Maybe we can use a more normalized sales instead of 2020 sales since that’s a massive one-time spike? It’s valuation is undoubtedly reasonable but 1.5 P/S readings on FY21 sales might be too optimistic based on mean reversion and gradual tapering of the covid sales
D: Invested
M&A will be difficult given these kind of valuations
It will be unfavorable for Kilpest to acquire a company via a deal in which Kilpest stocks will be tendered. All-cash deal will be lesser of a problem.
Since the vaccination drive is slow in India and many other parts of the world, I speculate that the company will remain focused on virus test-kit domestic and export business for the next few months or possibly even years. The company will likely spend some of its cash on organic and inorganic growth in this segment. Cross-selling of other products may be expected but the key focus will remain on virus test kits.
At this time it is risky to do due diligence of the facilities of another company. Therefore, acquisition of another firm not related to virus test-kits is likely to be delayed. Company restructuring (amalgamation of subsidiary, etc.) may happen only later along with such acquisitions.
Disc: Invested. Views are biased.
Attaching one doc not directly connected to bizness but connected with compliance. Doc is issued by globalfund with topic: List of SARS-CoV-2 Diagnostic test kits and equipments eligible for procurement according to
Board Decision on Additional Support for Country Responses to COVID-19 (GF/B42/EDP11)
Global compliance and its reach to world is commendable. I could not any other Indian company in list.
Recent business updates by the company:
The amalgamation application after vetting has been uploaded by BSE on 31/05/21. Now things should get processed faster, with SEBI approval and there after NCLT approval.
Company will go for NSE listing, once the amalgamated company is formed after all approvals.
The COVID-19 Antigen Test Kit is in advanced stage of development.
In the amalgation documents uploaded by BSE, the company has made strong future projections about the revenue and PAT in the next few years. The company has projected around Rs 60cr, Rs 87.55cr, Rs 118cr, and Rs 156.2cr PAT for FY22-25 respectively. Current market cap is around Rs 300cr. My view: I am not sure how dependable such projections are in general. However, this kind of performance can be possible due to exports, the likely strong domestic diagnostic sector growth of around 40%, and the fact that the company is sitting on more than Rs 100cr cash.
Results are due on June 23. This time a good dividend is likely. Can we expect further positive announcements that day?
Hi everyone,
I am starting to study this business right now and setting some goalposts for myself. This is to make sure that I can set some tangible outcomes for my study. Will study this thread in detail to answer following questions. In mealwhile other investors can add their thoughts if they want to.I personally would only treat them as opinions and form my own :
I had read this thread many months ago, but will read it again to see if i can answer these questions 
In meanwhile would appreciate if anyone could express their opinions on these questions.
I would like to add to your point of barrier to entry: “Yes there is barrier to entry!”
But companies like this are not original manufacturer but they use to purchase the kit (I am talking about COVID19 kit only) from few original manufacturer and from them you can also purchase and I can also as they execute even very small order of 1 or 2 Lakhs. Most of the raw materials are importated from China.
So I will prefer to evaluate this company cash flow without COVID revenue. I will advice to check their R&D capacity and marketing capacity.
To my opinion: Marketing capacity looks good but on R&D front everything looks on paper. It is my personal opinion and I may be wrong. I don’t track this company but I am having bussiness relation with this company for ÇOVID 19 kit so I have written here!
Thanks!
Minor point - They make more than just RTPCR kits, their original research going on since a few years is on oncology and some other multi purpose kits if i’m paraphrasing correctly. There are some videos above in the thread where their MD/Head of research talk about their products on scientific forums. Quite a lot of insight there on the fact that this company has some sort of credentials in molecular diagnostics and has other products in the market (not with quite the same exposure/volume obviously so not showing in the top/bottom line as much)
D: Invested
Another perspective - The whole world rushed to make RTPCR kits at the onset of covid, and this tiny company created one with a ~99% sensitivity and accuracy which ended up in the ~top 7 recommended FDA/WHO approved kits and the only Indian company in the list. Not an achievement to take lightly and shows some R&D/ execution capability of the management imp.
What i meant is that they make testing kits. What i am trying to understand is
Do you have any data or personal experience to validate that kilpest is just a trading firm, or is this just a hypothesis?
Such as which ones? This seems untrue. I looked at their FY20 Annual report:
Does not look like they import raw material.
@Anand6 since you seem to have some knowledge on this domain, can you please help verify whether the volume throughput looks ok? they are able to do 1,00,000 covid tests in a day. Translates to 1000 kits in a day. Is this possible while having machines worth 1-2cr only? Mind you, these machines are also used for producing non covid tests.
- how can a company have 100x fixed asset turns (look at revenue in Sep quarter, look at fixed assets) and 70% margins.
@sahil_vi Agree on the above point, needs more clarity.
On some calculations from screener their consolidated gross block = 8.32 and standalone gross block = 5.78.
So 3BB Gross block = 2.54 cr
If we take May business update (stable raw material cost and low but profitable realization - 13lakh kits @ 80 per kit), and extrapolate that to a 12 month figure, that makes approx 120cr sales for a 3 month period
So asset turn at this moment is ~47x, still a very high number but we need industry references as biotech seems more R&D and science/IP intangibles based rather than on the gross block.
Plus receivable days is very high too so as their 3b sales increase hoping to see this reduce this annual.
We should ideally get more clarity on these questions in the AR/balance sheet front in the next annual report, or atleast i hope so.
What is the key value add for this company? That seems to be the enzymes which go into the diagnosis kits. Eg:
This snapshot from their investor presentation gives us non-biotech people some insights regarding what their value add is -
r,Still diving deep to get a more concrete idea about what all work and science goes into these kits but maybe a rewatch of their conference talks might help
I believe the science is key here, so without understanding the entire value chain and the unit economics of PCR (and NGS in the future) kits, we can’t really judge the financials
We do have their MD on record saying that they churned out upto 100000 tests a day, and they also mentioned multiplexing so maybe that’s how the 100000 tests were possible with very few kits?
13,19,000 (Thirteen Lakhs Nineteen Thousand) COVID-19 RT-PCR Tests in the
month of May, 2021 with an average price of Rs. 78/
In their filing, like above they always mention “tests” and not kits, so we would need more clarity before extrapolating to number of kits produced.
I am going to compare our Company to another same type of company listed in USA named Co-Diagnostic. I am just going to share screenshots of its revenue and balance sheet data available in yahoofinance.
I am not that good at valuation part so i wont be commenting on valuation but if one see to both the above screenshots or go to yahoofinance, one can find that both of them 3b and Co-Diagnostic are having similar trends in Revenue v/s Assets v/s Margin.
By that we can assume that the 3B is a same type of company as Co-Diagnostic is.
Disc: Holding but reduced recetly.
All their antigen kits are taken from a company based in Kerala. Most of the kit manufacturer get their antigen from China.
Dear I have not told that it is a trading company or great company as I have never tracked it. Whatever information I was having because of my work exp in this field I have written with lot of reservation.
You can do your due diligence. But one polite suggestion I will give you that "whatever is written by the company in their AR should be taken with lot of salt. And hope you understand that for this scuttlebutt only we are on this forum.
Thanks and regards!
co claims to produce in-house enzymes. Usually enzymes used in PCR are produced from E.coli bacteria. I don’t think co has setup like that. Might be producing from PCR itself, no idea regarding enzyme claim.
U can see 3b as perfect assembly co, not process company. Like in automobile, maruti has all its design testing etc, but it procures all components from vendors and assembles them. Same way, 3b has own R&D, own designs of probes/primers etc, but it procures in bulk , and assembles well.
I have no doubt, with this model, on asset turnover.
Can you please share your source for this claim? I have not seen it yet.
Please share a source. I am not able to find anything when i search on Google.
One thing is clear to me when i read about PCR (source 1, source 2, source 3) that it involves fermentation with bacteria. This definitely does not seem to be what 3B black bio does. Hence it is safe to assume that do not manufacture the enzymes. The enzymes are mass procured, then tests are custom created using in-house R&D. This also explains that asset turns are this high and why large capex is not needed. It does raise questions about entry barriers. What we need to zero down on as investors is: why is it difficult to replicate the co’s R&D? My sense is, it might not be. That is why you have 91 covid rtpcr test manufacturers.
https://3bblackbio.com/about-us
when raw material is abundant, its not wise to be asset heavy.
people & knowledge driven company, yes risk is there regarding maintaining that talent, smaller the co, more is the risk. covid gave them some scale.
R&D team they have is with them since beginning. But co is definitely not risk free in this matter. Even co is prone to tech change risk too.
Timely delivery and accuracy matter. sometimes such cos have to deliver single kit (not test) especially in oncology side.
how they are making or procuring enzymes, only co visit can help.
Completely agreed sir. It is only about what they claim versus reality. 50x 100x asset turns are not possible if they make their own enzymes as far as i understand this industry. Look at the capex Laurus bio is doing, look at the asset turns of Advanced Enzymes which, only produces enzymes. I am unable to understand why company claims they make enzymes in-house.
https://link.springer.com/content/pdf/10.1007/978-1-4020-8361-7_2.pdf
Page number 4 in this PDF has a topic ‘2. Production of Enzymes’
This is what 3BB website claims that they do.
There is line here in that says "Level of production and type of application define the kind of process for its production. Specialty enzymes to be used in medicine and health-care products are usually required in high levels of purity and in rather small quantities, while enzymes used in the bulk production of food,feed, fabrics and fuel are usually produced as rather crude preparations in high tonnage (Headon and Walsh 1994).
Laurus Labs through Richcore and Syngene may be able to mass produce enzymes of higher purity for medical applications today (especially since this reference is 1994); but there maybe a middle ground where enzymes are made in smaller quantities (when compared to bulk) and can be made in an industrial building.
The infrastructure section on 3bb site says they have a BSL II lab which from what I understand is similar to Biotech centre labs in colleges. I am aware that some such labs do make enzymes within those labs in small quantities.
Now the only clarity I would need is if PCR related enzymes required to produce 1 lakh kits a day (from a previous claim, if I am not mistaken) can be made in a lab.
Great insight. Another question we need answered is if PCR manufacturing only involves assembly, what gives one company an edge over another to produce superior quality/results in the kits? Why did we not get a flood of USFDA/WHO approved kits from other Indian companies? This might not be a process specialist company as you said but it might have some kind of research edge (different kind of risk in that context) which we need to find out to accurately gauge our risk/ true competitors/global equivalent companies as investors.
Courtesy :https://www.researchgate.net
First of all I am MBBS MD, so difficult for me to understand technicality involved in such small scale fermentation unless we do practically what is written here. A biotechnology person can elaborate better.
A company might procure all enzymes directly OR might keep plasmid saved to get chosen enzymes, thus can make difference at quality level. If u check above article, final enzyme can be checked for yield, purity, contamination, stability etc. These enzymes and primers are areas where R&D comes in picture. Areas where one co can be better than others.
This is my understanding and as I am not biotech expert, I might be completely wrong.
