and manufacturing facilities in India, US, UK and Singapore.
Bilcare’s increased contribution from global clinical service (GCS) business, growing international business and the expected benefits from acquisitions makes it an attractive bet.

Business
Bilcare’s services start right from initial stage in clinical research and cover the entire value chain up to formulation of packaging and anti-counterfeit solutions. Its five focused activities are — clinical supplies, research services, packaging materials, research
academy and design lab.

Clinical supplies— Bilcare, with its specialised team, helps accelerate clinical trials. It takes care of the requirements and regulations of pre-human trials, thus saving client’s resources and time. It also manages the packaging and dispatch of trial drugs.

Clinical packaging & supplies— With small batch manufacturing capabilities, Bilcare also specialises in clinical packaging and randomisation. The active drugs and placebo are packaged with random mix along with coding of packs.

Bilcare, with a presence in US, Europe, Latin America, Asia and Australia, has an edge over competitors as they are present only in Europe and the US.

Storage and distribution of trial drugs — Bilcare has a niche in this segment with storage facilities for trial drugs in Philadelphia and UK among others. Bilcare delivers trial drugs to the destination with an earmarking for specific patients. After the completion of the trial, Bilcare also provides for return management distribution.

Research services—Bilcare plays a vital role in stability studies for drugs. These studies usually takes 12-18 months to be completed, however, Bilcare, through its niche services, reduces this time, sometimes to just four weeks. Global Bilcare Optima is one of its biggest USPs.

Packaging material— The company provides packaging solutions like value-added films, anti-barriers and other materials, many of which are patented.

The company has many long-term contracts in its kitty.  Pharma companies allot a new
long-term contract usually for 3-5 years and these generally contribute $10-15 million to a company’s revenues.

Vinit Mehrotra, CFO, Bilcare, says the company is in the process of finalising some new contracts, which will start accruing big revenues from FY09.

Research academy— Out of the total $640 billion pharma market, counterfeit drugs form a whopping $50 billion. Bilcare Research has developed a unique packaging using nano-technology to tackle fakes. The company puts nano-tags with in-built fingerprinting technology in its packaging that are difficult to duplicate.  This technology has been patented and will be commercialised by December. Bilcare has also acquired Singular ID to develop innovative products using micro and nano technology.

Design lab— Bilcare has state-of-the-art design labs providing innovative design for packaging, which increases communication for patients looking at particular requirements. Solutions for regulatory requirements and counterfeit drugs are also developed in these labs.

Investment rationale
Bilcare has a growing margin in the GCS business that contributes more than 50% to its revenues from international operations. This business is expected to grow 80-90%, and one can see positive accrues.

Out of $640 billion pharma market, which is growing at 7-8%, the US market has a share of $270 billion. Therefore, Bilcare’s US operations are strategic. The company will also commercialise its nano-technology packaging, which is vital in developing anti-counterfeit solutions.

Bilcare stands to gain huge revenues from December 2009. Major topline gains from some of its new long-term packaging contracts are likely to start from FY09.
Concerns

Most of the tax benefits enjoyed by Bilcare no longer exist. Bilcare’s effective tax rate is, therefore, rising. Some respite, however, may be seen with Singapore plant gaining zero tax status from FY08.

Valuations
A bulk of Bilcare’s domestic sales, which contribute 71% of its total sales, is from its pharmaceutical packaging business. Looking at the contracts entered by Bilcare in the domestic market, one can predict a 40% growth in its revenues. The company’s EBIDTA in 9MFY08 at 29.5% was up 70 basis points. Bilcare’s 80-90% growth in international business and increased revenues from GCS business may boost both its revenues and EBIDTA. Topline will also grow once the revenues start to flow in from its new packaging material contracts, nano-technology deals and its domestic pharmaceutical packaging sales. At the current market price of Rs 850, the stock trades at 15x its FY08E earnings and at 9.4x its FY09E earnings. We believe it is good addition to the portfolio.

Disclaimer: The author does not hold any shares of the company.