Market Cap. (Rs) 135crs Promoter Holding 57% ( No Pledge)
Dividend 20% Face Value (Rs) 10
The story so far âââ…
Caplin Point Laboratories â CPL is a Chennai based pharmaceutical company into contract manufacturing whichconverted into a Public company in 1994 and its IPO was oversubscribed ~ to 117 times. It merged May Labs â Chennaiduring 2006 and Malind Labs â Baddi during 2009 so as to increase its production capacities and has 3 fully functionalmanufacturing facilities in Pondicherry, Tamil Nadu and Himachal Pradesh. Mr Jayapal is the Managing Director and thepromoters hold a 57% stake in CPL
The Rs1bn CPL does contract manufacturing for a wide range of dosage forms (tablets, capsules, liquid orals, powder,SVP, ointments and lyophilized products). CPL derives ~90% of its Rs1bn revenues from the international market (nonregulatedmarkets) and is presently expanding capacities to manufacture hormone and sterile injectibles aimed at theregulated markets through facilities which would be compliant with the US FDA and UK MHRA.
The story ahead âââ…
The facility to manufacture sterile speciality products would go on stream in 3 phases â Phase -1 during Q4 of the currentfiscal, Phase -2 during Q2 next fiscal and Phase -3 during FYâ14-15. CPL is virtually a debt-free company and has cash ofRs275mn in its books as of June 2012 (CPL follows a June YE). We believe that CPL going forward would show enoughtraction in its business year over year as its business model is evolving in the right direction. Despite being apredominantly export driven company ( 90% exports) we are also impressed with its product lines for the domestic marketand our channel checks suggest that products manufactured by CPL is gaining acceptance rapidly during CYâ12.
Imports constitute close to 40% of its revenues and the company wrote off an exchange loss of Rs50mn in FYâ12 whichnegatively impacted its profitability last fiscal (CPL posted a net profit of Rs82mn after the FX loss of Rs50mn). Webelieve that its business model can generate an ROCE of 30% every year as we foresee revenues to grow @ CAGR of50% over the next few years with a rise in profitability. We expect CPL to post an EPS of Rs10 this fiscal and Rs15 nextfiscal and recommend a BUY on the stock at current levels of Rs89 and at declines for a one-year price target of Rs200
Had done a blog post few days back, thought of updating the same here:
Caplin Point (BSE:524742)
This seems to be a very interesting pharma company at an early growth stage. We have been tracking it for some years but it really caught our interest when we received its FY12 annual report few months back. Few snapshots:
The interesting thing was that the companyas topline had grown by almost 35% in 2012, and yet the**efficiency improved. The inventory and debtors remained at very low levels, debt reduced and the cash on balance sheetincreased.**The company has been getting efficient over the last few years:
The most intriguing part was the major increase in current liabilities. Going to the schedule we noticed that thecompany is gettingsubstantialadvances from the customers:
So for a 110 Cr turnover company, getting a 30 odd Cr advance is extra-ordinary. If this can be maintained then this could be a very interesting story.
The companyas business model is that it has created a niche for itself by offering a basket of products and by having a high number of product registrations in small markets in South/North America. Due to its product range, the company is able to get advances from thedistributorsthere.However, the risk is that these are small and unregulated markets and hence things can change over a period of time.The company is trying to mitigate the risk by undertaking a new expansion in the area of asterilespecialtyproductsa****and ahormoneineluctablea in line with US, EU & UK-MHRA requirements.
The projects cost is estimated to be about 75 Cr and if the company is successful, it can go to a new level. Here are the details ahttp://www.caplinpoint.net/cpIV.htm
Risks:
1). The valuations are not cheap and hence if things donat pan out as expected, corrections can be sharp.
2). The company is at an early stage and hence things can change quickly.
Yes Results are decent. Sales have grown and profits have grown year on year basis.Sales grown from previous quarter also, but profits slightly down from previous quarter, there was forex loss. Still stock hitting lower circuit past 2 days. Looks like the stock will go down as quickly as it has risen. Strange ways of Micro-caps ! It would have been fun to catch this falling knife. Alas! no funds available
Yes, decent results. The stock seems to be taking correction as the EPS was a bit higher in last quarter (due to forex gain) and people would be annualizing that. I think the stock offers value at 65-70 range. However being a very small cap pharma co, it would have its own risks
i was going through the old annual reports which mentions of a plant being set up at Noida.
Seventeenth Annual Report
The Company is also evolving its plans to set up a Plant NOIDA, Special Economic Zone which may engage in manufacture of Pharma Products by adopting Suppository and Drinkable Ampoules Technologies for which there is a gap in the demand and supply in the South American, Central American and UAE Markets.
Eighteen Annual Report
The company is in the process of setting up a plant at NOIDA, Special Economic Zone which will engage in manufacture of Pharma Products and this is expected to be operational during current year.
I was not able to see any mention of this plant in the nineteen Annual report or later, does anyone know the status of this plant?
NOIDA happens to be present in UP, where the rules of the law changes with change in ruling party, and you might need to give bribe second time for the same approval. Hence I am not amazed by this development.
caplin is not putting up any plant at Noida. It is setting up two sterile injectable plants near Chennai. These plants are being made for regulated markets. One of these platns will be for high value high margin harmonal injectables.
**This is serious. Automatically Calls for an AVOID. **There are enough opportunities in the market.
We might still like to get a reaction from Management, as part of our Chennai trip.
Ayush - Thanks to your reader Bhushan for this important alert.
Subash - Thanks for putting up the link here
Searching for “Caplin Point” athttp://www.watchoutinvestors.com/default2a.aspshows minor infractions (though corrected immediately) like non-disclosure of change in shareholding pattern in time,etc.
Can some of the skeptics get to work? There might be more!
Little unrelated, but for people who don’t know, it might help to get a perspective. I know a person whose name is say something like SomasomethingChandisomethingSatsomethingRamesh. In places where it’s legally not very important (like a resume db), he writes his name as he pleases, likeSomasomethingRamesh, RameshChandisomething,Satsomething Ramesh , SCS Ramesh …you get the flow…
Don’t think this is about recency of the offence or the size of the company when the offence was committed. Its about the quality/ethics of Management. MD being charged for colluding with drug counterfeiters is no small economic offence, its serious crime! Should something come out …the Market’s reaction for this type of a small company…can be crushing. How can we overlook such a seemingly big RISK…how can it be a non-event??
I read back Kiran’s detailed interview with Chairman CC Paarthipan, posted on this thread and found this…He gave a lot of personal background information on how he struggled from 1994-2000, how he had to run away to Angola (where a civil war was going on) to escape from huge debts back in Chennai, how his partners deserted him, how he has learnt his lifeâs lessons…
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the timing of the indictment and running away to Angola may be co-incidental, but surely is intriguing, isn’t it? Seniors, please comment.
In view of the seriousness of the allegation, I would prefer to give this one a miss even if it were to become a multibagger. Question is with such kind of management how much part of your portfolio would you be willing to bet on this one?
