6 year experienced as CFO?
In my opinion, CFO, board are just namesake I feel given their experience or age.
The entire show rests on Dr. Omkar I think. (key-man risk here though)
I will wait to read the auditor opinion / review in the next results release, just to see if any cockroaches hiding (like the auditor opinion in case of Omkarchem)
Currently, I will take Omkar’s word that the two businesses and two managements (omkarchem and lasa) are completely different and there is no related party transactions too…
For me, it is wait and watch for 1-2 quarters (or earlier or later as story unfolds). Invested since de-merger allotment. Exited Omkar at a loss
Of course it’s the diverse views that makes a market. My reason for holding onto lasa is 2 fold.
1st It forms insignificant portion of my portfolio
2nd The products has good acceptance, the sales has good growth and the leader is competent. (though he is accused but nothing is proved as yet)
I mistook internal transfer as buying from market but as you say internal transfer are designed similarly one can say that buying from market can be designed as well to trap the gullible investors. With not planning to exit I meant I don’t want to rush selling it, I may change my mind if the mess on finance front continues or increases.
Dear @mukeshamar : what made you conclude that ‘products have good acceptance’? I have been searching around for their customers but apart from the latest news release about CIDIC couldn’t find more clarity.
Thanks for pointing me to the right source / documents…
Can someone throw some light on Lasa CIDIC deal on the following points
a. Lasa will procure intermediates and other Raw meterials from CIDIC group.? They are already focusing on backward integration then what kind of Raw material they want to procure.
b. CIDIC will sell LASA’s finished products to South east Asian Countries.? But Lasa manufactures APIs which are not finished product in value chain. Formulation companies are the one which sell finished products.
My littel effort to explain CIDIC deaL.
1.Intermediate or for backward intergration will require basic raw material. from that they produce intermedates and API. Lasa will get this basic raw materail from CIDIC deal.
2. For finish product Lasa plan to acquire some company in near future. company will produce Finish Drug Product and will sell to CIDIC. This will improve margin from 22-23 to 28 to 30%.
I think company is transforming from APi to Drug producing company. Company valuation also improve with this deal.
Finished formulation margins are sub 9 %, Look at sequent OPM. Forward integration gimmick is to sell another dream of high growth, even if it happens, margins will be under tremendous pressure. It is hard to believe that you can supply something to Chinese company and earn more money than rest of the word including india. IMHO for Lasa even 20% growth will be challenging, considering ever increasing WC requirement, 10 to 15% maintenance capex/ year,. Business requiring this kind of working capital normally has NIL competitive advantages and can never enjoy high margin, all the high margins gains will be wiped out in the working capital mess like obsolete / expire inventory write offs, doubtful receivable provisioning . Future cash flow for Lasa going to be marginal and growth will be moderate.
Disclosure : Invested but looking for an exit
Some pointers on the CIDIC deal:
- CIDIC pays within very short time. So receivables days will fall and less working capital will be blocked for this capital starved company.
I am sure, though I do not know officially, that CIDIC will get the API at very good prices from Lasa.
Lasa, in turn, may procure raw material from CIDIC (if the API is called N, the earlier stage product is called N-1 and given the multi stage production, raw material might even be N-7 or N-8). CIDIC apparently can give a very long payable time, up to a year, as per Lasa, which I personally do not believe. Possibly, CIDIC may charge a higher rate for their supply if they give such a long payment time.
Regarding formulations, there is a misconception in the market. Formulations is not branding; it is just packaging the API in a tablet or other consumable form.
Normally, an API is a chemical powder stored in drums. I saw a large number of packaged drums in Lasa warehouse, ready for dispatch, for example.
Formulations involve mixing the powder with excipients, stabilisers, anti caking agents, anti hygroscopic coatings, tablet substrates, capsules, etc depending on the end product.
Paracetamol powder is an API.
Paracetamol tablets is a formulation made from the API.
Crocin is a brand made from the formulation. So post-formulation, it is only packaging and marketing. No chemical process is involved.
Lasa is planning to enter formulations, not branding, which is a different beast altogethee.
Lasa also makes some formulations, whether they claim it or not. For example, I saw drums of Halquinol 60 ready for dispatch, at Lasa Mahad, which actually contains Halquinol mixed with Calcium Carbonate (chalk powder) and other things in 60:40 proportion.
Incidentally, that is a marginally profitable business because Halquinol is 1050 per kg and Halquinol 60 sells for Rs 650 per kg. If you take Rs 120 per kg for Calcium Carbonate, you can make Halquinol 60 in 0.6 x 1050 Halquinol plus 0.4 x 120 Calcium Carbonate = Rs 678 per kg. So I don’t think one can make more money in such a formulation but it gives you end user connect as Halquinol 60 is directly used in Chicken feed (Calcium added for stronger egg shells).
So for Lasa, I think, formulations is a way to capture their own API and end user demand. Forward integration.
- Regarding EBIDTA in formulations, this is how I broadly calculate:
EBIDTA for API: 22%
So non-EBIDTA for API: 78%
EBIDTA for formulations: 10% (normally)
Non-EBIDTA for formulations: 90%
So non-EBIDTA for API plus formulations:
78% x 90% = 70.2%
So EBIDTA for API plus formulations:
In effect, going for formulations will confer two advantages to Lasa:
A) Higher EBIDTA
B) Usage for its own API.
Usually, govt and other end-user (milk cooperatives) tenders are for formulations and not API.
I like the CIDIC deal. Typically, such deals would be a commitment to buy 20-50 crore of API every year for 5 years. I do not know the size of this deal but I like the 5 year commitment part. Such deals are rarely signed without a plant inspection from the company. So something must be acceptable there.
By mistake, I went to Mahad MIDC for their EGM a day before the actual date. Realising my mistake, I asked to meet the plant manager for a plant visit. I was told that he was tied up with external auditors, I think from Novartis. Apparently, Glaxo, Novartis, Merck routinely conduct audit visits of their plants.
So those of you, who like to do independent scuttlebutt, may wish to find out from the above companies what their audit typically throws up.
Hi, thanks for such impressive analysis…
Does your inability to get acess to plant as a shareholder raise doubts in your mind or you are convinced because of the claimed client list…views pls??
I stayed in Mahad that night and attended the EGM the next day. I saw the full plant the next day, after EGM. So no issues on that front.
One of the promotors svaks biotech selling shares… they sold 1.1 lacs out of 3.37 lacs… that’s creating -ve sentiment. And management not able to curtail this sentiment. Omkar seems to be basking in the glory of being a CMD! Complaicency kicked in after getting a separate entity?
O, it’s public info… just search for lasa supergeneric in the following link
Screen shot of the search… hope this helps… Actually, the amount is INR is not big… but it helps in maintaining -ve perceptions… and the CMD, it seems is busy in kinging! serious doubt on management capability will be proven right if only the Q4 results are not as per guidence… i.e. ~ 22%+ margins and 60 crs + topline.
It will be interesting to find out more info and genology of this promotor entity (svaks biotech).
I thought Svaks belongs to father, Dr Pravin. He is not a promoter of Lasa anymore. Why should his selling be treated as promoter selling?
Omkar bought from his father…interse transferhttps://www.bseindia.com/corporates/anndet_new.aspx?newsid=b15b2588-0ec0-4c7c-9848-9bd87d578683
I love your excellent scuttlebutt and the details provided in the thread.
Omkar has been keeping his word regarding the interse-transfer of stake from his father. That is a positive. Business fundamentals so far look decent to me. Still trying to understand the depreciation and R&D capitalization methodology they use in the results though
What is your view regarding the CFO resignation and the change in auditor? Also, what would be the logic for announcing joint audit with the addition of one more auditor recently?
Your views would be highly appreciated. Thanks.
Sir, what CFO?
Did you ever hear about this CFO before this resignation? Did any investor ever meet that guy? Did that CFO attend any concall?
As per my understanding, he was a simple employee of the company in the accounts section. And his name was given as the CFO for official reasons when the demerger happened.
When he resigned, the exchanges had to be informed, as per the rules.
Mind you, Lasa is a 5 year old company and that too, a small one for the first 3 years. A company with less than a few crore annual profits cannot afford to hire a multi-crore package CFO. Good CFOs do not come cheap.
Having said this, please don’t expect me to know things happening inside the company. I am also an investor, trying to connect the dots.
If everything were absolutely clear, Lasa won’t trade at these valuations. So depending on your view on the uncertainty, this is either a buying opportunity or a clear touch-me-not.
Am studying this joint auditor thing. So I don’t have any view on that right now.
My personal view of the company is positive. Added a few thousand more Lasa to my old holdings today at LC. But I am willing to go wrong with my call and lose my money. So bet only what you can sleep comfortably with.
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