We have sold 4,22,000 COVID-19 RT-PCR Tests in the month of August with an average
price realisation of Rs. 325/- per test.
a) There is very aggressive competition in private market and companies are offering
rates below Rs. 250/- due to which, our market share is reducing. We cannot reduce
our rates drastically for several business reasons.
b) Similar trend has been observed in Government tenders where prices ranging from
Rs. 150/- to 200/- are being quoted by few companies due to which we could not get
Government tenders in August 2020.
c) We will be bidding keeping above facts in mind, we shall update as and when we get
any tender.
ExportsGovernment of India has allowed a quota for exports of RT-PCR kits vide trade notice no.
20/2020-21 dated 31/07/2020. However, it allows only one application per
manufacturer per month to be filed. Also, time taken by Government to approve a
license is not certain. So we are negotiating with customers who can give a reasonable
rate (as with Chinese/ Korean companiesâ competition, prices have gone down globally
also).
Yes, this is turning out to be the best example of Atma-nirbhar, choke your exports and allow all Chinese stuff! And then wonder what is wrong with India. The management is transparent, at least one bright spot.
It has been a month of hitting lower circuits. What do you think is the fair value of Kilpestâs stock price given the current situation from the business updates by the company?
I do see that the management is investing in other R&D activities and may discover new products too. Kilpest does not have any debts and has got good revenues with C19 test kits.
Why the promoter or the big investors are not pitching in to buy the stock to stop hitting lower circuits every day?
Today circuit get reversed in this counter. Further, a bulk deal at 319.17 of 45000 shares is also executed. Will the amalgamation be beneficial in long-term?
Price has gone up not for amalgamation but for the government statement that MP,s will be tested with RT PCR since this is the only gold test .There is going to be a good demand of RT PCR now.
Investorâs presentation of Kilpest Ltd on amalgamation (Key points):
After the amalgamation of 3B BlackBio (Diagnostic business) with Kilpest, the
company to be renamed as 3B BlackBio Dx Ltd. which will be classified as a Diagnostic company (over 90% of revenues from Diagnostics Business.)
Sole focus on growth and development of Diagnostic business.
Gradually, all immovable assets including land (2 acres) and factory building would be fully utilized for the growth and expansion of 3B BlackBio Dx Ltd. and Research & Development Activities in the field of Diagnostic business.
10,74,570 new fully paid-up equity shares of Kilpest will be issued to the remaining shareholders of 3B BlackBio, holding 1,29,000 (12.56%) shares at a SWAP ratio of 8.33 shares of Kilpest for 1 share in 3B BlackBio.
Expanded Equity Capital of 3B BlackBio Dx Ltd.) will become 85,82,670 Equity shares of Rs. 10/- each.
The Listed entity shall be renamed as 3B BlackBio Dx Ltd. so that all the stakeholders of Kilpest will directly share the growth and fruitful journey of âDiagnostic Businessâ.
The Amalgamated company will be grown not only in Molecular Diagnostics but also in other fields like Rapid Cards (based on Antigen and Antibodies) and other related scalable business verticals.amalgamation.pdf (1.0 MB)
In my opinion, our company has taken the right decision at right time.
The small red zone in the figure above is the only period that makes a difference clinically between using a low sensitivity test versus using a high sensitivity test. As I understand, the low sensitivity test is the antigen test and the high sensitivity test is the RTPCR test.
Source: @FaheemYounus. Bio: Chief of Infectious Diseases, UM UCH.
⢠The management prime focus is to run and grow the Diagnostic business. Hence, 3B BlackBio is being amalgamated with Kilpest and all assets (land, building and equipment) of Kilpest will be dedicated to diagnostic business.
⢠The Amalgamated company will be grown not only in Molecular Diagnostics, but also in other fields like Rapid Cards (based on Antigen and Antibodies) and other related scalable business verticals.
⢠Kilpest will continue to run as an Independent division for some time till the company finds a suitable buyer for its
Agrochemical Division to sell its brands and other intangible assets.
⢠As a result of amalgamation of 3B BlackBio (Diagnostic business) with Kilpest, finally we would have a single company to be renamed as 3B BlackBio Dx Ltd. which will be classified as a Diagnostic company and will have over 90% of revenues from Diagnostics Business. The listed company would be renamed as 3B BlackBio Dx Ltd. in order to solely focus on growth and development of Diagnostic business.
⢠Gradually, all immovable assets including land (2 acres) and factory building would be fully utilized for the growth and expansion of 3B BlackBio Dx Ltd. and Research & Development Activities in the field of Diagnostic business.
I think the managementâs thought process is in the right direction. After this business transformation, 3B BlackBio Dx is projected as a diagnostic business and I hope it will attract the major investors and get fair value
Solid presentation and clarity of thought from Kilpest. Some observations from my side:
The value unlocking plan has slightly changed from what I was anticipating for the last few years. Earlier the management had indicated they would de-merge 3B and list it separately. We would then be holding shares of Kilpest and 3B. The new plan which essentially converts Kilpest into 3B Blackbio, allows 3B to retain whatever assets (land/factory) it needs for expansion and then sell the rest off seems much better. The management is going to be 100% focused on the molecular diagnostics business only going forward. As minority shareholders, we are effectively already invested directly in 3B now and donât need to wait for a future listing.
Soft point but the quality of the presentation is really good - far better than the regular presentations we see from them. The management has definitely sought the input of the banker involved and possibly their HNI / institutional investors as well in putting this structure together.
The companyâs Covid kits are doing better than what the market has been expecting of late. 20,000 - 30,000 kit daily run rate is very very good and means theyâve won back some market share in September.
The valuation paradigm for a pure play diagnostics co growing at 40% CAGR pre-Covid and sitting on ~100 cr of cash by year end will be very different. There is a strong case for re-rating IMO.
My only concern on this company is the presence of some or many large punters with not so good record of performance for themselves and also of their investments. I m also of the view that no company can give me 100% satisfaction on my investment criteria, as in past i have lost many opportunities( IOL Chemicals: due to related party transactions, LT Food: increasing working capital loan, Kilpest: presence of traders, Biocon: high valuation, Dixon promoters selling, shaily Engg: income tax raid and many more) just because of one or two criteria were not matching with mine.
But still presence of these punters are stopping me to take large position in my highest conviction stock Kilpest.
Disc: holding some
Iâm very supportive of the move by the management today.
Agri-business continues to perform badly in the last few years.
The Operating profit of Agri business is declining in the last few years and is negative for FY20.
Agri business contributes nearly 45% of sales but less than 10 percent of profits per FY20 figures, which comes from other income.
OPM of 3B biotech is over 50% for FY20 (pre-covid).
This reflected in the June quarter OPM of 69% due to 3Bs sky rocketing sales.
3B had its on and off years till FY16 post which there is an exponential performance by 3B.
Hence the intent of the management to sell off loss making agri business and invest in its cash cow - diagnostics makes perfect sense.
Covid-19 gave the opportunity for them to connect multiple customers who can be their customers for their future products.
US-FDA approval for their RT-PCR can be one among the several products in the line.
Also September quarter profits are expected to be better than June and the cash flows in fy21 can be atleast 80crs(split being 24,36,12,8 - from FY21 q1-q4) - Exports business could be a game changer here.
If the management is able to do research and come up with good quality products in future that has good demand, this can be a great success story in the making.
Letâs do numbers being pessimistc.
FY21 non-covid profit of 3B can be 11cr(historical growth is 0.5,2.5,4.5,7.5)
FY22 - 15cr.
For FY22 letâs assume they assume a risk free return of 6% over the 80cr they accumulated from covid - 5cr.
Total- FY22 annual profit -20cr
Now letâs get to stock price
FY22EPS - 20/0.85(outstanding shares after merger)
FY22EPS- 23.5
Diagnostic companies command a PE of 30-100. Lalpath labs trading at whooping 85 PE
Taking a 25PE(pessimistic) FY22 stock price will be around 587 which is over 90% from current levels. Remember Iâm being pessimistic here. Being pessimistic I see nothing to lose here.
Iâm quite hopeful that they will perform much better and will outdo my calculations hence I expect to see it be at 3x by FY22 from current levels of 308.
Management is excellent. They are straightforward about the outlook which was reflected recently from their presentations. Having invested in multiple stock with poor management, kiplestâs management seems too good to me.(might be biased too)
How good are they able to maintain margins along with growth will be key to their success story
Here I didnât consider the cash inflow due to sell-off of the agri-business. As per the outlook, only intellectual assets seems to be sold off while physical assets will be retained. I donât think there will be a significant cashflow here,
But considering the smaller size of the company, it might also boost the valuations a bit.
Post your thoughts
Disc: Invested
The total valuation of the agrichem business would not be more than the profit they are currently making within 2 weeks with the Covid diagnostic business. Profit is likely to increase with exports and introduction of quick antigen tests as described in the presentation.
The agrochem business had high capital requirement, slow or no growth and low margins. Last year more than 90% profit came from the pre-Covid diagnostic business.
So, yes, it is a very smart decision.
Note the following statement from the company presentation which leaves very little room for doubt about the plans for the Agrochem segment:
Kilpest will continue to run as an Independent division for some time till the company finds a suitable buyer for its Agrochemical Division to sell its brands and other intangible assets.
