Stock Review: Bilcare

Bilcare controls 60% of India's blister packaging business. Looking into the company's business, I think the company is vulnerable to oil price movements and I am not comfortable buying the company at current levels. But given the price to book value of just 1.1 times and the recent acquisition of INEOS ABS Film Business, I think if the stock tapers by another 4-5%, one can initiate a buy into this stock.

If I take up fundamental call on the stock, along with quant models that we actually trade with, I feel the stock is trading at a below median PE of 7.95 times under the period of study and is currently trading at a PE of close to 7 times forward. So, on a longer-term basis, this stock would definitely hog the limelight and would be traders' favourite, once crude cools off. But we are not taking any significant positions right now, but waiting to enter into the stock at Rs 410 levels.

If I take another call for crude itself, I think crude has not cooled off that much that gives me a comfortable position in terms of significant downgrading for this particular stock in terms of valuation. The company on a consolidated basis is going to do an earning per share (EPS) of close to Rs 60, is available at Rs 430 and crude is trading above the median. So, I think once this particular thing reverse out, the stock would definitely perform and will again test our targeted levels of Rs 550-700-840. Last time, when we came out with, a report similar situation happened and the stock actually tested Rs 770 mark and again cooled off because of crude's outperformance.

Apart from Bilcare, if I take macro headwinds for Indian equity markets, also for global equity markets, I feel there is some problem that equity markets can come up with. Bank of Japan holds significant positions into treasury of US, so I personally feel and the first impression that we are studying that they might come and sell it off, a very small portion. But that will create a liquidity situation that would hurt and that will lead to a significant downgrading for the equity markets, say by 4-5%.

From 4-5%, I don't think we deserve a 20% plus premium valuation, given the vulnerability of oil. So, from this perspective we still have a negative bias that it will be difficult for us to sustain 5,600-5,650 mark. We would be range bound between 4,700 and 5,600 mark and the fresh shorts can again be built around that 5,350. Bilcare should be added close to that Rs 400-410 levels and not at current levels.