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.
Important points from my perspective:
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?
So had a very useful call with Mr Garg.
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.
Lets wait n watch.
The call no doubt reiterated on the addressable opportunity and was the most encouraging of the last few quarters. The promoter once again comes across as one with integrity and vision. However the more efficient market gives higher valuations when things “happen”, not when the management “guides”, regardless of the genuineness of intentions. So I’ll choose to be conservative and watch n watch.
Decent probability of ~ 90 CR topline for FY19. Century was being discussed for the coming years subject to how things shape up. History tells us that things hardly shape up as anticipated. So it can go either way.
Nothing of the Balance sheet was talked of (AR, working capital etc), I hope that there’s no bad blood over there, though not good to be complacent.
The part I appreciated on the B2C side was that they’re looking to push the product thru distributors. Makes commercial sense, coz its less costlier and hopefully more effective in tapping the market.
A key takeaway for me was that the Indian market is huge and there’s robust demand from the Indian Government. Out of the 12 odd manufacturers, only 4 are certified.
African order reducing to 22% in lieu of the JV…we’ll need to see how this shapes up. Mr. Garg mentioned that the reduced share was partly due to pricing, partly to wanting to spread the order among multiple vendors, partly due to the push for indigenous production @ Africa thru the JV. I haven’t yet come to terms with the fall from 80% to 22%, but I hope that it happened for the best.
The CEO search is on, the right fit is critical. Unless the guy/ gal is aboard and really set to sail (will be clear in a few months post joining), the search isn’t effectively complete.
Lastly, a big salute with both hands to Mr. Garg…the reasons are obvious.
Today’s a big day for us…JAI HIND…HINDUSTAN ZINDABAD…LONG LIVE INDIA…GOD BLESS INDIA
I feel this is not the correct way to look at it. Last time they got ~80% of the total order (54mn pcs) which was completely imported by SA government and was awarded in one go for 3 years. This time, out of 120 mn pcs, they are planning to procure 40 mn locally and 80 mn through imports. This will be done over 3 years of 40 mn pcs p.a.
Year 1 - All 40 mn pcs to be imported (out of which cupid got ~22% and majority of the rest went to FHC.)
Year 2 - 16 mn to be procured locally and 24 mn through imports.
Year 3 - 24 mn to be procured locally and 16 mn through imports.
If I understand correctly, Mr.Garg mentioned that there is a high probability that entire local order may be secured by Cupid as they are the only company present locally (through JV). If this happens then total order for cupid could be ~ 57 mn pcs (All 40 mn of local and 17 mn (assuming same ratio of 22% of 80 mn of imports)). This translates to ~ 47% of the total order of 120 mn pcs.
This is in line with what Mr. Garg said that SA Government wants to distribute the quantities fairly between 2 big suppliers i.e. Cupid and FHC to mitigate dependency risk.
Key risk here is if they do not get substantial portion of local order next year. However, in this case, the ratio of imports may be higher for Cupid if the true intention of the government is to distribute it almost equally.
Do we know when the Brazilian tender results will be out? I remember Mr Garg answered but I didn’t take it down. Thanks
CEO search is on for last 2 years. See the attached link of my AGM minutes 2 years back… the story is not moving ahead. This is a great small company and remained that way for last 2 years.(and maybe so in future ) This stock is for people with lot of patience and hope . I have given up on it last year as I could see much better opportunities elsewhere in the market
I think Brazil results was mentioned as September.
Finally action on bonus shares…http://www.bseindia.com/xml-data/corpfiling/AttachLive/89b15cff-b6b2-4187-b2bc-162fa0d26668.pdf
Think you attached the wrong PDF bro 74e4de98-7079-4ad8-a280-9b36a93c82f3.pdf (61.1 KB)
Meeting to discuss issue of bonus shares
Is bonus a good idea?
- Berk has never declared a bonus.
- TCS and Infy have declared multiple bonus.
- Bonus helps the promoter when debt is high.
- Bonus boosts the sentiment, but doesn’t change the size of the pie.
Agreed. Bonus is just for sentiment. Equity holders pie remains the same - its just split into more pieces now.
It will increase liquidity and case for MF holding
MFs don’t touch a stock until it reaches a minimum market cap.
It’s pragmatic yes that the liquidity will be increased depending on the ratio of bonus