I too suffered from similar feelings some years back when stocks other guys told me to avoid went up and i had some holding in those stocks… e.g patels airtemp, parekh aluminex, lakhsmi energy etc… I was often lucky to get in at right price and even luckier getting out at right price…And I was even naive enough to bet a big chunk of portfolio on these duds… But that did not make me a great stock picker…
These went up and went down even faster…
And then one question from a very savvy young investor Prabhakar Kudva on some thread opened my eyes…How much can you bet on these kind of stocks?.. If u are even going to get a two bagger on a stock which occupies only 1-2% of your portfolio weightage, its not going to materially impact the portfolio returns… Of course you can be lucky or smart enough to discover a ten bagger or a forty bagger and then that would make some difference but these kind of baggers are difficult to find and more difficult to latch on to.
learning from others’ mistakes is often the safest and most fun way to learn. You dont lose anything and end up learning a lot.
So these days I am interested only in stocks where I can bet atleast 10% of my portfolio without too much concern… And that definitely improves the overall portfolio performance.
Check share of land/building as a per cent of Gross fixed assets. Plant and Machinery investment for a typical manufacturing company is around 60-70% of total gross block. In case these P&M is around 30% of total gross block with Land and Building being substantially high at around 50% of total gross block.
Explore investment in May Properties Company. Why the pharma company investing in real estate company?
Please check interest cost for 30-6-2012 year end. Rs 9 Lakh of amount is paid as interest on income tax. When the company has such large cash deposit, what could be reason to pay such high interest?
There is no value addition in the business. As against typical Indian pharma company which is very high forex earning, the company has forex outflow of around Rs 40 cr. The traded material purchase is around 47 cr. There appears to be no value addition
As compared with Sale of Rs 100 cr, the company has excise duty payment of only Rs 1 crore. Assuming on exports it is exempted from payment, still appear very low. One reason could be very limited value addition on raw material purchased (which appear to be cash with lower manufacturing expense and power expense).
Please compared table no 39 and 42 on page 45 of annual report. CIf value of imported RM and finished goods Rs 38 cr for FY12, while value of imported material consumed is only Rs 5 Lakhs !!! So that means, the company is importing goods worth Rs 37 Cr and selling as trading goods.
Total traded goods sale was Rs 60 cr while traded good purchased during FY12 is Rs 41 Cr. (Table 43 and 44) So only trading profit is Rs 20 Cr (i.e. around 33% margin). I just wish I have these business model !!! Plus around 33% of customer (100 cr sales FY13) have made advance payment to the company. Assuming the ratio of trading to manufacturing is applicable in advance from customer, 1/3rd of the customer are making advance payment for imported goods !!! Wow !
Auditor fees details are without service tax from FY12? So who borne the service tax? The auditor?
Total debtors as on June 2012 is Rs 7 cr while hedge for debtor is Rs 5 Cr? Does it mean only Rs 2 Cr of domestic debtor with sale of around 50 Crs?
The company has Rs 1.28 Cr interest accrued on Deposit? Whom this deposit is placed with and why?
No management discussion about business, brands product, major customers.
Overall, to me the company is creating business out of air and would soon vanish in same. Please do your diligence properly.
Some valid questions there Dhiraj, but some have very easy answers:
Why not?
Company has taken a loan, so the payment of interest. Upto their discretion how much is to be taken as loan, etc. Still a tiny amount when compared to companies of a similar size.
According to their reports, they have over 1000 product registrations overseas, and its impossible for all products to be manufactured by themselves or sourced locally. So I’m guessing a lot of it is imported/high seas traded. I’m also surprised you’d say “no value addition”, when you consider they’ve just completed an injectable plant for regulated markets, with almost zero borrowing.
Close to 99% of revenue is from exports, so hardly surprising.
Is it a crime to have a good margin? Most companies would kill for these numbers!
Again - isn’t it in the best interests of the company to get interest from FDs?
Agree that they’re not very vocal. But I’m assuming all that would change post entry into the regulated segment.
Final point - its pretty unfair to say the “company is creating business out of air and would vanish”, when you consider they went IPO in 1994 and have gotten back to doing very sound business in the last few years. If they were to vanish, it should’ve happened in 2001 when their shares were at Rs.0.90.
Ruan, Appreciate your view and final comments from my side.
Nothing wrong to have real estate arms, but that raise suspicion about real object of the company management. Final choice is yours any way.
well the question is not on payment of interest on IT payment. It is really to know whether the company is generating cash on time or not
Please note that product registration are important, but gets more critical when they in developed market. So 1000 registrations in developing market with lower margin would not gain company higher margin.
Please check the figure in annual report. It is 89 crore for June 2012 in 110 crore.
It is not crime to have good margin. But one need to know how can company earn such great margin from trading business? If you can explain to me, it would add to my knowledge.
The question was about aggressive accounting rather then company’s choice of reinvestment
While I take your point, going same logic, no company operating in domestic market shall write anything in management discussion. It is more on sharing information and general perception with public at large.
Final reply: All the best to you with your investment. Only time would give the answer. Let is wait for final answer from future.
Sorry Dhiraj - still dont agree on any of your replies except Point 5. So, I guess we’ll agree to disagree.
However, what I dont think was right is your conclusion that the company is “doing business out of air” and assumption that it “would vanish in time”. For that, I wrote “when you consider they went IPO in 1994 and have gotten back to doing very sound business in the last few years. If they were to vanish, it should’ve happened in 2001 when their shares were at Rs.0.90”. They’ve even started to pay steady dividends over the last 3 years.
But you haven’t replied on this point.
I just think a forum like Valuepickr with hundreds of brilliant minds like yourselves and others should be a little more responsible while making statements.
Anyway - like you said - “lets wait for the reply from the future”.
We had decided not to intervene in the Caplin discussion/debate beyond the cautionary statement issued by Admin. However seeing the continued over-optimism/bullish overtones, I have to make the following observations/bring out some indisputable facts:
The attempt is only to bring everyone on the same page as Ayush, Vinod MS, Omprakash, Tirumal Rao and myself.
1). The “Advances” position comes from only 3 countries (where family connections exist). The company admitted the advances model is not scalable - it cannot be replicated in bigger markets like Brazil & Mexico, or for that matter in most new markets.
2). The Injectibles capex is largely from internal accruals - that is a great position to be in. However the company admitted significant commercialisation of the same is far away. The company also admitted entry into developed markets/stories of USFDA approval are atleast 4-5 years away!!
3). Since current product profile is mediocre to poor, but financial metrics seem to suggest otherwise, we pressed for the company’s USP - the answer was “eliminating middleman”.
4). Eliminating middleman business model was largely applicable only in those 3 countries - there must be something else that’s key to the company’s visible success - we kept on pressing - Is it Products, Is it manufacturing technology, API strength, In-house processes, R&D, Marketing/Branding, what???
There was deafening silence (and or beating around the bush) on that front. I have never met a company which could not explain its own success!!
Suggest the Caplin-bulls to try and get on the same page first - preferably by talking to the above-mentioned. It’s always better to err on the side of caution.
Vicarious experiences have taught me a nice lesson, that indian equity market is full of minefield, and waiting to be exploded at any time. There are hundreds of examples of companies who have done business out of thin air (or so), and have vanished to gutter. You may remember the saga of bartronics, satyam computer, zylog system, and many such gone-with-the-wind company.
In such scary market, use of phrases like time" are some signs of a mature/conservative investor.
That, you have not heard of such phrase, and that you offended via these seems irrational to me. Things to remember is one should never ever fall with love a stock, and should never over-exert one convincing other why to invest in a stock. When people disagree (which has happened with me in quite a few cases, recently with Page, which I feel is fairly valued), I feel happy for that; that gives me lower entry price for stocks.
Discussing a stock to get deep into it, or being a bear/bull on a stock is fine, as long as we are not getting emotional, offended by others statement.
My replies are noted in bold against your comments.
The page
1).
I had mentioned in my 13/5/13 post that advances are not sustainable, as the new business (injectables) will have different model. Is this a reason to avoid stock that in a new related diversification, the company will not have customer advances? Are all our stock picks are comapnies where they have customer advances?
2).
As I had argued earlier that the injectable capex will be a valuation booster, as injectable capacities for regulated markets have changed hands at handsome valuation in very recent past e.g. Strides (Agila unit sold to Mylan), Orchid (sold to Hospira), and Claris (sold to Mitsui & Otsuka). It may take a year for this capex to commission & break-even but the wait is worth the inherent value. Is this company an “Avoid” because the capex commercialisation is some time away despite inherent value? Mind you, the existing business will continue to drive earnings growth in the meanwhile.
3). 4.
Caplin’s products are general medicines like paracetamol, etc. and yet it makes good margins because of the nature of market and business model. Middlemen elimination should be looked in totality. Nicaragua, Honduras, Guatemala, Costa Rica, El Salvador are the markets caplin sells its products. These are difficult markets to enter into because of strong hold of distributors there. (You can check with Ajanta and others why have the not entered there). As these are small markets, these are not worth fighting for mid and large companies given the oligopolistic distributors there. Caplin promoter’s son married to a local distributor’s daughter there and stays there. That’s how caplin found a foothold there. It buys half of products from china, ships directly there and sells there. It’s difficult for an Indian company to match china’s costs in these large volume low priced products. My mom says, in kitchen recipes, there is mostly one small ingredient or small process that’s the key. Even in business, the critical success factor mostly is just one simple thing and not complex or multiple things. In this case, it is indeed ‘middlement elimination’ but we have to see it in the context of the markets’ peculiarities.
I keep meeting a lot of micro cap promoters and not many of these are articulative / polished like mid and large companies’ promoters or their investor relation personnel. Does the company become “Avoid” because promoter can not articulate the success story in a manner analysts can understand. There are examples of promoters even among large companies who are not very articulative (e.g. Gautam Adani). However, years of interaction with cross section of investors and others have improved his articulation over the years. Ask those who interacted with him in his early days. Interaction with valuepickrs was probably the first ever interaction with analysts by caplin promoters. I haven’t come across any report except for a small note by nirmal bang and lkp but these both came after valuepickrs meeting.
If there are still things which “do not add up” (as admin calls it), please let me know.
Donald’s attempt was to bring everyone on same page. As per Senior ValuePickrs, the investment case is rested long back, we are not about to re-open it. Our job is NOT about making experienced folks see more than they can READ from the facts/data.
Our job is about seeing “innocents” and newbies ALERTED to the “hidden” warts and deep holes that are (not apparent to the un-initiated) very clear to those who have turned many stones!
Every time there is a bull-hype tried to be created around a business that we think doesn’t have much substance (to the best of our judgement) and is an AVOID, we will inject CAUTION. We think that’s our job!
And towards that job which we take very seriously, we would encourage the Caplin bulls (in this latest instance RSKm and Ruan) interact directly with those who visited Caplin Point (call up or meet in person) Donald and others - in a bid to expand your TRUST circles. If you chose to remain incognito, that will tell its own story!
I know so much about the company because I have interacted with someone who visited caplin. I have to remain incognito in order to avoid compliance issues at my office.
I have already answered point by point to what seniors READ. If they READ more than this, what prevents them from writing about it here so that all innocents, newbies, and un-initiateds are adequately ALERTED and educated in the process. I will be happy to bring everyone on same page. If any senior disagree to my points in my previous reply, I welcome them to say so here.
1 We did not understand this business and will give it a miss. We donot care if it becomes multibagger. There are other potential mulitbaggers that we understand better than this.
Is there something that is preventing you from directly interacting with either Donald or other ValuePickrs who have visited Caplin Point? Or for that matter naming any regular long-standing ValuePickr member that you are in personal touch with?
Since you are from Kolkata, how about meeting up with the Kolkata based folks?
We will respect your privacy requirements for sure, we appreciate that, and will take every care that it remains private. BUT as you can see we take this TRUST circle thing very seriously.
I think this thread has run its course. Points have been put forth by both sides, but there’s not going to be any conclusion from the looks of it. Fortunately, we’re all mostly dealing with our own funds and can very well choose what to do with it. For now, lets agree to disagree.
Lets give it a bit of a rest (I would presume 8-9 months from now) and see who’s going to be the first to say “I told you so”
How about meeting up with some senior ValuePickrs from the city? You will get to know first-hand from them what they think about the business? And we would have expanded our TRUST circles!
Neither am I from Kolkata if that’s meant for me. My profile on valuepickr clearly says I am from Mumbai. I can personally meet whoever you say in Mumbai.
Without taking sides, I would like to point out that not all promoters are keen on interacting and keeping analysts satisfied. From a purely economic standpoint, it doesn’t make any sense for management to interact with stockpickers as they do not get anything of it (maybe a healthy shareprice, if that). It only make sense for management to put an effort if a PE firm or a venture capital firm is investing a significant sum in the company. So I can understand why management weren’t keen on explaining their business success to a group of stockpickers. Its really not their job to help stockpickers make money!
Personally, if I was the promoter of an up and coming company I’m not sure I would entertain stockpickers.
BTW, I had a question regarding the forex losses. Why does the company keep make losses when the INR is falling? I assume they are selling their products for dollars and have msot of their costs in INR? So why do they keep having forex losses in every quarter?
