ValuePickr Forum

Caplin Point Laboratories

Hi nooresh,Any link to this report?

Hi Hemant,

Here is the link.

http://www.lkpsec.com/Admin/Research/634937578945156250LKP%20Bytes_Caplin%20Point%20Laboratories.pdf

The joy of seeing a research report having targets greater than 100% of current market price. It’s not that common, isn’t it ?? I loved the report for that reason alone.

a) I have also seen research reports giving a 4x target (Triveni Engg, many research reports), but it hasn’t moved since the last 2 years (whatever the reason). So, 2x target is not something we should consider into our buying decision.

b) I am surprised the report doesn’t mention anything related to the business model or the customer advances. Business model is simply not import raw material-process it-sell it as exports. There is something more, else the customer wouldn’t give so much of an advance.

Of course, most of these questions will be answered once we have the management interview. Akshat has already got a good list of questions going. I will update the question list by today evening.

Kushal - Can you contact the Chairman and ask him for a time to call (say this Friday or next week whenever he has time)? I am sure by then we’ll have a good list. I have tried going through the investor relations for a meeting with the management, but didn’t hear back inspite of a couple of follow-ups.

Disc: Invested.

Hi raj,

Thanks for the link.

http://www.lkpsec.com/Admin/Research/634937578945156250LKP%20Bytes_Caplin%20Point%20Laboratories.pdf

You are right Kiran, we have a lot of work to do on this one. Buying based on price target given by research report… naaa… :slight_smile:

trusting or relying on projections and targets in research reports is fraught with risks (as most of us already know), more so with lesser well known names or smaller research houses which sometimes are paid by vested interests (promoters included) and fed all the data to publish. but yes, sometimes they can give lot of genuine business related data (like reports from hdfc, icici, idfc, or some of the foreign brokerages) whihc are helpful in understanding the company.

Kiran - Sure. I will ask them for Friday call. I will do it and update here about the timing. Probably I wont be able to take the call but you people can join the call and take it from there.

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He is available to take a call at 5.30 PM IST on friday. Let me know who can be on call and i will forward all the details to them.

Good set of questions. Some questions from my side:

1). The co has scaled up well over last 10 years, however the growth over last 5 yrs has been steady at about 20%. Kindly take us through your journey.

Business model, kind of products, distribution method etc. What were the major challenges during this time and how did the co overcome them?

2). What is the USP of the co and how does it differentiate/value add vs other pharma players?

3). The unique point seems to be the niche markets like South America. Please give a geographical break-up and what are the reasons for Caplin’s presence in this area or why can’t other players break into these markets easily?

4). Co has been getting advances from customers. How and why? Usually other cos have high debtors while working in these countries.

Is it brand? If yes, please share details. What are the terms of such advances…are they recallable?

5). Co seems to have undertaken a major capex. Please share details on the same.

Size of facility, timeline, cost, kind of turnover it can generate.

6). The injectible space has few players (entry barriers?) and must be remunerative? If yes, how will the co execute the same as caplin has no experience in this area?

7). It seems the co is utilizing the advance for huge capex. If something goes wrong, won’t the co land into liquidity crisis?

8). What are the forex policies of the co? As the co is a net exporter, why did the co suffer forex loss last year when we had rupee depreciation?

9). The co has been acquiring some cos in past and issuing eq shares? What has been the thought process on the same? Who are the majority shareholders and controllers of the co?

10). What is the dividend policy and how does the co intent to create value for minority shareholders?

11). What are the growth prospects going ahead?

Kushal - Sent an email to you. If you check this thread, contact me on dkirand at gmai

Great list of questions. I will probably only add a couple more -

a) What is the status of CP-IV plant? The suggested completion date was Dec 2012. How has the progress been with manufacturing? How has the progress been with permissions from FDA and MHRA since the slated commercial production was May 2013?

b) How does the company manage license/patents in most cases, more so with injectibles? Strides Arcolab seems to be the only major player from India in the space of Injectibles. What do you think are the similarities and dissimilarities between Strides and your business model?

c) The company till date has been improving net profit margins and are currently hovering around 8%. With the introduction of injectibles, do you foreses any improvement in margins? How are you planning to tackle challenges to market an invasive product in developed countries when the company doesn’t have experience in either selling injectibles or the geography.

d) Promoter’s stake has remained constant around 57% for quite a few years now. In the past, there have been acquisitions which also led to equity dilutions. Are there any plans for acquisitions say in the next year or so?

Kiran -

Replied to you in your email.

just back today!

Great work guys. Ayush your question set has the right flow. Too little time for me to do much value-add.

Remember to retain the focus on the 2-3 most important questions. from a first look, if I were the interviwer, I would say set the tone by way of the question flow from Ayush. get them to expand freely. But make sure to get the Products pinned, the geographies pinned and competitors pinned before getting to the 2-3 tough questions.

1). The Advance - 30% of Sales is a huge differentiator. Is this really sustainable? Why? We must get an answer out of them. If we don’t get a straight answer the first time, do not let it pass. Ask follow up logical questions - like

)- we have usually seen, especially for companies of smaller size, being pretty dependent on terms set by top distributors in the country the company chooses to penetrate - extended credit terms, etc. here it is the reverse, why?

)- there must be something special you are doing, in your product. Why isnt competition able to replicate?

2). For a company of 100 Cr Sales, Capex of 75 Crs is again pretty huge, and some would say frought with many risks. Just why are they so confident? Why does it have to be this size? Do they have guaranteed off-take contracts from a bigger Manufacturer

All the best.

PS: Since there is considerable homework done, someone among you should visit Chennai; nothing like a face-to-face meeting.

Understanding sources of growth, sources of profitability, and sustainability are key. Managements sometimes tend to gloss over these things. Its important to have enough follow up logical/factual questions to not let them get away with evasive answers.

-Donald

on a lighter note, something does not seem right! Don’t get the right feel:)

Why is Dr Hitesh missing from this discussion (or did i miss him). I may be wrong but if I remember right, this company was brought to his notice way back in our Gujarat trip by Ayush?

-Donald

caplin does not have any presence in prescription market in india. most of its products are exported. plus most of the products are run of the mill products. So there is not great advantage that company has over similarly placed other companies.

Plus a lot depends upon the company successfully completing capex.

Too many ifs and buts for me and hence not interested in this one.

Large exports also expose it to risk of forex. If rupee moves back to around 51-52, there could be a big drop in profits. Couldn’t find AR11-12. Will look more. Numbers look very good though.

Thanks Hitesh.

I haven’t had a detailed look - there are no apparent answers for the good traction in numbers/margins.

Maybe the questions guys have put up will throw some light.

-Donald

When is the concall? Can I have the details.

Please ,when is the concall?

I thought this was scheduled for Friday. Did anyone attend this?

Kiran attended it and he is going to update the answers in a day or so.