3B Blackbio DX Ltd

Stock Opportunities
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Q3-2020 announced.

Presentation

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Shifting wont be a problem if these are not done in open market, but when its done in open market selling and buying to create volume or volatility then this can be a price manipulation. No disclosure from Lenus or SMC give any idea.

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3B Blackbio was among the 9 companies selected for validation of their COVID-19 test kits. As of today only 2 got approval from ICMR NIV. 3b concordance for negative samples was 75%, need to improve the ratio to 100% for commercial use.

https://icmr.nic.in/sites/default/files/upload_documents/Guidelines_commercial_kits_COVID19.pdf

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Some Red Flags need answers

  1. Debtor Days is very very high. Co is not converting sales to cash
  2. Fixed Assets size is very small in relation to work they do
  3. Some Top 10 shareholders have bad history.
  4. Cash Tax rates are not in sync with Indian Tax Laws
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Kilpest’s PCR kit for covid19.

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How much of benefits of Subsidiary will be passed on to Holding company ? Some operators are active in this counter periodically, beware of pump and dump…

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Will try and address some of the very valid concerns flagged here from whatever little scuttlebut I have been able to do. Most of it is from reading its ARs and disclosures as well what’s available on the web.

We need to separate Kilpest & it’s subsidiary 3BBLACKBIOs performance as they are in two completely different businesses. Although only the consolidated balance sheet is posted but some details are listed separately. If you look at consolidated & standalone performance of Kilpest one would get the drift of the high margins, ROCE, ROE of 3BB.

3BBs debtor days are much lesser at around 60 to 75 days as mostly private labs are it’s clients. Kilpest supplies mostly to government and its agrochemicals which vary seasonally. Therefore Kilpest takes much longer. 3BB makes its own raw materials for reagents and therefore has the advantage of lowest cost manufacturer. It’s R&D based. However R&D head is hardly shown in big expenses. However the scientists employed are permanent employees drawing fixed pay and any big instrument required is a one time expense. Like the NGS bought in beginning of 2018. Also the expenses for some equipment & participation in global seminars & exhibitions are booked in some quarters like done in Q3 2020 however they have not been reflected separately. The planned merger & demerger of the 3BBlackbio would give clearer picture.

The management has walked the talk as can be seen from the steady performance since the launch of this business in 2010. The management seems to be forthright as can be seen from its disclosures to BSE in mid 2018 stating that it’s unlikely for the business to grow multifold every year as had been the case earlier as the base was much larger now.
Recently in 2020 once again the management wrote to Bse after the price hiked rapidly that many investors are assuming that 3BB is developing kits for COVID19 whereas the management clarified that they were developing kit for a different Coronavirus. This led to rapid decrease in price of the security.

Once the WHO globally shared the details regarding COVID 19 the company successfully developed in a short time the recently approved the testing kit. In its disclosure the company has brought out that its the only Indian Company to have developed the swine flu testing kit also. It’s got oncology tests which are at par & recognised globally. Details are in company’s presentation.

All I could find about some top investors from the quarterly shareholding was that an investor with a large holding bought the companies shares in the initial stage when the shares were trading in single digits or in early teens. Thereafter this large holder has been booking profits intermittently bringing his holding down. To my mind this is what most investors do. However he still holds a substantial quantity after so many years. In Dec 2017 too Varun Daga & his fund house bought substantial shares through a QIP. I could find only positive things regarding Varun including an interview of Varun done by Mr Ramesh Damani.

Would like someone to throw some light regarding the taxes. My very basic knowledge couldn’t find much on screener. A little elaboration would help amateurs like me.

Disclosure - I am invested and hence biased. I found this stock courtsey Gautam Baids tweets and his interview on Stocks & Ladder. Am a novice in investing. Began investing in mid 2017 and till Jan 2018 I thought that I am an investing genius. And since then I have been brought down to Mother Earth. So my extremely limited knowledge in the field would be apparent to all by now and if this post is not suitable, it may please be deleted. Thanks!

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Demerger is often used to write off non existent balances… Be careful of demergers in some companies.

Check breakup of fixed assets. Infact first imagine in ur head, what should a scientific organisation have in it’s Fixed Assets schedule and then go on to check if it’s there in same proportion in Kilpest.

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I may try to answer few of the questions raised by you, from my limited knowledge about the company. As a reminder, all of my points will be mainly considering the subsidiary 3BB only and NOT the parent company Kilpest and its business.

  1. As you mentioned Receivable days are quite high. But after checking the standalone and consolidated financial, the majority of the high receivable days are due to the Kilpest business (they are mainly selling to government and may be a reason - also as mentioned by you, may be 300+ days too for the parent company ).

I made this calculation earlier itself and posted in the same thread above, quoting again for the convenience.

“ The standalone trade receivables are ( FY16 - FY 19 )13.04, 13.2 , 14.16, 14.11 Crores. Where consolidated figures shows, again, (FY16 - FY 19 ) 13.43, 14.22, 16.48, 18.48 Crores . So assuming the trade receivables of the subsidiary gives approximately 0.41, 1.02, 2.32, 4.37 Crores, which is almost in line with the last one previous quarter of sales figure in subsidiary.“

  1. About the second point, I don’t think it’s an asset intensive business, rather knowledge intensive business. They forayed to molecular business as joint venture with Spanish companies Biotools and 2BB as a 51% subsidiary of Kilpest. Along with that they paid technology fees. The details I collected from annual reports (2012 and 2013 respectively)

2012 AR

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From 2013 AR

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Later Kilpest increased the share holding in subsidiary 3BB by subscribing warrants repeatedly.

  1. About share holding, LENUS holding the shares for years and they are reducing the holding continuously. Varun Daga and his fund subscribed 11 lakh warrants in year 2017 for Rs 85/-, and subsequently converted to equity.

  2. No insights about the TAX issues, you were mentioning, and might be a RED flag.

(E). Yes, there are lot many demerger route value destructions and frauds, like Omkar - Lasa. But there are cases like Orient Paper - Orient Electric too.

Now some of the GREEN flags, I was able to find are

( i ) MSME award (2016) from (Hon) Chief minister of Madyapradesh

( ii ) MSME award (2018) from (Hon) President of India with a cash prize of 15 Lakh rupees.

( iii ) Approval from ICMR for their COVID testing kit.

Even if, we make a worst case assumption that, they somehow managed to get the above awards of ( i ) & ( ii ), I think it’s highly improbable to get an approval from ICMR ( iii ), without merits, as it may have devastating effects on the fight against the ongoing epidemic.

Apart from these matters, I find these
KEY RISKS: Technology Risks
Marketing Risks
Unknown management and micro cap related risks etc.

In a nutshell, I don’t think it’s justifiable to compare the qualities of a micro / nano cap company with the qualities of a mid / large cap company ( 50 Cr to 5000 Cr comparison and taking as apples to apples comparison). Everyone should know that micro / nano cap investing comes with heavily loaded additional risks. Otherwise no one might have invested in companies like Symphony at 10 - 20 Cr MCap (to present MCap 5500 Cr). So needs proper diversification and risk management strategies in micro / nano cap rather than in Large caps.

Disclosure - I am invested and hence biased, and as a micro cap investor, I may be proved wrong in my opinions and thesis.

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Sir, i have been following you and your post at Twitter and valuepickr both and those postings reflects a lot of hard work. We will be very thankful to u if you can share some more details about ur concerns. It may become one more study for you but would be a learning for novice like us. Please help us to crack it. Thanking you in advance. Recently 3BBlaclbio has declared Rs 10/- as dividend how will this be helpful for investors of kilpest.
link: https://www.bseindia.com/xml-data/corpfiling/AttachHis/e1a1c58f-24dc-4982-9ea3-f977a5ec6e71.pdf

Recently promoters and friends have subscribed to 3B Blackbio warrants. May be promoters have started to milk the company at the same time they are also acquiring new shares in Kilpest these two opposite acts creating confusion in my mind.

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The company made PBT of 6.95 cr on which cash tax paid was 1.59 cr for the year ended 31 March 2019 which comes to approx 22.8 percent. As informed by management company is getting 100% deduction on some molecular expenses as they fall under under section 35 of income tax which are in relation to expenditure (not be of capital nature) laid out or expended on scientific research related to the business in nature of salary of person engaged in such research or acquisition of material required for such research.

Accordingly i don’t see any red flag in tax payment.

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Meanwhile can anyone cross check if Screener Nos of Kilpest and Annual Report nos are tallying. I observed Cash Flow Statement and it didnt seem to tally. Maybe I am wrong.

Question to @pratyushmittal - Where does Screener pull its data from.

Also I think Company hasnt disclosed Cash Flow Statement for Sept’2019 half year end

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I m in sir…It will be a great learning with u. :grinning:.
one more point i want to disclose that the management is very friendly to me i have called them 3 times in past 6-7 months and every time they talk to me even do call back if not available.

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Screener cash flow is correct. Annual report has some errors, but final cash and cash equivalents calculations match.

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Annual Report has errors !!! How did you conclude that ? Did they file a revised AR

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Yes please do that.

Also suggesting few more things/

  1. Check Top 10 employees and their salaries

  2. Check (Total Salary less KMP Salary ) / (No of Employees less No of Key Management peope)

  3. Plot Fixed Assets both Consolidated and Standalone and find the Fixed Asset values of 3B. Plot that here and lets debate on numbers.

Note : We are finding Red Flags and shall not cast aspersions on management. Red Flags just means that its better to have more data or leave the stock alone.

No use of negative words shall be tolerated

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Take name of Top 10 shareholder and check where else they have been invested (or their group entities for that matter). Should we blindly follow people who have been wrong on more occasions than one

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Top 10 shareholders and their holding over a period of time includes past holdings also:

  1. Lenus Finvest or Laxmikant Kabra or Lalita Laxmikant Kabra or
    Lake City Trader or Plutus Capital Management LLp or
    Laxmikant Ramprasad Kabra: Have invested or still invested in
    followings
    kilpest India/ Thomas Scott ltd/ Yug Decor/ Orient Beverage and yes not to forget Omkar Speciality Chemicals
    I call it Baap - Beta sagaa.

  2. Maj Navraj Singh Greawal: Kilpest only

  3. Varun Daga: Acrysil/ Poly Medicure/ Denis Chem Lab/ Orbit
    Exports/ Nikhil Adhesive/ Modi Naturals/ Bela Casa Fashion/
    Kilpest

  4. Hemant Gupta: Jyoti Resin/ Jauss Polymer/ Dhanvantri
    Jeevan Rekha/ Rishi Techtex/ Kilpest

  5. Kamal Gadalay and Suresh Gadalay: Vista Pharmaceuticals/
    Ceinerad Communication/ Sankhya Infotech/ Cambridge
    Technology/ Veerhealth Care Limited/ Mahan Foods/ Combat
    Drugs/ Kilpest india

  6. Niranjan S Shetty: Jaipan Industries/ Sampre Nutrition/
    Kilpest india

  7. Alpna Vashney 8. Ankush Kedia 9. Amit Chander 10.
    Uday R Shah 11. Jainam Uday Shah have invested in Kilpest **
    only
    This much i could find.
    I m trying to find more data as asked by Ashwini Damani Sir.

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