Bilcare Ltd. – Will it retain the glory of its past?

–Bilcare’s 10 YEAR X-RAY*:Green (Very Good)

(* 10 YEAR X-RAY shows the financial performance of a company in the last 10 years.)

Bilcare, in brief

Bilcare Ltd., an innovation-led company, is India’s largest producer of pharmaceutical blister barrier packaging, with around 62% market share. It operates in two major business segments viz. Pharma Packaging Innovations (PPI) and Global Clinical Supplies (GCS). It derives around 85% of its revenues from PPI and balance 15% from GCS. It has recently launched a new division – nonClonable™ Security Technologies which aims at preventing counterfeiting of drugs. Its clientele includes domestic majors like Cipla, Ranbaxy, Cadila and MNCs like GSK, Pfizer, Merck, Abbott, Wyeth, Novartis, Aventis and Johnson & Johnson.

What does Bilcare’s past say?

Bilcare Ltd. has performed robustly in all its parameters over the last 10 years. Its impressive fundamentals in the past form a strong base for its future. Its patented products and strong relationships with major pharmaceutical Companies in the world have resulted in an impressive Net Sales CAGR of 35%. Currently, around 10% of its revenues come from its patented products. The EPS of the company has also shown robust growth, with a CAGR of 32%. The only cause of concern is its Debt to Net Profit which stands at 7.73 as on end of FY 2009.

However, this ratio is expected to come down to close to 3 for FY 2010. Recently, the company completed buyback of FCCBs which has led to a reduction of $86 mn of debt.

Hence, considering all these factors, the 10 YEAR X-RAY of Bilcare is  Green (Very Good)

What is Bilcare’s Short-term Outlook?

• For the March 2010 quarter, both the domestic and export businesses contributed around 50% each. Domestic business witnessed growth whereas export business was flat

• Servicing of new contracts entered in FY 09 is expected to begin in the coming quarters. Hence, capacity utilization of Bilcare’s India and Singapore facilities will improve. This will result in higher margins

• Its three year contract with Wal-Mart to supply labels for its US$ 4 drug program, covering around 350 drugs will continue to add to the revenues

• Greece is looking to cut the price it pays for drugs by an average of 21.5% in efforts to reduce its debts. This could lead to pricing pressure for all the major Pharma companies who have indicated that they would pull out from Greece. If the crisis spreads to other European countries, MNC Pharma companies and as a result Bilcare could be affected. However, in that case, these countries will shift to generics which are dominated by Indian companies who are also customers for Bilcare. Hence the effect will be neutralized.

New orders from Pharma companies have started coming in, over the last year. This combined with the nonClonable™ Security Technologies will drive growth in the next few quarters. Hence, we can expect the short-term outlook of Bilcare to be  Green (Very Good).

What is Bilcare’s Long-term Outlook?

Patented products to drive growth in the future

The prime reason for Bilcare’s success has been its innovative product range.

Let’s see which of its patented products will drive growth in the future.

• Developing a suitable packaging structure for drugs can take as much as 2 years for a Pharma company. Bilcare Optima™, one of Bilcare’s key patented technologies has reduced this time to as less as four weeks for its customers

• Brandpak™ Building Solutions (BBS) has helped its customers to get high quality and unique designs in packaging. This has lead to differentiation of their products and creation of brands.

• Its patented packaging materials like Patina, Duplex, Zeon, Metnova etc. have been used by many Pharma companies in the past to protect counterfeiting of drugs.

• nonClonable™ Security Technologies could act as the major differentiator for the company. It is expected to reduce counterfeiting of pharma drugs (addressable domestic market size of around Rs. 1200 Cr.) It can also find applications in other industries like automotive, fashion garments, agrochemicals, government security etc. The company has applied for patents for this technology and has received them in India and Singapore.

Experienced competition in GCS business a concern

Bilcare’s GCS business faces stiff competition from global players such as Fischer, Almac and Aptuit who are more experienced and established than Bilcare. However, these players have presence only in US and Europe whereas Bilcare is also present in Asia and Latin America. For the packaging segment, Bilcare faces competition from players like Caprihans India (Ineos), Klockner Pentaplast, Alcan and Teckni-plex.

Global clinical supplies to drive profitability in the coming years

The GCS market is estimated to be about US$1 bn. Bilcare, with capacities across US, Europe and Asia is well positioned to tap this opportunity. Its pre-existing relationships with some of the biggest names in the Pharma industry give it a distinct advantage. Being a service business, GCS has margins of around 40% and can contribute significantly to the profitability of Bilcare. With an increase in generics formulations and outsourcing of clinical trials, it is expected that contribution of GCS will increase to 50% of Bilcare’s total revenues over the next 5 years.

Industry Scenario

Globally, pharmaceutical packaging demand has grown to US$ 26 bn at a CAGR of 6% over FY01-06 and is expected to rise 5.9% annually to US$ 34 bn in 2011. Within this market, the blister packaging segment, where Bilcare operates, is the fastest growing segment and is expected to reach US$ 6.6 bn by 2012. With a large number of generics going off patient by 2012, the pharmaceutical industry is poised for robust growth in the coming years. US companies will be shifting to blister packaging from bottle packaging till 2012. This combined with the $1 trillion health package announced by Obama Government will act as the major growth driver for the Pharma industry and consequently for Bilcare.

Bilcare is well poised to grow in the future due to its strong moat, its innovative, patented offering which it can leverage to continue robust growth in Sales & EPS in the future

Hence, we can expect the long-term outlook of Bilcare Ltd. to be Green (Very Good)

Conclusion:

Bilcare Ltd. has acquired a dominant position in the niche area of Pharmaceutical packaging due to its innovative, patented products. It has also forayed into the global clinical supplies business. Its latest technology nonClonable™ Security Technologies could be the next big thing for Bilcare. The company can continue to leverage its strong product portfolio to grow in the future

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