Notes from AGM held yesterday -
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AGM held in a small pandal in the company premises. Felt like small family function. Hardly 10 shareholders attended the AGM. More employees than independent shareholders.
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I was the only one to ask questions to Mr. Garg who answered all my questions patiently one by one.
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Hiring of CEO - Search is on. Hoping to finalize in next 3 months.
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Currently 100% capacity is utilized. Q2 looks to be good.
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They are hoping to generate 10% of sales from water based lubricant jelly. They are doubling jelly sachet packing capacity from 4 Lacs per day to 8 Lacs per day.(seen new machine during shop tour) I am told each sachet selling price is around 1 Rs. Back the envelop calculations suggest 4 Lacs per day would bring in 12 Cr sales per year. So clearly they are seeing much bigger demand for this product.
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All export sales in USD and unhedged, to take benefit of depreciating Rupee.
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Asked about share buyback (as compared to dividend due to tax efficiency ) , Mr. Garg mentioned that it is on agenda of next board meeting.
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They are confident of receiving UNFPA pre approval for Cupid II by Oct end.
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Annual sales forecast for FY 2016-17 remains 73 Crores. When asked can it be considered slowdown (Additional sales FY 15 - 25 Cr, FY 16 - 17 Cr, FY 17 Est - 12 Cr), Mr. Garg mentioned that they launched female condoms in FY 15 so that gave them big jump in last 2 years. It is stabilizing now. Although they launched lubricant jelly this year, he was not ready to commit to higher sales just yet.
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Contract manufacturing margin is 10-15%, lower than own brands.
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When asked why he is not expanding if he is running at 100% capacity, Mr. Garg mentioned that he would like to wait to see real demand before committing further capex. Since most of machines were developed in-house, he feels he can add capacity in 6 months if required.
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After AGM, few of the investors shown interest for shop tour. Mr Naidu - CTO, took us on plant tour. My observations from plant tour as below
- Space constraint - Plot size is small with no extra land for expansion. Factory was full, which is good news. Boxes, material lying in the walkway, finished goods waiting to be shipped seen everywhere due to 3 containers planned that day. Bad news -Bit worried as very less space for expansion. Mr. Naidu mentions they will go vertical, which is possible as their product is not heavy!
- From the condition of the building, I could say that Mr. Garg runs a tight ship there! Strong smell of Ammonia in male condom dipping section is an area for improvement for health and safety of workmen working in that area.
- Seen incremental investment like additional washers, lubricant jelly packing machine etc
- Lot of contract manufacturing work going on the in the factory for male condoms with brand names like “Masti”, “Zaroor” being packed.
Overall impression - Small profitable family run company with promoter involved in all sides of business running and running a tight ship. Promoter seems honest and transparent. One negative point - Mr. Durgesh Garg - Chief Operating Officer (who worked in company for 20 years) is told to be related to Mr. OP Garg. But it seems he is not in good books of Mr. OP Garg based on my side conversations with some employees there. COO was not seen in the forefront of any discussions, shop tour etc. and also not considered for the post of CEO (as Mr. OP Garg was looking for person from Marketing background). This brings possibility of “turf war” when new outside CEO comes in (when that happens). But I agree it is bit of speculative as Mr. OP Garg may handle it easily.