Fitch Ratings has today assigned a rating of ‘F1(ind)’ to Bilcare Limited’s (Bilcare) INR1,230 million working capital bank limits.

The rating reflects Bilcare’s established position in the pharmaceutical packaging space with a focus on providing pharma (pharmaceutical) solutions. It also takes into account the strong relationships Bilcare has with large domestic and international pharmaceutical companies. The company’s ability to move up the value chain through continuous R&D has allowed it to maintain margins that have been high and consistent for the past four years despite volatility in raw material prices viz PVC (Poly Vinyl Chloride).

In assigning the rating, Fitch has considered Bilcare’s geographical diversification of its packaging business outside India with the set up of its Singapore facility in 2005, and its recent foray into the Global Clinical Services (GCS) segment through the inorganic route.

This exposes the company to risks of new businesses and markets along with higher financial leverage on a consolidated basis; although Fitch notes the risks are partly mitigated by the favourable performance of these entities during the past two years. Bilcare’s financial leverage which was high till FY06, improved to 4.0x in FY07 on account of higher EBITDA levels. The full realisation of the GCS business would provide Bilcare with higher margins, as at FY07, the business has contributed only a small proportion of its overall revenues.

Key concerns to the rating emanate from its aggressive inorganic growth strategy, which exposes it to integration risks besides increasing financial risks. Fitch’s analysis of Bilcare is on a consolidated basis and Fitch believes that the company would continue to scout for acquisitions given their recent FCCB (Foreign Currency Convertible Bonds) issue in 2007. Fitch, however notes that any significantly large debt-led acquisitions over and above the current FCCB, will have an impact on the company’s consolidated leverage, and could act as a negative trigger to the rating. On the other hand, ability to scale up its GCS business and improvements in its financial leverage could act as a positive trigger. Fitch notes that Bilcare has not availed its fund based banking limits as of now. Nevertheless, it is in the process of tying up cash credit limits and its large cash balances presently mitigate the risks.

During FY07 on a consolidated basis, Bilcare recorded revenues of INR4,079m compared to INR2,645m in FY06 previous year. On a standalone basis, the company generated revenues of INR3,230m in FY07 compared to INR2,396m in FY06. Consolidated EBITDA margins, during the past four years (FY04-07) have ranged between 20-25% compared to 20-29% on a standalone basis, due to the increasing personnel costs related to the recent acquisitions. In FY06 and FY07, on account of its expansion plans and increased working capital requirements the company saw negative free cash flows. For 9MFY08, consolidated revenues stood at INR4,179m with an EBITDA at INR1,086m.

Sourced From: Sampark Public Relations Pvt Ltd

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