Caplin Point Laboratories

Yes, receivables are piling up…

Almost all companies that went down had signs of higher and higher receivables

It means goods are sold but not collected or can even mean dummy sales since no cash is received

Once the receivables get back to normal sp can triple from the current level

Edward

I think we should all read atleast 5-7 years of annual reports, company announcements and complete thread before posting anything based on latest numbers, just to know the history and context.

I am highly bullish as always on the stock, riding it since very long… miles to cover

Disclosure: Vested interest and biased views

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I have read the annual reports

In the last report they said AR will be high because of new business requiring higher AR terms to be offered

On the entire sales (new plus old) AR ratio is very high unless all historic sales is also now done on new terms

If you take average AR of old business and calculate the difference offered to new business, it works to extremely high dso days

It’s anyway a number that a lot of people earlier in this same thread are worried about

My Q&A session with the management. Please let me know your comments
Management Q&A.docx (15.0 KB)

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Thank you

There is a problem with this explanation

“However, not only would this attract a marketing cost but also an increase in the receivables cycle as establishing market presence of essentially a new product takes time. This is what increased the receivable days and caused a 40% drop in share price within a week in 2017”

Should we not see a drop in revenue if generics business is lost and branded business picking up.

The management is aware what is causing shareholders to be queasy.

Let’s say generics business was 100 and it went to 80 and because of marketing they got 40 for branded

Previous accounts receivable would have been 100 /365 x 30

New Accounts receivable should be
80 / 365 x 30
40 / 365 x 90

Somehow the receivable on entire 120 revenue is high and the revenue is also high.

Difficult to say if we lost a lot of generic business and still made up with branded business

I am working on mobile today but I think the cost of goods, (as margins are higher on branded business) should give a rough idea of how much percentage is branded and how much percentage is old generics.

Someone good with excel might be able to help put this in for a rough idea.

The management did say in last audit report that all extra AR was collected. As it’s now one year since they have a high AR, any auditor will ask for provisions if the debt is not collected. This year’s annual report would be a good source, I reckon.

Point Taken
The Branded:Non-Branded split is 1:3 as of Feb this year and was 1:19 in 2012. Also it’s not just the receivable cycle but also the payable cycle that gets affected during new product launches/new market ventures. The management doesn’t anticipate the current cycle to change much even after gaining traction with the new products.
What I don’t understand is why is Caplin the only company being punished even after having the working capital cycle within industry standards?! Bigger pharma players have a 100 day receivable cycle even after having a relatively stagnant product portfolio! Plus, they are much bigger in size and have a much stronger brand than Caplin.
I asked the COO point blank about the quality of receivables and they did say that it has been monitored very closely and there have been no defaults whatsoever yet

I think no one is “punishing” Caplin

Share price reflect changes extremely fast so if someone wanted to pay the price of x on a balance sheet with lower DSO, the higher DSO would be x (-) cost of running the higher DSO as well as premium or discount for the extra risk

Over 1 or 1 half year if this is indeed the new normal, I think people will eventually not want a discount to the extra risk

Does anyone know why the Q4 profit margins were lower compared to the rest of the year? At a PBT level for Q4 they made 60 cr on 190 cr sales while in Q3 they made 60 cr on 166 cr of sales. Some portion of this can be explained by royalty payments (Other income) but even excluding that the gross margins have decreased Q-o-Q.

This is because of a global slowdown compounded by a slowdown in Indian pharma over the past 2 years. Compare it to other pharma players and you’ll realize that the result is comparatively better

Does anyone know the implications of this?

Dividend announced of 110% of INR 2.2 per share this is much below my expectations, but I think following were the reason the company plans to conserve cash:

  • US entry will be expansive proposition and new filling will require lot of cash
  • Plant expansion is also consuming lot of cash
  • Entry into new markets will also require lot of cash

Key Performance Highlights: Financial (consolidated)

✓ Top line growth of 21 % at Rs. 668 Cr in FY 19 on a higher base of RS.552 Cr last year

✓ EBITDA crossing the INR 250 Cr mark, growth of 21 %

✓ Contribution margin at 56%

✓ Opex increase only by INR 26 Cr (cash opex by INR 21.6 Cr and depreciation by INR 4.4 Cr). Opex as a% of Revenue is flat at 23% as last year

✓ PBT grew by INR 39 Crs (INR 188 Crs to INR 227 Crs), 20 % growth over previous year. PBT as a % of Revenue at 34%

My take: One of the highest in the industry

✓ PAT registered a growth of INR 32 Cr over previous year to INR147.44Crs

My take: on track to become INR240crs by end of 2022

✓ EPS grew by 22% from INR 19.16 to INR 23.35

✓ Around 40 % of current year PAT is spent on R&D in 2018-19, a high number for a company of our size in this segment

My take: This will help the company in their long-term plans to move higher up the value chain

✓ Company invested close to INR 40 Cr in Fixed Assets (non- R&D)

My take: Newer asset creation will lead to higher sales and profits, again another expansion from internal accruals

✓ ROE at 40% and RoCE at 50%

My take: One of the highest in the industry

✓ Debt-free Company, having Cash & Cash equivalents (including liquid investments) of INR 223 Cr

My take: No one can default on debt if they have none in first place

Business Highlights

Emerging Markets

✓ Emerging markets unit CP-1 at Puducherry approved by Colombia’s INVIMA; the first International Regulatory approval for this site.

✓ CP-l’s Injectable line and Capacity expansion of Softgels completed. This facility is now capable of manufacturing Injectables in Vials, Ampoules, Pre-Filled Syringes and Lyophilized Vials, in addition to Oral Solid and Liquid Dosages and Topicals.

✓ Amaris Clinical (CRO wing of Caplin) completed. Awaiting approvals from domestic and international inspection bodies such as US FDA, ANVISA, WHO-Geneva etc.

My take: Recent FDA inspection with two observations

✓ BE/BA studies for own products to commence at Amaris Clinical shortly

✓ API and Intermediates R&D Lab (CP-6) at Hyderabad completed. Targeted towards shortages in China for several intermediates due to mass shutdown of units, in China.

My take: Now this is something which is very interesting. A new business altogether for the company, would love to know more about it in my next interaction with the management.

✓ Recent launches of products in niche segments such as Injectables, Pharma Softgels, Suppositories and Branded/OTC range contributes to growth.

✓ Increased outsourcing of simple generics so that own manufacturing capacity can be focused towards high value niche products.

Regulated Markets

✓ First ANDA approval received under Caplin’s name, for Glycopyrrolate injection. Product to be launched in US shortly. According to IQVIA (IMSHealth) Glycopyrrolate injection had US sales of approximately $110.12 million, in 2018

My take: how much market share can they capture of this?

✓ 2 ANDAs already commercialized at US, with 2 more to be launched shortly. Current partners at US - Fresenius-Kabi, Baxter and Meitheal.

My take: what is the revenue from these two ANDA’s?

✓ 11 ANDAs filed from Caplin in total, with 4 approvals. 7 of these under Caplin’s name.

✓ 10 more AND As targeted for filing under Caplin’s name in FY 2019 /20.

✓ Signed License and Supply Agreement with Baxter Inc USA for 5 of Caplin’s filed ANDAs.

My take: Excellent visibility as they are contracting with one of the biggest giants in the USA.

✓ Capacity expansion likely to be completed within Dec 2019. Post expansion targeted capacity at 60 million units, from 24 million units currently.

My take: Another expansion from internal accruals

✓ Targeting a revenue mix of own ANDAs and Contract Manufacturing for MNCs.

✓ R & D strength increased by greater than 45% from last year to more than 270 personnel.

My take: Quite a big investment but necessary if they want to grow big in due course.

All in all, the company is working on everything which is required to make it big over long-term.

Source: Company press release
Disclosure: Vested interest and biased views

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excellent set of results
Top line growth of 33% at Rs. 197.02 Cr in Ql FY 20 as compared to Rs. 148.07 Cr
last year
EBITDA growth of 31 % at Rs. 71.85 Cr in Ql FY 20 Vs Rs. 54.64 Cr last year
PBT grew by INR 15.28 Crs ( INR 49.17 Crs to INR 64.45 Crs), 31 % growth over
previous year. PBT as % of Revenue at 33%
EPS grew by 34% from INR 4.95 to INR 6.64 (not annualized)
Debt-free Company, having Cash & Cash equivalents (including liquid investments)
of INR 245.55 Cr

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Hi Team,

Any update from the AGM if some one got the chance to attend.

Regards,
Atul

I just wanted to to get some small clarification on the cash position of the company. Below is the screenshot of the cashflow statement of the company for Fy19(From Latest Annual report). Under the heading Cashflow from operating activities>Operating cashflow before working capital changes>Increase/decrease in loans. Can someone please let me know so as to what exactly the amount of 48.68Cr has been spent/expended on? I am not able to get that thing.

We good question… Also why is loan forming part of working capital changes??

Caplin Point AR Points!

https://drive.google.com/open?id=1b8AS0g0FvFHRhfsgZg2ifPEZexa6rpsR

Research from E-global Group of Companies!
(Disclaimer: Not an investment/trading recommendation)

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Hi @rushikesh.k25

Thanks for pointing it out. I see a related item as part of Balance sheet indicating increase in Advances section. I believe this is the advance lent by Caplin point to subsidiaries or Chinese manufacturing partners to support working capital investment.

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Thanks for the reply, the amount is big thats why I pointed it out, No further details are available it seems, tenure and whether they are charging any interest, if yes then how much, to whom it was lent to? Already written a mail to them 2 days ago, but no reply yet, will update here if I get anything.

The stock is sideways for a long time and keeps moving between a range… even when both topline and bottom lines are growing at a decent pace. What could be possible reasons?
a) increas in receivable days
b) risk factors of entering into US and Chinese markets?
c) ROCE & ROE coming down due to entry into regulated markets?
OR something else which markets knows but we dont??