Just see impact if cupid able to sell/supply Female condoms in millions per year in USA.
Currently due to its Class III classification, availability of female condom is also limited. Planned Parent Hood - NGO provides services in USA. .
Disc: with recent correction accumulation, Cupid %holding is the highest in portfolio. Hence, my view might be speculative!
The new tender is valid for a year while the previous tender was for 3 years. The figures in concall could be based on a 3 year estimate. Furthermore repeat of the tender to cupid only reiterates the acceptance of the cupid products which in itself is a positive news.
@amoghkamat Do you know if this 2 rupee number is for the SA contract/bid or the GOI contracts or is it the company’s blended average? Can you point out the con call where this was disclosed.
If it is indeed 2 rupee for the SA business, then the male condom order is for 110-120 million pieces, which is higher than what the company was expecting.
It was in their first ever concall. They had mentioned 1.7 rs per piece. If i have my facts correct they had no male condom business from south africa last time around. Correct me if i am wrong.
Basant Maheshwari exited long back. Was he able to visualize this revenue degrowth? And most here are stuck n trying to justify their bullishness? Most of the talks here are based on what the management “said”. Valuations depends not on what is said or promised, but what is delivered… And as Basant says, markets pT for growth.
Businesses are always like this ups and downs, this company swings more because its sales is completely based on tenders and orders. There is no guarantee of getting the orders as it is commodity type business and is not a brand. They are trying to create one but still there is long way. The low cost producers have the highest chance of getting the orders.
Also Basant Maheshwari likes stability, clarity & consistence of growth, he might have exited because of lack of clarity of getting orders on a continuous basis, this is just based on his style of investing and what his approach is towards stock picking.
We all like stability n consistent growth. The ability lies in being able to see thru it. no business has any guarantees except the liabilities in the balance sheet
You are right, bulk of the male condom business comes from UN + WHO, followed by GoI and Job Work. Per the management, SA’s contribution to male condom volumes is negligible. So I guess we will have to wait to hear from Mr. Garg on the per unit realization for the male condom business they have got from this order.
Price seems to be driving back.
Fy19 feel: topline ~90-95 cr, bottomline ~12-14 cr. PE 12. Market cap target for coming year= 168 cr?.. Just gut feel after absorbing the data points.
https://www.bseindia.com/corporates/anndet_new.aspx?newsid=e7fdd5df-baba-41b6-85a6-d9356aa349fd
As of July 1st, the order book was 55 Cr and with the recent 40 Cr order from Government of
South Africa, the current order book stands at 95 Cr. We would endeavor to dispatch the
maximum possible quantity during FY 19.
• Male Condom orders are worth 70 Cr and for Female Condom, it is 25 Cr, which
includes only 1st year allocation of 8.8 mn pieces from the import portion of the South
Africa tender. The Treasury is yet to announce the allocation for the 2nd and 3rd year of
the import contract and for the JV local manufacturing unit.
Cupid was successful in negotiating better margins for Male Condoms from existing customers
like UNFPA, Ministry of Health, Government of India, International NGOs and from customers
who are engaged in contract manufacturing with Cupid to promote their own brands
The capacity expansion plan was revised upwards by 40% to 560 mn pcs per year from 20%
expansion plan earlier.
Questions for today’s con call:
Status of appointment of new CEO
Comments from Mr Garg on the recent 40 crore order from South Africa Government and whether it matches their expectations
Status of Tie up with Distributor in India for starting B2C business
If someone’s attending, can you bring up the question of why FC are not picking up in South Africa? And if they have plans to promote their FC brands elsewhere in the world (I remember they said they have started selling in Europe under the brand Cupid Angel)?
Another question would be, if at all they decide to go big into MC, what will be their unique proposition i.e. how will they deal with the immense competition?
One thing I have to give it to Mr Garg is the enthusiasm that he shows for these quarterly calls.
Main takeaway for me was -
JV being set up in south Africa - results of proposal to be known in the next few weeks. Cupid 49% owners and JV is expected to sell at double the price of current realisations (22rs now vs 40 rs through JV). Also 5% royalty directly to Cupid, Total demand from SA is 40mn piece per year, first year 16m from JV increasing to 24m, 32m etc in subsequent years. So this JV thing seems like a good win for the company if it comes through.
Cupid won only 22% of the current export tender with 71% going to FHC. Main reason being Cupid was probably slightly higher prices and also SA government not wanting to be too reliant on one supplier. So if I figured correctly Mr Garg was alluding that SA gov’t chose FHC for the export tender but Cupid for the JV and since JV being more profitable of the two should be a big positive for Cupid. Also longer term, SA govt does not want to lose a lot of FX, so they are moving towards local procurement so to be relevant over the long term the JV option is better.
Significant raw material price pressure (rubber +5% and silicone gel - +15%).
main tenders coming up India - 900mn pieces, Brazil - 800mn (30m - female). Cupid should get some allocations of the two.
Some level of cost control has been established and price increases on male condoms as well which is again a positive for the company.
Overall looks like the outlook is positive but will probably take another 18 - 24 months to come through.
Only 49% of the JV profit would accrue to Cupid (actually only dividend paid by JV would be shown as income for Cupid since Cupid will be holding ownership below 50% in JV hence the JV results will not be consolidated with Cupid results). 5% Royalty would be good.Hence double price is not that attractive for Cupid shareholders… Just my 2 cents about JV.
Not really, even if you own 49% you can consolidate the income from JV under equity method accounting. So in Cupid’s P&L you will have a line after Operating profit called Income from joint ventures where you take 49% of the income from the JV.
Adding to the above
They will be announcing the CEO in a matter of months.
Guided topline to be around 15% CAGR.
JV might become cash cow as they vr stressing on the sustainability of the revenue than short term spurt in the growth. They vr contemplating about catering to the neighboring 10-15 nations via the JV.
He sounded very optimistic about the future than ever.
They VL b selling via distribution channel n stressed more on selling via e commerce.
Based on con call i want to high light one point-
100% disclosure of information - Mr. Garg was not hesitating to disclose price per piece, quoted price in SA tender and JV, margin and strategy in bidding,etc. I never seen such a level of disclosure !! He must be aware that this con call recording and transcript might be good source for their competitors / someone who has wasted interest ! but he never worry about it!
I think 2018 and onward again good time for Cupid and Cupid investors if Mr. Garg able to achieve what he said in con call !!!
Downside is limited but upside looks promising for investors having patience and courage to absorb lumpy sales and profit in Q o Q result !!
I think he will be able to achieve some of it - the SA JV and the Brazil, India tenders should be fairly straight forward.
I think more difficult are the USA entry, B2C segment in India, European market, hand sanitiser, gels etc. I think all these are blue sky projections and one or more may not materialise. Having said this, the valuations are fairly low that even if Cupid only manages to the SA, India and Brazil tender they should reach 15% CAGR over the next 2 - 3 years.
TBH I was expecting a bad set of numbers because of the slowdown in south Africa and reduced tender win as well as raw material pressure. But surprisingly they managed to renegotiate prices on male condoms to maintain margins. More than anything, this reinforces faith in management that Mr Garg is not only concerned about topline but also bottom line and takes prompt action.
