Lelo Hex - The World’s First Re-Engineered Condom is here. This is the First Major Condom Innovation in 70 years and could be a game changer for the industry.
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After going through the thread and various portals,blogs , some notes
The Bullish point:
1.FC (94-97%)is better than MC(85-94%) to prevent HIV and STI . Hence FC is preferred than MC for wellness program conducted by NGO/Goverment .
2.The WHO & UNFPA approval is moat for the company because as FC is oligopoly business . all the government ,NGO’s Female condom order can only go to CUPID/FHCO .
3.Cupid have low cost advantage over FHCO and hence taking the market share from FHCO Which reflects in the result of FHCO
4.Other African Company except SA showed eagerness on Cupid Female Product
5. Cupid 2 acceptability in Consumer market need to be monitored . It is less costlier than Cupid1 so can compete with MC in retail front
The bearish Point:
- Until,unless the price of FC is near to MC , there will be very minimum retail market/consumer market for FC .FC was there from long time ago but could not create significant consumption market because it is very costlier than MC due to it’s higher manufacturing cost and complex design .
2.Orders from South Africa ,Brazil , India ,Zimbabwe government and NGOs are the only source of income (Bulk order) .Generally size of these orders are near too Rs 10 cr to 100 crore(Smaller size and lesser source).Flow of B2B orders need to be carefully watched . The flow is not at all predictable Any order cancellation , postpone could severely hit the business .
3.Geography concentration of revenue on Africa continent . Hence Risky
4.Contract Manufacturing holds 20% of sales only. Retails,B2C presence is negligible which basically provide the stable revenue growth for a consumption business.
5.Use of FC is bit tricky hence training required .
Discl: Not Invested
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All points very well noted.
My understanding is unless the company connects with retail market & consumers on a larger scale there will be limited growth.The products needs to be well advertised & marketed like other established products in healthcare consumer segment.
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5.Use of FC is bit tricky hence training required .
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Sorry…but 
now back to serious discussion.
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Checked with a doctor friend. His point was wearing it for a female is a very cumbersome process (he technically explained it ). So, even if an affordable b2c product comes, its success is partially questionable considering the alternative options available in market.
Disc : not invested
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I feel, you missed a critical point in the story. In simple terms it’s call “Women empowerment”.
Hi Raj, YesThat’s why NGOs , Goverment of developing countries ordered for
FC . In developed countries women are already empowered. Also IMHO, women
empowerment can’t be a reason to build B2C or retail front until unless the
price of FC fall near to MC which surely reduce the margin.
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The NSE listing is taking forever and it’s been almost a full year now with no substantial huge orders. I guess the market is also concerned about this… it’s been on a gradual decline ever since BSE took it out of suspension.
Does anyone know how the order book of the company is like? If I’m not wrong the order book is enough only to last 4 more quarters.
The following order was about a month back…
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/5E983466_EC66_45BA_9AE0_0412A0CF5FEA_182354.pdf
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My apologies for not making my point clear. What I meant is Cupid doesn’t have any SUBSTANTIAL HUGE orders to last a few quarters. The last month order is only 10 crores… hardly enough for a quarter.
March 2016 qtr was 18 crores sales. So last month’s order is good enough for half a quarter at best. What next after the South African back-log & this order? That seems to be a big concern.
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south africa order will last another 2.5 years and that is a long time to get more orders…
The biggest risk I feel for this stock is perceived lack of succession planning. Owner is 70+ years old and I have not seen any news of any successor being groomed.Correct me if I am wrong. Hence I am very skeptical to invest into such a small company.
My intent is to highlight apparent risk in this stock and no way intended to hurt current investors in any way. Please take my post in right spirit.
I agree with Marathondreams. This company seems perfect in every sense except for the lack of a succession plan. Mr. Garg seems an honest and sincere person and that in my opinion is a very good reason to invest in Cupid @ current prices. But, the lack of succession planning (there may be some plans but nothing is in public domain) is discouraging me from investing further at current levels. I wish someone asks this question in next investor’s meet.
Disc: Invested from sub 400 levels.
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Lack of succession is a blessing in disguise. the co can become a target of acquisition and that can be good for existing investors. A stone’s throw away from cupid’s plant is the plant of an MNC that has been growing by making acquisitions in india. This MNC’s last acquisition was in female contraceptive space and Cupid could be a perfect acquisition target for it. There are quite a few other companies for whom Cupid could be a strategic fit. Wont be able to name these companies at this point.
In fact Mr Garg is looking for someone who can acquire this very well run company. This itself may be a Trigger for big gains.
Hold stake.
As promised, my feedback post my interaction with Mr. O.P. Garg:
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Total demand for 320 million Female Condoms (F.C.) in 2020 - based on estimates presented by leading institutional organisations in a conference last year. Increased off take will depend on the ability of these organisations to raise funding, however, Mr. Garg is optimistic about strong growth over the coming years for F.C. Demand.
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The reason FHC has 60 million Female Condom Sales as compared to 12 to 15 million of Cupid is because they are registered in many more countries as a sole supplier, and therefore, institutions approach them as a sole seller. Cupid are registering in more and more countries, and more local institutions in such countries are learning about Cupid.
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We discussed the Cupid F.C. design in greater detail. Trials were conducted in South Africa and China, and user surveys indicated greater comfort and activity period.
A global patent for this design has been applied for and is pending approval. -
Cupid are happy to sell F.C. at 35c v/s FHC sales price of 55c. They are concerned about their own operating margins and not concerned about optimising pricing upwards.
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Two new competitors are registering for female condom supply. One is HLL and the other is Chinese - both with capacities of 15 to 20 mn pieces / annum.
Garg views the competition as good, more noise for F.C. would expand awareness and boost overall usage.
Chinese competitors product is said to be cumbersome and difficult design / inconvenient to use, and they are not selling product cheap. Not really worried about them. -
If market conditions warrant it, Mr. Garg is open to dropping sales cost for F.C. to 30c per unit, without compromising margins next year. Cost efficiencies will be driven by increased equipment and process efficiency and cost control for materials and overheads.
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Water based lubricants are now manufactured in house at Nasik.
Mr. Garg feels there is great scope for this product, since demand for simple lubricants is expected to be very robust in tandem with male or female condoms.
These are early days and they are still learning about this market.
While specialised lubricants will also be a part of portfolio, volume requirements will be for the simple lubricants. -
We discussed the new Lelo Hex “Graphene integrated” condom launched abroad recently. Since this will be a premium and niche product with limited volume, Mr. Garg does not want to pursue such an opportunity he is firmly focused on volume requirements.
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I asked about strategy to create B2C brand. I explained that I noted the e-commerce foray - but the limited possibilities for such sales due to socio economic factors (young ladies receiving such couriers at parents / in-laws homes) had to be appreciated.
He asked for my suggestion and I asked about the possibility of seeding college campaigns in liberal urban areas while ensuring that chemist shops in nearby geography are stocked with the product. I also expressed my opinion that we must play the comfort (design) and increased activity U.S.P. hard.
Mr. Garg informed me that they are already working on a campaign on similar lines. He said that while such efforts were expensive, they were required if a consumer brand was to be created. -
Ref. succession planning: Both Mr. Garg’s children in the United States and not interested in this business. Currently Mr. Garg is actively looking for a capable C.E.O. to take over daily operations.
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Cupid are open to all possibilities. Mr. Garg said Cupid may look to acquire other businesses, however, they are aware of the need to focus on existing opportunities and consolidate presence.
Mr. Garg came across as an ethical, experienced, cost-focused, numbers man who is actively looking for growth opportunities for the company.
I hope that he gets an able successor and can apply required focus to capitalise the existing F.C. opportunity - which can drive robust earnings growth with good ROE’s.
Disc: Invested.
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Dear Aniket,
Thank you for sharing your interaction with Mr. Garg.
The questions were very apt., & so looked the replies of the promoter.
This interaction further ascertains my faith in the promoter & the company.
One again, your effort is highly appreciated.
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Thanks Aniket, that was very well done!
Did Mr. Garg say anything about the smaller FC Cupid 2? I am keen to know what exactly is the Mgt view on the size of the opportunity. Does it have the potential to b a game changer?
Dear Aniket,
Thanks for the sharing the details of your meeting.
In my opinion, B2B is better, B2C is difficult game and the marketing and sales cost that will come upfront will affect the small company like Cupid.
Any discussion around on NSE listing?
Thanks
@mukesh_gt: Thanks Mukesh. Appreciate your kind words.
@RajeevJ: Sorry Rajeev, I missed speaking about Cupid 2. What I infer is that Cupid 2 is created with the logic that there are different size specifications required but there seems to be one standard size currently dispensed. Mr. Garg potentially may see the opportunity to create a USP for a potential decent volume requirement, and I am sure Cupid 2 should be cheaper to produce. If you get some inputs on this please do update.
@vivida05: There is no doubt that B2B will be the volume driver. Cupid with its cost efficiencies and technological abilities seems to be capable to work around cost and quality challenges. Assuming the overall market demand accelerates as predicted then there is enough room for growth for all. However, we must remember that B2B is a lumpy business - completely dependent on the ability of these institutions to raise funds.
Therefore, a focused and cost rational B2C initiative (while it may dent margins) is a very important long term initiative because it helps differentiate the brand and the company.
There are several key monitorables:
- Will F.C. requirements globally grow as projected? (and will growth continue beyond 2020)
- If yes, can Cupid grow F.C. sales multiple times in the coming 3 to 4 years to capitalise the existing opportunity aggressively?
- How aggressively will Cupid register in different countries? For eg. USAID is a large customer to FHC (8 m pcs per annum). To register with them takes several years and 2 million dollar cost, hence Cupid has not registered to date. One thing is established wherever Cupid competes with FHC in a global tender they are able to take 80% volume as L1.
- Will the liquid lubricant category contiribute meaningfully to topline and bottomline over coming years? What is the actual global addressable market there?
- Will Cupid get a competent and visionary CEO who can take things forward?
- Cupid are looking for acquisitions, and if they do - I would be wary. Can they still continue to focus on existing opportunities and execute well with the limited bandwidth?
- Can Cupid successfully create a niche B2C brand - even if for 10% of sales volume?
(In such a case Cupid would be a good acquisition target - the valuations for a B2C brand will be different from a B2B supplier. As a shareholder I sincerely hope they invest time, money and energy to build the B2C business.)
One has to watch out for long term scalability and ability of company to create a differentiated portfolio.
With best regards,
Aniket.
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