Company Background
Bilcare Ltd (BL) is India’s leading packaging solutions provider with over 60% market share. BL is also among the top 3
packaging companies in the world. BL is a research driven, geographically diverse organization with a presence in Pharma
Packaging Innovations (PPI), Global Clinical Supplies (GCS) and nonClonable ID Technologies. Packaging film solutions,
specialty film solutions and card solutions are part of the PPI business. PPI accounts for over 90% of BL’s revenue. BL was
founded in 1995 and was listed on the bourses in October 2004. BL has manufacturing and/or R&D facilities in India, Singapore,
UK, USA, Germany and Italy.
The comprehensive range of BL’s innovative packaging consists of blister films, aluminium foils, cold-formed blisters and wrap
systems. Its clientele includes most large pharmaceutical companies including Ranbaxy, Dr Reddy’s Laboratories, GSK, Wyeth,
Novartis and Aventis among others. At the end of FY12, BL had 20 subsidiaries and one 50:50 JV with USA based
MeadWestvaco Corp. The subsidiaries are spread across the world with most operating in the PPI space. The JV, International
Labs was entered in July 2008 with a Rs. 37 cr investment. International Labs is also into packaging solutions and supplies
largely to Walmart’s pharmacy division.
Over the years the company has expanded multifold initially through organic growth and lately via large acquisitions. In
September 2010, BL acquired INEOS’ global packaging films business, which has interests in Europe, USA and Asia. BL paid
~Rs. 600 cr for INEOS, which had sales of ~Rs. 1460 cr in that year, resulting in a price to sales multiple of ~0.4. However,
INEOS’ continued poor margins coupled with pressure on margins of domestic business in the past year have led to a drop in
BL’s performance. INEOS is a multi-billion dollar chemicals company and its packaging division was a small unit not in line with
the company’s headline operations. Hence INEOS sold the division to BL, an integrated packaging company that could gain
further from the synergies of the business. This purchase gave BL access to INEOS’ eight manufacturing facilities (3 in
Germany, 2 in Italy, 2 in India and 1 in the USA) and over 1900 customers.
The most recent development for BL was the sale of its global clinical supplies (GCS) businesses in the US and the UK to
United Drug plc for $61 mn (~Rs. 350 cr). BL has retained the Asian clinical supplies business. The funds received from the sale
are expected to largely repay loans and meet working capital requirements.
Bilcare Ltd (BL) is a leading packaging solutions provider in India and the world. BL has over 60% market share in India (earns
good margins though lately falling) and with the acquisition of INEOS’ packaging division, became the second largest packaging
company in the USA and the largest packaging company in Europe. BL has interests in Pharma Packaging Innovations (PPI),
Global Clinical Supplies (GCS) and nonClonable ID Technologies with PPI contributing over 90% of the company’s revenue. BL
does not have any major organized competition in India, though there are competitors like Essdee Aluminium, Jindal Poly and
Associated Packaging in niche areas.
By a recent sale to United Drugs (completed on 3rd September 2012), BL sold its GCS business in Europe and USA for $61 mn
but retained its Asian GCS business. This sale provided a good inflow of cash most of which BL will use to repay loans as the
company had borrowed ~Rs. 600 cr for the purchase of INEOS’ companies. Repayment of ~Rs. 200-250 cr of debt would result
in a significant cutdown in interest expense. As per back of the envelope calculations BL will be giving up ~Rs. 225 cr in revenue
and ~Rs. 20 cr in PAT. Based on rough estimates, BL sold the GCS business for an approximate valuation of 1.5x sales and
17.5x PAT.
While the recent event will benefit BL in the near future in improving its financial leverage, there are still several concerns with
the company. BL’s acquisition of INEOS companies is not proving very fruitful as margins continue to be low. Additionally, the
promoters have pledged most of their stake as guarantee for the Rs. 600 cr loan. BL is also highly vulnerable to forex
fluctuations as it has international operations as well as exports/imports. Lastly, BL’s products, which are sold largely to
pharmaceutical companies, are considered Grade C products for the customers. This results in longer payment periods, high
working capital requirements and margin squeezing by the customers.
BL could benefit immensely in India and abroad if crude prices fall sharply and remain low for some time. This is because the
industry does not work on cost plus basis and customers do not frequently accept upward price revisions. BL’s stock has moved
more or less inversely to crude price movements since almost January 2009 as margins vary inversely to crude prices. In the
charts below we have indicated periods when BL’s stock moved inversely to the price of crude. Additionally. We have indicated
the rally in stock price in anticipation of the INEOS group companies’ takeover.
BL is currently trading at 3.1x FY12 EPS and 2.6x FY13E EPS (vs ~11x EPS in FY10). Even with the concerns associated with
the company, it trades fairly cheap. On an EV basis, BL trades at 3.4x FY12 EBITDA and 2.8x FY13E EBITDA (vs ~7x EBITDA
in FY10). BL’s valuations have got derated over the last 2-3 years based on all the concerns mentioned above. The latest event
of sale of GCS business could be one trigger for restoring part of that derating. Post sale of GCS business, we expect
EV/EBITDA to move back into the 3.25x range. We think investors could buy the stock between Rs. 186 and Rs. 175 for a target
of Rs. 237 (3.5x FY13E EPS).
Technical View
Bilcare Ltd. found support around the 131 levels before moving up smartly in the last few weeks. These are strong supports as
the stock previously found support at these levels in July 2004.
The upmove in the last few weeks has led to the stock breaking above a downward sloping trend line that has held down the
highs of 2010 and 2011. This implies that the intermediate downtrend seen in 2011 has reversed and the stock has entered into
a fresh intermediate uptrend.
The break out has also been accompanied with above average volumes indicating that significant accumulation has been
happening in this counter. This augurs well for the uptrend to continue.
Technical indicators are giving favorable signals as the stock trades above the 13-week simple moving average and the 14-
week RSI too is climbing and not overbought. This momentum indicator also trades above its 9-week EMA, which is a positive
signal.
The Relative Strength Comparative indicator is at oversold levels after declining in 2011. This could possibly mean that the stock
is due for some outperformance.
We believe that the intermediate uptrend of the stock is set to continue and therefore recommend a buy at current levels of 179.
Our intermediate upside targets in the next 2-3 months are at 204, 237 and 253. Stop loss can be placed below the recent lows
at 165.
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