Caplin Point Laboratories

Stock Opportunities Untested - but worth a good look
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RsKm - Your registration details indicate Kolkata. If you are in Mumbai, we will make sure when Team ValuePickr next visits Mumbai, Donald or some one else gets in touch with you.

Ruan - Your registration details while signing up at ValuePickr indicates Lucknow. Let us know the city you are currently in!

Admin function - has the benefit of inputs from 6-7 eminent senior investors and well-wishers of ValuePickr. A couple of them participate in forums here, rest are too senior to bother, but they are the ones to have set the culture & direction for ValuePickr forum and continue to watch over. The responsibility (mostly for intervening/moderating) is a shared responsibility.

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Subbu,

Thanks for your sane observation.

Am only responding to the comment about promoters of small companies not keen to disclose much to analysts or stock-pickers (which in general I agree) - only because this comment came in the context of Caplin Point from someone of as high caliber as you! The comment is inconsistent with Caplin Point Management.

Not sure if you have followed the thread and/or the business details to spot the major inconsistencies. But let’s forget details, lets just take this part about Management not willing to disclose details about the business - and you will see how inconsistent this whole la affair Caplin is:)

Far from not being willing to disclose - On the contrary the Management has been very accessible - to anyone who cares to email/call with a query on the company/business - especially if you are an interested/already invested party. Many many ValuePickr members have emailed/called the Management and received expansive attention!

Which was the case with Team ValuePickr’s visit for the fist few hours. BUT, not when the time came for pointed HARD questions! which don’t have answers! After which the request to keep things off the record - when it was made clear that all the discussion is ON the RECORD - not exactly for private consumption of the few stock pickers who visited (which erroneously was the Management assumption till then).

Disc: I have had no investments in Caplin Point at any point of time. In my job as an analyst I keep visiting company managements. Caplin Point is just another business we visited. My views are entirely personal. The business may indeed do very well in the short or long run. It’s my job to put the facts on the table for everyone’s benefit. It’s your job as ValuePickr readers to take independent decisions.

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I am a newbie here but a relatively old timer in stock market and caution is the word as far as Indian companies are concerned. It does not matter whether Caplin Point is a multibagger but if a senior members have raised doubts about it there is no way I am going to invest in it. Even as an amateur investor there are red flags that I can see at a lot of places, look at the list of countries that it deals in (Nicaragua, Honduras, Guatemala, Costa Rica, El Salvador), strange case of son’s marriage, family connections. As an investor I would rather put my money in a Kaveri or Pi where members from valuepickr forum have done on-ground research to the level of talking to management to distributors to farmers/end consumers.

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Guys tried to soak in the thread from 1 hr… Unable to accurately pin point the ‘moat’ and competitive advantage/sustainability… And quality of business they are in…

Caplin expects to generate 300cr in3 to 4yrsfrom cp-ivaccording to chairman…

Even if it clocks 30cr profits, total EPS will be around 25-27… With a conservative pe of 12 it can reach 300-320 levels…

**3.5-4x in 3-4 years… **Is it worth the risk with red flags being raised ?

And as hitesh bhai as mentioned how much can one allocate…

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the moat or the competitive advantage in this case is the “relationship”,the products being no great shakes.Relations being fragile one cannot be sure if it is sustainable.It is similar to defence contractors(middlemen)/firms in europe telling their investors that they have a business model based on relationships in India.Maybe their investors made money,but are all of them still doing business in India.The countries mentioned are extremely poor with dictatorships changing hands and corrupt.They have been the conduit point for drugs ,drug related violence,illegal money etc. The governments change frequently and there is a possibility that rules of the game change.One would have been convinced if they had got some kind of foothold in Brazil,Mexico or Argentina

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I think people really need to Google some information about the countries mentioned. Not even one of them have an unstable govt, quite the opposite, there haven’t been any dictators for decades. I think the same people still think USSR and Yugoslavia are funding these Central American regimes :wink:

Anyway, as I mentioned before, my inputs on this thread is over.

And Admin - I’m not sure why the registration would say I’m from Lucknow, I’m actually from Chennai and based here.

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I think the track record of donald is for anyone to see… He has been accessible to anyone who wants to interact with him about the companies he tracks/visits…

I cant say so about the other guys rooting for Caplin Point. Those guys cant come out with their true identities or their place of residence due to some or other reason.

This is not to say Caplin Point maybe a bad investment… It may turn out to be a multibagger as the bulls in the counter argue so vigorously.

But as a senior forum member, it is Donald’s responsibility to caution new and lay investors about any investment prospect he considers dodgy…

Its always better to be safe than sorry.

I just hope new investors and lay investors get the message coming across from donald’s posts…

RETURN OF CAPITAL IS OF MORE IMPORTANCE THAN RETURN ON CAPITAL.

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I am aghast at your comment. I have written on this very thread that I am from Mumbai and willing to meet any one. If You want me to write my residence address here, that’s too much to expect. I have also mentioned that identity can not be revealed here due to compliance at office. When I met your friends here, identity will be amply clear. I do not understand this comment!

Admin, when I click on RsKm, it shows my city as Mumbai. I do not know where are you seeing Kolkata. Can you send me the link?

You may like to post randomly cities of a few active valuepickers and see if they are correct. I guess there is some mixup somehwere.

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what is the compliance issue. If at all there is such an issue, then you should not write at all in public forum. There are so many well wishers of valuepickr who has such issues, but they never write on the forum.

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Ruan,

the point i wanted to make was they are poorly governed states ,with lot of poverty and drug related strife along with political unstability,.most of them fit the definition of banana republics which was originally coined based on these countries and some continue to be that way-_Banana republic_is apolitical scienceterm for a politically unstable country whose economy is largely dependent on the export of a single limited-resource product (ex.Bananas.) It typically hasstratifiedsocial classes(social))), including a large, impoverishedworking classand a rulingplutocracythat comprises the elites of business, politics, and the military.[1]This politico-economicoligarchycontrols theprimary-sector productionsand thereby exploits the country’s economy.some info on honduras political situation-

Military Coup Brings Instability

On June 28th, 2009, Honduran President Manuel Zelaya was deposed in a military coup. Zelaya had faced widespread criticism for attempting to extend presidential term limits by holding a constitutional referendum, which the Supreme Court had ruled was illegal. A group of countries, including the United States and Venezuelaaan unlikely alliance, signed a resolution condemning the actions of the Honduran military and demanded that Zelaya be reinstated as president. The U.S. suspended military and development aid to Honduras after the coup. Roberto Micheletti, with the backing of the Honduran Congress, courts, and army, assumed leadership of the country. Zelaya, on the other hand, had the support of most of Latin America’s leftist governments, including the leaders of Argentina, Ecuador, and Venezuela.

Zelaya attempted to return to his country by plane on July 5, but he found a closed runway and well-armed Honduran troops on the ground waiting for him. In September, Zelaya secretly returned to Honduras, taking refuge in the Brazilian embassy. Micheletti responded by temporarily cutting off power and water to the embassy, suspending constitutional freedoms, and shuttering a television channel and a radio station. The moves met widespread criticism from within Honduras and abroad, and Micheletti rescinded his restrictions.

The U.S. brokered an agreement between Zelaya and Micheletti in late October that left Zelaya’s reinstatement up to a Congressional vote, called for the establishment of a government of national unity and a truth commission, and required Zelaya to abandon a referendum on constitutional reform. The accord, however, fell apart within days, as Micheletti reportedly attempted to form a government that did not include Zelaya.

In November presidential elections, Porfirio Lobo, the candidate of the conservative National Party, defeated Elvin Santos, who represented the Liberal Party, 56% to 38%. Zelaya refused to recognize the results of the election. In December, Congress rejected a plan to allow Zelaya to return to office. Lobo took office in January 2010, thus ending seven months of political turmoil.

On May 28, 2011, nearly two years after he was ousted in a court- and legislature-backed coup, Manuel Zelaya returned to his home country. As part of a prearranged deal, prosecutors dropped corruption and constitution violation charges against the former president and Honduras was readmitted to the Organization of American States (OAS).

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Hi Rskm,

Admin and Donald have given opinion based on the actual company visit, management meet and even employee interviews we had done (there were 5 of us). Someone like Ankit took it on face value respecting that view after talking to us in person and there might be many others who wouldn’t even have written here but just ignored the opinion and confidently invested based on their research. Unfortunately you seem to be somewhere in between even though you have your trusted sources informing you about Caplin.

Most others seem to have got the message and taken their decision. We discuss facts threadbare especially when it comes to numbers, but then there could be some opinions which may differ from individual to individual. Valuepckr admin gives a warning after polling senior investors as mentioned by Donald. Take it or leave it.

If building an injectibles plant is the most lucrative business for a pharma company there would have been thousands of those in India. Do you think Caplin has some really strong competitive advantage based on R&D etc that they are building a really “special” injectibles plant?

Ruan, happy to know that you are closing your comments on this thread, as I am eager to see your inputs in other stocks. Hopefully Caplin is not the only stock in your portfolio.

Happy Investing,

Vinod

Discl: I had invested in Caplin and exited completely after the management meet.

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Fair point Donald! it does seem a bit dodgy that mgmt want to keep things off record.

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I will not write on this forum henceforth. Just the last few words:

I thought this forum is about discussion. “Take it or leave it” is not what i thought this forum is about. If donald say we should discuss more, be on same page; then it’s acceptable! When I say the same thing, it is not! I am not just airing opinion. I am making logical reasoning backed statements on each point raised by admin/donald. Why is there no discussion on facts and logical reasoning. I have answered all points. Instead of talking about what is left that is bothering you guys, you want me to shut up my mouth. So be it.

I forum.

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Hey relax everyone, just take chill pill,lets accept that we agree to disagree & move on.Hope every one laugh later to see how one has reacted on this co’s matter.

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Hi RsKm,

Please do not quit posting your thoughts on the forum;these are valued.

It is the diversity of thoughts that allow the forum members to see all sides of a coin.

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Hi RsKm,

I second the views of Strong Brick. It is the diversity of views that matter and we have to realise that sometimes it is not possible for everyone to be on the same page. We just have to agree to disagree and move on.

Also, you should realise that Donald and the rest have met with management and we all know that communication is more than just words. Maybe the body language of the promoters was not convincing and they seemed to be hiding something. All these factors are difficult to convey in a forum with words.

I think one of the main positives of this forum is the diversity of view points it brings and your views are valued. Once all the facts are on the table it is up to the investor to make a decision. I personally bought some Caplin stock at 55 - 58 despite the red flags raised by Donald as the risk - reward ratio suited my appetite.

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Thanks Hemant, StrongBrick and Subbu for calming things down and encouraging folks like RsKm to continue posting their viewpoints. Things do get heated from time to time and it is great that ValuePickr has the right mix of folks that are quick to moderate and see that no one takes anything too seriously:-), and always allow diversity of opinion.

At the same time we have to respect Admin judgement and intervention, especially when they intervene to prevent hype building without substance!

Have received a few emails and calls from well-meaning folks this week - exhorting me to try and distill the main objections one last time - against Caplin Point business - why we think no one should get too excited about the business/medium to long term prospects. My next post will dwell on that!

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RsKm - Please continue to post. Your contribution is valued, just as every other members. Meanwhile, if there has been any offense taken by you - I apologise. I will surely meet you next when I am in Mumbai!

However, please do not expect me (for that matter anyone else) to rebut on everything/anything that you write. I reserve my right to choose what I will comment on and what I won’t - especially as Caplin is a closed chapter for me.

One last time, let me lay out why so - for your and everyone else’s benefit - who is unable to read between the lines :slight_smile:

1). Products vs Margins

The first big red flag. They just don’t add up. No one in the world manufacturing analgesics, anti-pyretics, antacids, antibiotics - generics (non-branded) - a hugely fragemented & competitive market - can have such nice margins! Last I had seen trailing OPM was trending 15%.

Just this much is good enough for a “refined” investor like Hitesh Patel to stay off saying he doesn’t understand this business. Please THINK about this aspect!

But I get excited when I see improving trends in numbers - so I continued to ignore this crucial bit, but tried to understand more why the numbers are so encouraging - how debt has kept coming down, how working capital/sales is getting to less than 5% to near zero!, how cash flows are zooming! etc.

2). Advances - 40-45 Cr - Capex 70 Cr for injectibles -

Now this was the mouth-watering part for us - still number-focused chaps. Wow! if this is sustainable, then this business has some X-factor. I kept telling Ayush and others who had talked to Caplin Point that we should go and meet these guys to understand more.

However - as we tried to understand the sources and sustainability of advances, I found another Red Flag. Different folks talking to Caplin had different versions to put forward. A normal stockpicker who was given 1.5 to 2 hours on the phone told me the main markets are Mexico and Brazil . However an Institutional friend from Chennai who went over to meet was told about 7 countries and only 3 countries really contributed to advances

Why should different guys get different versions. The guy with more homework is given proper details - since he quizzed about Caplin’s market presence in small LatAm or African markets with 200-300 Cr annual market size! Un-regulated or semi-regulated markets with some need for registration but (mostly) no national FDA compliance requirements, etc. But the guy asking open-ended questions is glossed over with Mexico Brazil type answers - where perhaps registrations are in progress, as the main markets!

Another big red flag for me!

As we now know advances are not sustainable beyond the 3 markets where relationships exist, as mentioned by Management. Since this is relationship based (and not some inherent product/process/brand/knowhow competitive edge) I ceased to be excited and kinda suspect this model and its sustainability.

3). Regulated Markets entry

This was actually the “big” excitement around this stock. Just imagine what it will do when the Injectibles plant (almost fully funded from internal accruals) starts catering to regulated markets!

Statement from Caplin website.“Upon completion of the new plant in mid-2013, Caplin Point will be starting up operations in the fully regulated markets of Europe, USA, Mexico and Brazil”.

Now as we know management has indicated USFDA/MHRA approvals and Regulated Markets entry is atleast 4-5 years away. Which means to me - they can’t do any contract manufacturing for developed markets and even regulated markets like Mexico and Brazil in the next 2-3 years at the least. As we saw/understood, the required infrastructure/people/processes are currently absent and will need to be built grounds-up - so atleast 2-3 years away.

Which means they will manufacture/market for existing unregulated and semi-regulated markets - which is likely to see very little volumes for next 2-3 years.

All my excitement is now gone. The investment by the company of 70 Cr will be a sunk investment for a few forseeable years. I am now worried!

This is again a very big Red Flag for me! What’s going on. Management doesn’t seem to have a firm handle on the business. They do not have the relationships/contracts or the people/processes to come upto speed anytime soon was my conclusion, yet a 70 Cr investment by an annual 100 Cr business size? Counter to common-sense, for me.

Must admit they were putting up what seemed like a modern drugs manufacturing plant to our untrained eyes. There were 2 very competent PHD/post-grad folks who took us around and answered our queries - frankly that 1.5 to 2 hours was the only substance-time for us!

But by this time, I was really curious about where is the substance in this company.

4). What makes this company tick? Why has it succeeded so far?

My attention now turned to establishing 'Substance" in the company.

Since they were already making formulations - there must be good API/complex chemistry skills, peoples and processes built-up over the years, sourcing from China, binding and formulations skills - where are these actually being manufactured? what is manufactured where? Do they manufacture to n+3 stage/ Where do they get the rest done? what kind of people are there? How about extensive market knowledge in the company?

That is the time we started getting stone-walled… with only one answer. “We are like the Wal-Mart of the Pharma world. We are in the business of eliminating middlemen”.No matter how much I tried, whatever way I quizzed, I could not get the Management to elaborate on anything. Not even when I politely but very firmly explained that that is how they have probably got here and was a good thing for sure - the healthy cash flows, the growing advances - but surely this is not taking them too far! again more beating about the bush, if you know what I mean.

This was the biggest red flag for me!

Hope this explains everything. I did not want to put things up in this manner in a public forum - but my hand has been forced - so be it, if it is for the greater good!

One may still not GET IT (read between the lines, that is) and “reply” point by point again to whatever I have put up :-). That doesn’t mean we will like to continue the debate. I have said all that I had to say. I reserve my right to selectively comment or not comment at all!

Anyone can always call me or any of the guys who visited Caplin Point. Choice is yours, discretion is ours!

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My two cents on above discussion.

‘All I want to know is where I am going to die and I won’t go there’ - Charlie Munger.

I’ve been in investing since 2004 and one important thing I’ve learnt is that to be a great investor one has to always look out for dis-confirming evidence. As Charlie Munger always says invert always invert.

There is always a ownership bias towards the stocks we own, Believe me we all have been through it and learn the hard way. But it does not always have to be that way, we can learn from others experiences and avoid our loss.

Also we don’t need others confirmation or agreement to make money. But when others are spending their invaluable time and energy to save you money. I think one needs to listen.

Funny thing about investing is you may be right and lose money and sometimes you may be wrong and make lot of money too…

In investing ‘who’ is wrong does not matter , but what matters is ‘what’ is wrong.

As Investors we need to have lot of humility. Humility to accept that fact that we can be wrong.

Of the 4 M’s (Meaning,Management,Moat & Margin of safety) the most important one is the Management.
When someone is questioning the integrity of the management one needs to be cognizant.

We live in such a wonderful world wherein selfless people on this forum spend their time to do all the research and go visit the management and provide us insights which someone like me having a day job has no way to do. And not just that they are watching out for your back. I would take their advice over my conviction any day.

you don’t have to leave the forum because of a dis confirming evidence on your thesis nor do you have to leave just because your evidence is right and that the majority is wrong.

Differences make the market…Happy Investing…

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There in lies the beauty of valupickr i feel…

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