Widely read:
Bilcare is India’s largest blister packaging company with a market share of around 60 per cent. All the major pharma companies operating in India, including Dr. Reddy’s, Ranbaxy, GSK, Novartis, Aventis and Wyeth, are on its client list. Why does Bilcare feature here? An aggressive global buying spree saw the company pick up ProClinal Inc. (US) in 2005, DHP (UK) in 2006 and International Labs (US) in 2008 (through a 50:50 JV with MeadWestVaco Corp).
In 2010, for Rs 607 crores (mostly externally financed), Bilcare bought the plastic film unit of Swiss-based Ineos – a much bigger firm than itself. Ineos at that time had revenues of Rs 1,458 crores (FY09). Bilcare’s was Rs 1,000 crores only. Bilcare’s acquired Ineos for two primary reasons: One, it would give the company the market to cross-sell its existing products in the US and Europe; and second, that it would be able to raise the low margins (around 5-6 per cent at operating levels) of its latest catch. Neither of these two was smooth sailing. Entry to those markets have been tough and Ineos’ margins have nosedived (at 2 per cent). This has dragged the overall margins from 24.8 per cent (FY10) to 16.5 per cent (FY11).
Where does it go from here? Bilcare’s main headache is to lift margins at Ineos. A string of cost cutting measures could help Ineos post operating margins to 14-15 per cent levels over the next 4-5 years. That is what the management likes to believe. One positive from this acquisition is that it opens up new verticals like food packaging, shrink films and packaging for mobiles, etc. This could be a long term plus.
What should you do? The markets remain unenthused. The stock is down 75 per cent (since the acquisition). Things may take several quarters to show results. Sell.
This article was originally published on June 05, 2012.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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