This small-cap company has found its watershed moment in Covid-19 pandemic

Kilpest India, one of the companies that have received ICMR's approval to produce RT-PCR kits for Covid-19 testing, has seen its share price more than double since April 1

From being a small-cap agro-chemical company to creating molecular diagnosis kits for Covid-19, Kilpest India’s hustle has been pivotal not only in its own journey but also in India’s fight against the coronavirus pandemic.

The company had been founded in 1972 by Ram Kuber Dubey to manufacture crop-protection and public health products, bio products, micronutrients and mix fertilisers. It operated as a maker of agri-products for almost four decades until 2008, when it diversified into biotechnology. Dubey continues to be chairman & managing director, but the company’s day-to-day operations are handled by his son Dhirendra. 

“Our agro chemicals business was running in an auto-pilot mode for decades. It was never a cash-churning business. Agriculture in India is monsoon-dependent and a bad monsoon season can easily ruin your business for next two years at least. We were also never in the big league with no patented molecule, but we somehow managed to survive and diversy,” says Dhirendra Dubey, a whole-time director at Kilpest India.

The company witnessed substantial payoff in 2011, when it entered molecular diagnostics through 3B BlackBio Biotech, its joint venture with two Spanish companies — Biotools B&M Labs SA and its spin-off company 2B BlackBio Biotech.

Cut to 2020, 3B BlackBio is the second Indian firm to produce real-time polymerase chain reaction (PCR) test kits for Covid-19. The company, which had been working on developing these kits since early February, got the approval of the Indian Council of Medical Research (ICMR) on April 2. 

What is RT-PCR testing?

• RT-PCR kit is a diagnostic kit that helps diagnose Covid-19 infections, detects SARS-CoV-2 RNA from a suspected infected patient’s sample through real-time polymerase chain reaction.
• This test directly detects the presence of an antigen, rather than the presence of the body’s immune response, or antibodies.
• By detecting viral RNA, which will be present in the body before antibodies form or symptoms of the disease start showing, these tests can identify the virus very early on.
• The price of these kits starts at Rs 1,500 (capped the government at Rs 4,500).
• A PCR test takes more time (a couple of hours) than a rapid test (15-30 minutes), but the former is far more accurate.

India has so far approved nearly 30 manufacturers and suppliers of PCR test kits. Domestic companies with indigenous technology on this list, along with Kilpest India, are Pune-based Mylab Discovery Solutions, Faridabad-based Medsource Ozone, and Goa-based Molbio Diagnostics.

With the Covid-19 pandemic progressively spreading across the nation, these test kits are in high demand. At present, Kilpest is dispatching kits on a pro-rata basis to expand its reach. It has already dispatched two batches — of around 5,000 and 10,000 kits — and is expected to dispatch around 200,000 by the end of April. So far, it has supplied test kits to the Madhya Pradesh government and eight private labs across India that are authorised to conduct Covid-19 tests.

“Our total production capacity is being utilised for Covid-19 testing kits. We are trying to ramp up our production. There are some challenges in sourcing raw material due to the lockdown, but we are still anticipating that we will be able to produce 500,000 to a million kits by the end of the April-June quarter, if the pandemic goes on till then,” Dubey adds.

These test kits have been the company’s moment in the sun. Kilpest India, listed on the BSE in 1996, recorded a total consolidated revenue of around Rs 19 crore in 2009-10, and posted a net profit of only Rs 1.7 crore from its agro-chemicals business. However, its profits jumped after the company entered the molecular diagnostics space. During 2018-19, it earned a revenue of Rs 24 crore, and its net profit saw a massive jump to Rs 10.8 crore.

 

The company’s agro-chemical and molecular diagnostics businesses now have an equal share in its revenues, with the latter accounting for more than 90 per cent of the bottom line. 

“The share of revenue from the segment is expected to be three-fourths by next financial year,” Dubey says. Kilpest India also happens to be the only listed company in the molecular diagnostics space.

The diagnostics leap

After spending a couple of years in research after 2011, the first breakthrough came for the company when it developed its first kit for blood cancer, which set a precedent for many other kits in the years to come. 

Another major success came in the form of the H1N1 diagnostic kit, India's first home-made test for the pandemic commonly known as swine flu. Currently, the company functions with 10-member team for both research and production/marketing divisions. 

Considering the scope of growth and opportunities in this space, Kilpest is planning to unlock its value through a demerger. “The proposal has been made before our board of directors and we have also sent a notice to the BSE regarding the same. We are hoping to get this through by the end of 2020-21,” Dubey tells Business Standard.

Kilpest India has become a hot pick for investors ever since it received the ICMR approval. Its shares are currently trading at around Rs 142 apiece, more than double the closing price of Rs 70.65 on April 1. The company’s market capitalisation has now crossed over Rs 100 crore.

Around 38 per cent of the company is owned by the promoter family, while the rest is owned by retail investors. If you look at the company’s shareholding, you will find no institutional investor so far. However, it features marquee investor Varun Daga, founder and managing director of Girik Capital, who holds a 7.33 per cent stake.

“Kilpest India is expected to become debt-free by next financial year and has no plans to raise fresh funds in near future. There will be some working capital debt, but it will be negligible,” Dubey says.

The company is planning to start a new manufacturing unit soon and will be focusing on scaling up its exports. It started exporting in early 2019. The present share of exports in its overall revenues is seven to 10 per cent, which it expects to widen to 20-30 per cent in the coming financial year. The company is so far exporting its various diagnostic kits to the UK, Africa and West Asia and has also managed to penetrate the US market.

The Covid-19 test kit has brought the company on investors’ radar, but this limelight is precarious. Since many other companies have also received approvals to build the kits now, Kilpest would need to ramp up its production significantly if it has to maintain the initial lead.