Sir, Thanks for updates.
But my doubt is if there were holidays between Dec10 to Year end then usage of condoms must be higher than normal 
, which should have procured before holiday season.
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Thanks @RajeevJ ji for the updates.
Here are my thoughts,
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15-20% growth (assuming top line) is good with an upward bias to it. In this environment not many companies are showing such growth in top line. The profit growth should outnumber the top line growth due to operational leverage.
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New product is not much threat because any user acceptance is a long drawn process and NGOs can’t force a product such as a condom without market test. Cupid has a head start here.
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New entrants in this market will help market size grow as each player will play a role in consumer education and eventually the best product takes a larger share of the cake (market share).
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The analysts on FHCO (the USA competitor) are quite bullish and see it growing faster which I think because of the expanding market size. Also, a new entrant makes me think that market is bound to grow otherwise new players would not think of entering a shrinking/stagnant market. FHCO also took a credit line which I think is in anticipation of am impending acquisition. Interesting to see the valuations of such an acquisition (link below).
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Karex Bhd, though majorly into male condoms and gels, the largest condom manufacturer, commands a PE of abut 40 PE. Karex is positive on the world condom growth and is on ‘acquisitions mode’. Other comparable peers also quote upwards of 30 PE.
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Free cash flows, EBITDA of 40%, NPMs of 25%, regular dividends, high RoE, 15% top line growth and that anticipation of large order and other positive news can help it sustain 25-30 PE trailing.
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Quarterly dividend if it comes about is really good and also makes a further cause to have a formal dividend policy in place as this gives the shareholders the real money and also premium valuations. Given the free cash flows and no capex for sometime to come, it is possible.
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Personally, I think downside from 300 levels could be limited and possible good upside if any positive triggers and if markets get convinced about point 2 above, re-rating would be done and then onwards show return as per bottom line growth. In my opinion full re-rating is yet to happen. General market conditions too are not conducive for re-ratings!
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@mmvravindra, good question, but you are thinking a bit naughty rather than business ;-). Anyway, seriously, since the Cupid’s business is on tender basis where shipments are done accordingly, the holiday season means, customers could ask the vendors to ‘delay’ the shipment until the holiday season is over. This is my conjecture, ignore me if I do not make sense.
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The problem with the market is this “In good times, no news = good news and in bad times, no news = bad news.” 3Q numbers were on expected lines. These expectations were set post 2Q results. With no news for almost 4 to 5 months people are imagining the worst which to some extent explains the stock correction from 500 to 300 levels besides some amount of over valuation.
@RajeevJ This update should soothe some of nerves 
To add to Venkatesh above, at INR 500 Cupid was trading at crazy valuations. Investors need to first and foremost consider margin of safety and reasonable valuations. A PE of 10-15 would be great to pick up this stock, any more and you may be asking to be taught a lesson. Remember, when the music is playing, everyone is dancing, but when the music stops…
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I feel one lesson I learnt in this correction is to put a big sized note on my table bearing the sentence
TREES CANT GROW TO THE SKY.
that should help spare us getting in unnecessary love with our companies which have reached exhorbitant valuations.
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Cupid was never overvalued to begin with. Not at any point of time. As @richdreamz puts it so well, it was only entering into it’s peer valuation zone.
It went up fast (yes) but not too much (vs Page/ Symphony etc…) One interesting point to note was during the run-up, it prompted the management to even issue a notification to shareholders. For now all is well with many latent triggers (new product launch, new orders, buy-out)
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The different points of view on this thread make for interesting reading & indeed make this forum what it is! Those who own the stock are naturally bullish as they can see the visibility of earnings going forward & feel that a multiple of 25 for a high margin business is not outlandish. Cupid should do an EPS of about 20 for 16-17, & so investors in the bullish camp find current levels attractive. On the other hand, the run up in the stock price has been sharp over the last 12 months, so there is no shortage of investors who find it over valued. It will be interesting to see where Cupid goes from here.
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Thanks Rajeev ji for the update.
Like other fellow investors, even I have been waiting for a good news about the company getting orders from other countries.
In my view, the sharp run-up in Cupid’s share price might be basically due to these 2 reasons
- Its a less capital intensive business. So, any bulk orders in the future can be met by the company with very little capex.
- The margins are healthy, due to the company’s strong competitive advantage that lies with the UNFPA and WHO approval.
IMHO, the above 2 reasons still hold valid. The only ingredient that’s now required is the rice in the biryani (i.e. orders for the above 2 points to be capitalised)
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Investing journey is similar to ‘pendulum movement’.
The equilibrium position of the pendulum is the ‘intrinsic’ value of a stock. A stock, just like the pendulum, only spends a fraction of its swinging time at its equilibrium position. Rest of the time it oscillates between ‘fear’ and ‘greed’ prices. Sentiments drive the stock prices to these emotional prices just like gravity is responsible for pendulum movement.
You will be fine as long as you buy a stock anywhere between ‘fear’ price and intrinsic value. The biggest variable in this whole equation is Intrinsic value of a stock. It depends NOT only on the ‘maths’ like PE/RoE/Dividend/FCF/Capex but also on ‘art’ like quality of business, management integrity/capability, sustainability, predictability. More often than not, if you have the ‘foresight’ to predict the art part of investing, you are a winner. There are intelligent research analysts from broking house who can derive the maths part of investing. Research reports are ONLY to be taken for the numbers that it produces and apply your art to it and buy at appropriate prices, you have a winner in your hands.
While investing, more often than not, people want to buy a quality stock at the price of a cyclical stock! You need to pay up but again not pay so much up that you lose sleep over it and again no point in waiting to catch the bottom. There are no prizes for catching at the bottom of the tick. Leave something on the table.
P.A.T.I.E.N.C.E is a virtue. As long as the business performs with a plus or minus, there is no point in you getting hyper active buying - selling - buying - selling. It only increases your blood pressure and you start shouting on family members when more often than not a stock spikes as soon as you sell it and it falls as soon as you buy it. A stock does not have emotions it gyrates to the emotions that hold the stock.
H.O.P.E. is the four letter dirty word in investing. I’m sure ‘false’ hope has ruined many investors portfolio. HOPE the stock comes back to my buying price. HOPE it doubles in an year. HOPE this is the bottom must have ruined many. E.A.R.N.I.N.G.S. is the only 8 letter word that’s music to investors. Just like electricity finds the path of least resistance, stocks find the path of highest quality earnings growth. So, be there before others reach by having an informational edge.
P.E.N.N.Y. W.I.S.E - P.O.U.N.D. F.O.O.L.I.S.H describes most new retail investors. This is mainly due to short term thinking and trying to catch all the moves of a stock just because the brokerage is only 10 rupees per trade. Nothing is more foolish than this. If you are so good at making such moves consistently then you actually have to make no more than 10 moves with huge capital and you are set for life and if you are doing these moves with small capital then no matter how good you are, this is not going to make any significant difference to your portfolio. Of course, judicious trading to augment the capital for long term investing is always welcome if you know what you are doing.
Anyway, this is the mother of all opportunities that you are getting now in 2016, so this is the time to sell out the weeds and water the flowers even at the cost of short term heart burn. Do this consistently and you will make a lot of money. A stock typically makes a major part of its move only in 20% of the time, the rest of the time it consolidates. There are high chances of missing the major movement of a stock if you keep coming out and checking in to various stocks.
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Thanks for the nice write up!. Keep going!! All the best!!!
Hitesh,
Agree to your point, but one question, Any stock that which becomes a 100X or more will at some point become over valued as people discover it after it becomes 10x or 20x. wouldnt the investor who brought it and made 10x lose out on a 100x if he sells it because of over valuation? How does one deal with that ? A caveat though is that not all 10x become 100x but I still want to know how you think.
Thanks,
Arjun
With the recent correction in the share price of Cupid, many investors are concerned of any adverse developments that may be happening in the story. I gather from very reliable sources that it’s business as usual for the Co., & the March qtr is likely to be the best ever in the Co.'s history. It will also perhaps be the 7th or 8th successive strong qtr, with an upward trajectory of growth, both in top as well as bottom line.
The shareholders can also expect a generous final dividend, in addition to the interim dividend received earlier.
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Thanks Rajeev! Appreciate your efforts.
Thanks Rajeev ji for the update.
Highly Appreciated.
@RajeevJ The next time you get a chance to meet the management you could perhaps suggest one of the following:
----- Hold a 6 monthly conference call for investors OR
-----Atleast put out a press release which talks about performance post quarterly results. The current backlog and outlook.
Lack of news or information impacts stock negatively when markets are weak. And yes the opposite happens in strong markets.
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I think Cupid is a classic case of greed and fear. After market thought it is multi-bagger all of sudden people started multiple justifying any sort of crazy multiple without realizing ground realities. And suddenly when prices started falling people felt concerned and stock corrected more than 50% from its high.
This is clear repetition of greed and fear mentality and case of over-valuation that we saw recently in stocks like Kaveri seeds, Kitex garments etc.
Even though the growth of these companies were reasonable, the market extrapolated that growth to n number of years and one slightly bad quarter disappointed the market and stock beaten down like there is no tomorrow.
I think the concept of female condom will take time to gain social acceptance, it will not become overnight IMHO. Just put it into perspective, today e-com players are giving so much incentive to customers to just make them used to online transactions but still many people fear doing online transaction…basically it takes time for society to accept change. And things like female condom may even take longer.
Althogh there is market size and opportunity size it might not always happen that all companies do good.
Just to quote some examples around:
- There is surely a internet boom but companies like yahoo still struggling
- Many car manufacturers in 1930-1950 era have vanished although car penetration has increased day by day
Discl: Not invested
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Cupid is not a Business to Consumer company as many of us would think. They don’t even have marketing department to promote the product. Company manufacture condoms based on tender it receives from various agencies like World bank, WHO, NGOs and some private players. They have healthy order pipeline hence no focus on consumer side yet. For these agencies, Cupid is producing life-saving devices. So they is no need to be concerned on “product acceptance”.
Disc: Invested
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So where will the condoms purchased by these agencies go if there is no/very slow product acceptance??
Just to put thing in perspective with example…I think what you are trying to say is say a company is supplying leather to shoe manufacturers say likes of relaxo and bata (B2B business right!!)…now they have given some orders but somehow nobody is willing to buy leather shoes from them (no product acceptance)…so by your logic will these relaxo and bata still keep ordering leather from this company just because it is B2B business??
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Vivek it manufactures both Male and female condoms …very large orders are placed and distributed by health authorities among its populace …these are specific budgets against which these are bought and distributed
when governments and large NGOs promote things they do them scientifically.
Its NOT same as selling shoes or shoe polish
If a person has / can get aids or Zika etc , they may resist taking medicines for sometime based on whims, local practices and taboos but ultimately see reason and start consuming.
two governments dont buy like commercial organisations worrying whether people will or will not use them …they make a program and work for it …thus buy …success is assessed later on
i have rich experience in african and other markets for the largest indian pharma comapny
If the govts / gates & Bill Cliton foundations etc started thinking on your lines , anti retroviral meds would still be lying in warehouses 
btw - one order say by brazil of Fc is greater than the installed capacity of Cupid
Online selling is a potential upside not the core !
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Exactly, governments/NGOs/United Nations have no-profit making objectives like commercial enterprise, hence we cannot compare the buyer of cupid products with for-profit oriented entities like Relaxo or Bata. The product acceptance/approval came from WHO they certified Cupid products.
The competitor has almost 10x capacity installed in Malaysia but the Pie is larger enough to serve all existing manufacturers.
Disc: Invested