As far as I am concerned all the reasons are valid, but I am more concerned about their operating cash flow which is half of their profits. They have given some 48.68cr of loan to someone maybe their joint venture. I have sent them 2-3 mails from last 15 days, but dint get any reply. Just want to know the loan details(to whom, tenure, interest)?
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The only reason, I see for the fall is lack of trust in numbers published by the company by investors at large and premium valuation vis a vis its peers.
The company has been very transparent wrt to increase in receivables and it is expected to continue to grow along with size and scale of the business as the case with other pharma companies in the business.
In that case the company donât deserve the alpha valuations and with sales of ~800cr the market cap of ~2400 cr itself is quite a premium compared to peers.
So, the stock is not going to move any where in near future given the premium valuations.
One needs to invest with a vision of atleast 3-5 years and patience to add more on falls with the trust that numbers wonât throw any surprises.
Comments welcome.
Disclosure: Invested and planning to reduce
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My two cents
Valuing only on Price/Sales is not a very good idea I think and even incase we value it, then I feel P/S=2.5-3 is undervalued to fairly valued category, we can say. Currently that number for caplin is 3.13 but at the same time its ebidta margins are superior to others, so have to keep that thing in mind. So accordingly I feel now its fairly valued, but yes I too agree with you on the receivable front. Company has been vocal about its debtor days to remain and maintain at an average of 90days. Also had a chat with their CFO Mr Muralidharan recently, he too explained the same thing and told that company will maintain debtor days at around 90days from here-on and wont increase further(will only increase proportionately to sales). Also asked him about the 48Cr odd money given as loan to some one. He clarified me that Caplin is acquiring some Channel partners in Latin American countries to avoid the intermediaries, so in one of the country the government has registration through channel partners and require a company to have minimum span of operation in that particular country for atleast 3years to participate in tendering business. So they are operating through one of the channel partner and caplin has funded its(channel partnerâs) inventory. Caplin will be delinking from that channel partner in next 1-1.5years and can directly tender as at that point it would meet the government criteria and will be eligible to tender directly. Currently Caplin has already liquidated 40odd cr and some 10cr is only there with the channel partner which is getting liquidated, probably by this qtr end. Also this amount consists of some capital advances for some machinery and stuff for which the company has received the machines.
He also told me that company is engaging more in tender business as they are sometimes more profitable where it will have to give credit(basically to the gov bodies) which is the reason why their receivables are increasing and the money is totally secure as their gov is liable to pay back, it will take time to come back but all the money is secure.
Overall he looked confident and all my questions were answered.
Disclosure- Invested and monitoring the receivables/cash position closely.
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Another USFDA approvalâŚ
CAPLIN STERILES GETS USFDA APPROVAL FOR SODIUM NITROPRUSSIDE INJECTIONâŚ
Sodium Nitroprusside had US sales data of approximately $8 million for the 12-months period ending
March 2019âŚ
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Does anyone understand why the stock price fell as much as it did in last couple of months? There does not seem to be any trigger for this. Also, the free cash flows for the company 1 seem quite reasonable. Most of the news around the company also seems quite positive 2.
I saw the point about the market not trusting the numbers, but there do not seem to be any triggers for the 30% drop around november starting.
Im a bit confused, are CPL spinning off the injectableâs division separately ( the one in which fidelity invested), or will it be a subsidiary and consolidated within the CPL financials ? thanks
Is there any reason as to why the company is holding cash and cash equivalents of close to 250Cr and not paying them out as dividends/ utilizing them for buybacks. The company has been consistently maintaining cash to sales ratio of around 25% which is very high. It is unlikely that the company would utilize it for capex as the combined capex over the past 7 years is only around 230Cr
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Is Cash Real?
Why receivable and inventory gone up significantly compare to 1-2 year back?
I think such doubt already priced in existing share price (PE De-rating)!!
I recall similar situation for KITEX earlier !!
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Receivable and inventory gone up because of they entered USA market and itâs nature of business in the USA ⌠management taken these businesses with cautious. These as per last two conf call
This is a very good question. Thank you for asking. I completely agree that capital allocation done by management is always a very important question for investors to think about. One thing we should appreciate though is that the company is largely debt-free. it always funds capital allocation from cash reserves. Isnât that generally a good thing? Also capex cycles are generally only once in 3-4 years if i understand correctly, you do not construct factories or purchase equipment every year. Having said that we should definitely see the annual reports for Caplin point to better understand their future capex plans.
I would also encourage investors who can, to attend AGMs, shareholders meet and utilize such questions to directly ask the CEO/COO/C*O why they seem to be hoarding cash.
What part of sales come from USA? I understand as per last presentation that it is under 80-85 percent Latin America - receivables are now 80 days plus compared to 12-15 days 3-4 years back - does this 10-15 percent outside Latin America contribute to 80 days? I donât think USA should contribute to such a rapid rise.
See its trade advances over last 6-7 years.
The management has been saying that its debtors has increased because it has expanded to other countries. But what about the trade advances which it use to get from the latin american business? They have gone to 0.
Even if the company have expanded into other countries, the trade advances should have at-least be constant in absolute terms right? This indicates that earlier advances were all fudged and business model was never working on negative working capital in Latin America.
The management has provided the reason for the steep rise in receivables in last 2 concalls. Further, they have also mentioned that the receivables may stay in the same range if I recall correctly.
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In the 2019 AR, they have mentioned that they have started participating in tender based govt contracts in larger South American countries, which are driven by large volumes but have a reasonable credit cycle.
From the report - âGoing ahead, we will continue to have
secured receivables on our books as a
conscious approach that will make it possible
for us to grow our tender-based business.
In a couple of years, when the Companyâs
advance-driven US business and the branded
generics business acquire traction, the overall
receivables tenure of the Company could
decline. Until then, we remain committed to make a
productive use of a part of the available cash
surplus through the generation of a superior
return from the attractive tender-based
markets of South Americaâ
I believe that this, along with the US business and moving to OTC pharma products which have higher debtor days but higher margins has led to the increase in accounts receivables.
Are there any other potential red flags in the company?
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I must start this post confessing that I know nothing about this business. I didnât dig deep enough after looking at receivables. Could you kindly provide information regarding what I am missing. Their December presentation mentions sales of 85 percent in Latin America which is roughly a zero debtors business as I understand. What I seem to be missing is how can the balance 15 percent contribute to 80 debtor days at an overall sales level? Does this mean that the remaining 15 percent business is taking place at roughly 500 days debtors? What am I missing?
Just a couple of comments above, @sahilverman has pasted a mention from the AR. It is a good practice to start looking for answers in the annual results from previous years.
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No. The debtors are from latem only. Request you go through all the concalls / couple of ARs and all this thread from the beginning.
New ANDA approval
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Hi,
Can someone help me with the impact of Coronavirus on the company. Iâm looking from the fact that given the company was mostly involved in trading of meds from China to Latam and other developing countries, how grave an impact would the pandemic have on its supply chain?
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does anyone have clarity on the fixed asset intensity of the business? whatâs the maintenance cape and whatâs the growth capex ? last year the 2018 the capex on fixed assets was 45cr the year after it was 65cr.
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