Bilcare - Gaining momentum - Centrum

Bilcare's Q3FY13 results were below our expectations due to lower revenue growth in the overseas business. The company reported 7%YoY decline in revenues, 100bps improvement in EBIDTA margin and 6% YoY growth in net profit. Its India business reported 12%YoY growth in revenues whereas in overseas business it dropped by 11% YoY. Bilcare divested part of its GCS business (<6% of its revenues) to United Drugs, UK for $61mn (Rs3.29bn) in August'12. The part proceeds of the sale are likely to be utilised to reduce debt. We have a Buy rating for the scrip with a target price of Rs245 (based on 3x FY14E EPS of Rs81.8).

Revenues affected by lower overseas growth: Bilcare reported 6%YoY decline in revenues from Rs9.61bn to Rs8.97bn. Its India business grew 12%YoY from Rs1.90bn to Rs2.11bn whereas overseas business declined by 11%YoY from Rs7.72bn to Rs6.85bn due to slowdown in global film business of Ineos.

Margin improvement: Bilcare's EBIDTA margin improved by 100bps YoY from 13.0% to 14.0% due to the decline in other expenses. Material cost went up by 90bps from 57.5% to 58.4% of revenues due to the rise in polymer prices. Personnel cost declined by 90bps from 14.1% to 13.2% due to the divestment of part of GCS business. Other expenses declined by 100bps YoY from 15.4% to 14.4% due to the transfer of two GCS facilities to United Drugs. Bilcare's EBIDTA margin has been steadily improving by 210bps over the last three quarters. The India business had an EBIDTA margin of 28.3%YoY and overseas business of 9.5%YoY.

Overseas margin improves: Bilcare's overseas business (76% of revenues) reported improvement in EBIDTA margin from 8.1% in Q4FY12 to 9.5% in Q3FY13 indicating 140bps improvement over the period. EBIDTA margin of India business (24% of revenues) grew by 100bps from 27.3% to 28.3% in the same period.

Divestment of part of GCS business: Bilcare divested part of GCS business (<6% of its revenues) consisting of US and Europe to United Drugs, UK for $61mn (Rs3.29bn). The company is likely to utilize part proceeds in debt reduction. Currently, Bilcare has a debt of ~14.0bn with debt: equity of ~1:1.

Benefit from the US market: Bilcare is likely to benefit from the $170bn (Rs9,180bn) patent cliff in the US till 2015. The company is also likely to benefit from the shift from bottle packing to blister packing for tablets and capsules.

Valuations: We expect Bilcare to benefit from good growth in the domestic market and margin improvement. We have revised our FY13 estimates downwards by 8% and 28% for FY13 and FY14 respectively in view of above results. At the CMP of Rs158, the stock trades at 2.4x FY13E EPS of Rs66.6 and 1.9x FY14E EPS of Rs81.8. We have a Buy rating on the scrip with a revised target price of Rs245 (based on 3x FY14E EPS of Rs81.8) with a 55.4% upside over the CMP.

Source : Equity Bulls

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