Thanks for a very positive post showing that the Caplin point mngt is walking the talk.
The old man has a lot of experience and the son is highly qualified. If they are delivering on their promises, there is sond reason to expect that the stock will be rerated
The opening minutes of the conference call were a rehash of their investor presentation, found in the same document containing the results. The question and answer session gave some insight into the business. These are my notes, not a transcript, and I would check all figures against a transcript when released.
1) Colombia stock and sale should have started this quarter, and in Mexico/Brasil should start soon. Can you tell us how much revenue youâre expecting from theseâŚ
Starting a warehouse in these countries. Waiting for the covid situation to get better. Looking to put up the warehouse in the next 3-6 months. Want to visit these countries to do our surveys as soon as we can.
2) Expectation for FY22 from the US:
Target is to achieve Rs. 125-135 Cr.
3) Why did you choose to put the oncology injectable plant in a different subsidiary?
Weâre putting the plant as a subsidiary for income tax purposes.
A certain Mr. Kacholia came on to ask the next few questions.
4) Regulatory compliances - What steps have you taken to remain on top of the compliance curve?
- We hire external consultants. We work with 2 former FDA inspectors that have had over 35 year stints with the FDA. They conduct trainings on data integrity, quality assurance and conduct mock inspections.
- We try to take people from quality compliant companies, especially when we hire people in the semi regulated markets.
- Going into much higher levels of automation, with the use of limbs for example, and going completely paperless. Weâre investing in software such as eBMR, and those will go some ways to ensure compliance will be high.
5) What is the total potential output from the plant, what is the utilisation in order to reach 135Cr.
Weâre at around 40-45% capacity utilisation, but since weâre expecting approvals for many products, we want to make sure thereâs no bottleneck for new approvals. Therefore weâre doubling our current capacity in the next twelve months
6) How much is this capacity expansion, will you invest it all at once?
Will cost us 110Cr. This is the entire phase II of our injectables. Since Caplin is sitting on a large reserve, weâre going to complete the CapEx with this, and weâre not getting external investment from companies like Fidelity.
7) Is the equity structure going to remain the same? Is it 70/30?
It is 75/25 and will remain exactly the same. The extra capital will be in the form of debt from parent to subsidiary.
8) How much is the total new capex + work in progress?
300Cr in terms of gross block.
9) What is the total revenue potential at full capacity?
Target is revnue of $100mil(732 Cr.) from this plant by 2026. We will start looking for high quality contract manufacturing as well.
10) Is there any opportunity for us to play in contract vaccine manufacturing?
Vaccines come under the category of biological products, we are in pharmaceuticals. Due to regulatory rules, we canât produce one in a plant thatâs meant for the other. It would take time to set this up. We evaluated this, but decided not to proceed. We also hear thereâs significant capacity for vaccine injectables coming in around the Hyderabad region in the next twelve months.
11) Do you expect growth in LatAm to continue?
Within LatAm, weâre in the smaller geographies, moving to larger geographies like Mexico. We are not focusing on products like anti HIV. Instead, we are going to work on 25 APIs, each giving a smaller piece. This gives us the opportunity to undercut local suppliers while not competing with bigger players. If bigger players enter this space, weâll undercut their costs.
Weâve also noticed another trend. When latin American people travel to the US, they carry with them supplies for their families. Weâve noticed they like our products and carry our generics. Our goal in 5-6 years is that we also build a brand among the LatAm people living in the US and sell a range of products to them.
12) Debtor days and inventories? Explain. Whatâs the difference in the debtor days in US.
In the US, is between 45-60 days. Current receivables are around 80-100 depending on the time of the year. As US is starting to become a larger portion of our business, youâll see the number coming down.
On inventory days, there are three kinds of inventory. Inventory in the factory is not a good sign. You have inventory in the waters, and inventory near the market. Inventory in the market, especially during covid times is a boon. Raw materials are not coming to local suppliers there. We are the only ones with warehouses there. Plus, we donât have 1-2 products but 300-500. Our products have sold there for 15 years. I would prefer the inventory to be on the higher side.
13) What about the USA?
Today, 100% of our sales in the US comes from our partners. We donât keep any inventories in the US and the model there is quite conventional. We want to change this by 2023, introducing a frontend.
14) As we scale up the complexity in the business, what have you done to hedge yourself against the currency fluctuations in the countries youâre operating in:
Panama, El Salvador and Ecuador, the currency is dollar. Guatemala is the country which gives us the most business. The currency there is stable. Nicaragua, Honduras and others have not had issues with volatility. The one country that isnât stable is the Dominican Republic. If our model was based on giving credit to customers, weâd be at risk. However, since our products are in the warehouse, we can adjust the prices for fluctuations and sell the products at variable prices to the customer to hedge.
15) Can you explain Caplin Steriles to us. Whatâs the revenue breakup between licensing and sale. What was the EBITDA and margins for FY21?
Export revenues 58%. PAT was -22Cr. EBITDA is -24 Cr.
16) Youâre planning CapEx for Caplin Steriles, and sending money from the parent companyâs reserves, but looking at the annual report from 2020, there is 150Cr lying in the balance sheet, and around 125Cr lying around this year. Why do we need more money from the parent company?
The investment from Fidelity is enough to run the business. However for CapEx, we take this money in from the parent company. We learnt a lesson in the last 18 months, US is approving things quickly, and spare cash is needed for approvals. Donât want to be left behind, so weâre keeping that money. If there was to be no CapEx, all OpEx is taken care of.
17) Whatâs the target for Caplin Steriles in a few years?
Filing charges and R&D is pulling down the numbers. Without those, the numbers are similar to the parent company. Once we develop the DMF and start the front end in 2023, weâll be completely vertically integrated and the bottom line will reflect this.
18) Oncology plant status?
We acquired buildings, so the process should be done a lot quicker and we donât need construction. We expect the first batch of oral solids in 12-15 months. On API, itâll take 2 years for a greenfield project. If it is inorganic, itâll be much quicker, but weâre working on the assumption that itâs organic right now. So the 300-350Cr. will be spent over the next 24 months.
So they seem to be giving a lot of importance to their warehouse model, stocking up on inventory close to the customers. Secondly, theyâre keen on opening their own front end store in the US by 2023, and thatâs also the timeline for their backward integration to make some progress. Theyâve given quite a target for their revenue from the US, as they want to go from 130Cr. to roughly 750Cr. in five years.
Iâm posting this not as a bull thesis, but to keep a record on VP forums to compare future results and statements. Personally, I have the following questions in the LatAm regions:
The majority of the medicines in MQDB are screened initially in the field by PQM-trained personnel following standardized procedures. Medicines undergo physical and visual inspection initially and subsequently analytical tests, currently consisting of disintegration and thin layer chromatography.
Update: a comprehensive search across the database returned two hits. One particular batch/lot in 2011 failed quality inspections, given below. The tests concluded that the medicines are not counterfeit. There have been no failed checks since. The questions now are to understand the details of when a drug fails a compendial test, and what conclusions one can draw from this. They havenât received an OAI or such a warning from the FDA. Iâm more than happy to write to the company regarding this.
Hi Chin,
Thanks for summarizing the con call, really helpful.
Regarding your questions i donât have answers but some information:
For q1: One thing that brings credibility to the management and talks a little about their products is the USFDA approvals that Caplin Steriles has got:
Orange Book_ Approved Drug Products with Therapeutic Equivalence Evaluations.pdf (130.4 KB)
source: Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations
Also they have TE code starting with âAâ for every drug. âAâ means bioequivalence (and not biosimilar) to the non generic drug.
Other than that i ended up on MQDB with the same result. Finding about Caplinâs drug is rather difficult. Their websiteâs products page is not functioning. The list of products for Nicaragua can be found at quetenx.com.ni
For question 2 :- I didnât find Caplin in my searches for pharma countries for latam. I found other larger pharma companies name but not Caplin.
One article on generic drug promotion
Results and the investor presentation out, a strong showing this quarter.
Continuing the earlier exercise:
| Q4FY21 Announcements | Q1FY22 Announcements |
|---|---|
| Revenue of 278 Cr. 29.5% YoY | Revenue of 310 Cr. 25.6% YoY |
| Cash in hand - 470 Cr. | Cash in hand - 522 Cr. |
| CFO for FY21 - 268.62 Cr. | CFO for Q1FY22 - 75 Cr. |
| Institutional sales expected to contribute marginally higher in coming quarters | Higher institutional sales are on account of emergency tenders for COVID related products. |
| QueTenX monthly sales up 37% YoY. | Monthly sales from QueTenX up 39% YoY. |
| Companyâs CRO wing Amaris Clinicalâs US FDA audit expected in near future. | Companyâs CRO wing Amaris Clinical received confirmation of virtual US FDA audit |
| Q4FY21 Announcements | Q1FY22 Announcements |
|---|---|
| Oncology Plant for Injectables and OSD â Design and detail engineering completed. Process equipment ordering â Evaluation under progress | Oncology Facility â Process equipment ordering completed. Design drawing and detail engineering completed. First batches targeted within next 9 months. |
| API Plant (includes US injectable API, OSD API and Oncology API). Design and Detail Engineering completed. Tendering for Civil and Mechanical work ongoing. | API Facility â Design Drawing and Detail Engineering completed. Process equipment tenders to commence shortly |
| Design/Detail Engineering for Phase 2 of Injectable plant completed. Total Capex Spend of 110 Cr for Phase 2, to be funded by Parent Company | Vial filling lines from Syntegon (Bosch) ordered, expecting delivery within 12 months. Pre-Filled Syringe line from Steriline ordered, expecting delivery within 10-12 months. Lyophilizer from Tofflon ordered, expecting delivery within 9-12 months. Expecting Phase 2 expansion to be completed within 15 months. |
| - | Capacity Expansion at CP-1 (ROW facility) â Order placed for additional Lyophilizer in view of increased demand in niche Lyophilized products in current markets. |
| - | Expansion plans under evaluation for Softgel section. |
Company has started manufacturing of Covid-related products such as Liposomal Amphotericin and Enoxaparin for domestic market supply. Company targets completion of enhanced in-vitro characterisation as per global standards and Bioequivalency studies for Liposomal Amphotericin and would be one of the very few companies to launch the product in the domestic market.
Transit times for sea shipments increased considerably over last few months, resulting in high volume of containers in transit leading to slightly higher inventory levels. Company expects this inventory to be converted into continued strong sales and cashflow by second half of current financial year.
Thanks to @sahil_vi, Iâve spent the last month listening to Aditya Khemka, whose knowledge of the supply/demand across different molecules is a joy to listen to.
Takeaways on Caplin currently:
Their LatAm/RoW business model is strong, and as long as they donât run into trouble with the USFDA, new product lines will continue to do well.
Entering the US market is a potential minefield. Itâs good theyâre already targeting the front end model that has worked well for companies like Strides, but the injectable market is cut-throat. Company claims their injectables are niche and currently under supply shortage, but work needs to be done to understand what these injectables are, and the pipeline across their competitors.
90% of Caplinâs business is strong. As long as they keep away from the US market, their EBITDA margins should remain intact. Theyâve explained they have a diverse product basket and donât overly rely on one molecule, but equally the basket approach will prevent them from garnering huge market share in one single molecule.
The foray into Indian markets is very interesting, will be worth following this development, as well as the margins across Mexico and Saudi Arabia.
Disclosure: invested.
Thanks for the summary @Chins
I have watched Aditya Khemka mention on multiple occasions how the US injectibles market is horrible. He has been warning against margin compression for companies like Gland etc too, as more players come in to fill the percieved short supply created by companies like Mylan and Teva going under. Niche or not, they will face margin pressures sooner or later.Not sure this is the best capital allocation decision with their LatAm business growing so well.
My understanding from listening to Aditya Khemka is that the Indian branded generics market is FMCG like. Larger companies with deep pockets for brand development are the ones who win and consolidate the market. Not sure how a company like Caplin can create strong brands without substantial investments.
I woud be much happier if they stuck to LatAm and Africa. Expecting overall return ratios to potentially taper slightly over the next few years as the share of US and India businesses scale.
Disclosure: Invested from 450 levels.
i think iâll add my 2 cents to this one (with my limited knowledge)
In one of their older concalls i heard the management sayâŚthat they wont get into Injectibles with big marketsâŚlike their Indian peers are doingâŚrather they would have a basket of 30-35 productsâŚall with small market sizeâŚbut in theseâŚthey will have a signifincant market share⌠(most of the target market size is usually not more than 30-35 crores)
In this same contextâŚthey mentioned Opthomology todayâŚnow that product is low volume but high marginâŚand not many players r doing it
Hope that helpsâŚ
Disc: Invested from much lower levels
probably want to listen to a lecture by Proff Bakshi, he made the same mistake and sold. long story short, he realized as long as the cashflow increases proportionally its fine, in the end the Company is worth its Net cashflow discounted.
#caplinpoint Management guidance of 15-20% CAGR sales growth is highly conservative reasons:
Annual sales 2020-21 @1061 crs
LatAm sales 87% ie 923crs
Next 5 years it is expected to double ie 1846crs
US sales to be 100 mn ie 700crs
5 Latam+Africa+US= 2685cr
Does not include:
Sales in Australia & Canada
Sales growth in Africa
Sales in India
Sales from Chinese JV and many moreâŚ
ready to be surprised on the upper side
Happy investing, holding biased 
Did anyone attend the concall? If yes, I would be obliged if you can share a summary of the discussion. The transcript has not yet been released on the company website.
Kindly see the video recording
Recent interaction of COO with CNBC TV18:
Invested!
Results are outâŚ
one of the generic Indian formulation has wide market in latin america and africa with direct selling model.
Can anyone give caplin product list here, i couldnât find it on company website or anywhere on web.
Thanks
Hi, I could these two links where products are mentioned
Caplin Point Laboratories Limited - Manufacturer from T. Nagar, Chennai, India | About Us (indiamart.com)
Caplin Point Laboratories Ltd (globaltrendz.online)
This is from their annual report
Caplin point latest shareholding shows Promotors sold slightly. Company shows 500+ crores as cash. Feels something cooking in the company. Institution participation increased 0.5% while prominent HNI completely exited or reduced stake to very nominal level. Caplin growth story intact?
Yes they have huge cash surplus atm and the planned capex for next 2 years is of just 300 to 400 cr.
They are looking for acquisitions as well.
Curious case of Caplin. I am holding Caplin since 2017 (now 5% of portfolio),would like to exit or trim the position to 1%. When i was investing in Caplin it was the highest growth company with superior return ratios. FII holding was 7%. Since then it started falling along with small caps. IN the last 4 years topline and bottomline and cash flow doubled. Also transformed a trading cum negative working capital company in to injecteble cum trading company , thus company created some kind of niche business. During this transition higher recievable become normal , PE multiple has come down from 45to 25, growth momentum maintained with slight reduction in OPM & PAT margins. Overall in a broad perspective everything looks good except the price movement. When i anaylsed Caplin came to notice that could be the only Indian company(apology if iam wrong) where low level of Institutional participation with this size despite all fundamental and growth prospectus are good. There are many past incidents where good companies when everything looks good in books becomes bad in a quick time.
Now my question to fellow members is, does this low institutional holding in Caplin shows that smart money not happy with this company because of some reasons which we do not know?
