The Enlightened Investor

Kilpest India Ltd, a Bhopal based agri company listed on the Bombay Stock Exchange, diversified into the world of BioTechnology a few years ago through its subsidiary 3B BlackBio Biotech India Limited. With Infrastructure that can compete with the best of the lot, a well trained team of R&D experts and some of the best price points offered in the market space, BlackBio and its PCR based Molecular Diagnostic Kits have been gaining market share since its inception.

It is not the strongest of the species that survives, nor the most intelligent; It is the one that is most adaptable to change.

Charles Darwin

BlackBio Biotech: A diamond in the dust…

TRUPCR is the brand under which BlackBio commercialized these kits over the past few years. These kits have been designed on the basis of Centre of Disease Control (CDC) & World Health Organization (WHO) and are widely accepted. From the H1N1 (Swine Flu) detection kit & Ebola Virus detection kit to the Zika Virus and HIV detection kit, the company has been a prominent name in the molecular diagnostic kit business and with a portfolio of high value products, Blackbio has single handedly been dragging its parent company’s stagnant agri-based business year after year with exponential growth in the BioTech business.

BlackBio has been a conscious effort by the Kilpest Management to slowly exit the pesticide & fertilizer business considering the harmful effects of those products on our environment. Also, their belief in the BioTechnology Sector to be the “Sunrise Sector” of India has propelled the push towards this transformation. Their commitment towards this transition can be noticed easily when the shift in capital allocation is observed. And the allocation is undoubtedly paying handsome returns too.

Phenomenal growth, outstanding returns and unbelievable cash generation for a subsidiary like 3B BlackBio Biotech would usually be enough to re-rate the company from a old economy based slow growth business to a new economy high growth business that demands a higher valuation considering the strong foothold it had already created in this niche detection test segment boasting a large portfolio of proprietary products. But 2020 proved to be a defining year for Kilpest and BlackBio as Covid-19 was introduced to humankind and the entire world came to a screeching halt.

In the midst of every crisis, lies great opportunity.

Albert Einstein

Knock Knock…

Opportunity came knocking on the door in the form of a highly infectious worldwide pandemic that required a way to detect the virus in every human being. BlackBio with their years of experience and extensive R&D efforts, managed to create a test kit that not only satisfied Indian authorities like Indian Council of Medical Research (ICMR), National Institute of Virology (NIV) & Central Drugs Standard Control Organization (CDSCO), it also managed to get an Emergency Use Authorization (EUA) from the United States Food & Drug Administration (FDA) becoming the first ever Indian molecular diagnostics company to receive the US FDA-(EUA).

Simultaneously, the Indian government owned HLL Infratech Services Ltd (HITES) awarded a tender of 1400000 test kits for an order value of Rs. 60.99 crores, pricing a kit at around Rs. 435.

The company had mentioned in an earlier update that they had increased their kit manufacturing capacity to 50000 units per day. This would mean that an order for 1400000 kits for Rs. 60.99 crores could be completed in one month. Obviously, we will have to wait and see if that capacity utilization is maxed out or not in the coming days. If fulfilled in time, the company would be looking at great upside to their kit manufacturing segment in the next 3 quarters.

A “Testing” World…

With the rapid increase in testing for Covid-19 in India & the world and testing becoming a trend that will stick around till the world eradicates Covid-19, which might take over 24 months even with a successful vaccine/cure.

With the rapid increase in testing for Covid-19 in India & the world and testing becoming a trend that will stick around till the world eradicates Covid-19, which might take over 24 months even with a successful vaccine/cure. Meanwhile, the demand for expertise in making high precision & reliable detection kits is only going to continue to soar as countries like India ramp up testing for its 130 crore citizens. This testing culture means we return to our earlier calculations to determine three things:

• The maximum capacity utilization that BlackBio can run at with existing infrastructure
• The impact of that utilization on the financial structure of the company over the next few quarters
• The impact of the already received order from HLL InfraTech Services Ltd

The Covid 19 Pandemic is to Kilpest what the 2nd World War was to Lockheed Martin.

The HLL Infra deal…

The HLL InfraTech Services Ltd order for 14 Lakh TRUPCR Covid kits will bring in a revenue of Rs. 60.99 crores at Rs. 435 per kit. Considering a very conservative margin of 50% cost of production and a 25% tax rate on the earnings, a net income of about Rs. 23 crores can be expected in the next quarter. When compared to Rs. 2.28 crores, the net income of the entire year ended 31st March 2020, the HLL deal seems to be already providing a huge cash influx that could possibly provide Kilpest a 10 year head start on its growth story in just one quarter.

Based on the demand for testing kits across the globe and the approvals and acceptance of the TRUPCR Covid kit from Indian & US agencies, the chances of bagging larger orders over the next year that could keep Kilpest engaged at maximum capacity utilisation are extremely high.

Pandemic Propulsion…

The current order already provides huge cash flow generations but a year of kit manufacturing orders at max capacity will generate astronomical amounts of revenues and propel its EPS to levels that will change the entire structure of the company and provide a solid financial platform for utilizing the competitive advantage they hold at the moment to garner a global foothold in a matter of few years. Meanwhile, this would result in a complete re-rating of the company and generate huge wealth for shareholders in the near term. We have tried to provide a little overview of Kilpest’s near term projections on the basis of the this analysis.

As demonstrated above, the projections might seem too ambitious but this is what a black swan event like Covid-19 can do for a business in the right place at the right time. Simply put, Kilpest India Limited is destined to be an ultra-bagger in the coming years!!

We are not SEBI registered advisors. All estimations and projections are personal opinions. Please do not invest in businesses without doing your own research. Any feedback or suggestions are more than welcome.