Caplin Point Laboratories

ROCE numbers for Caplin have come down from 35%+ levels to 25-30% range due to expansion into new markets like US. Given the nature of competition in those markets and expanded working capital requirements this reduction in ROCE is expected.

However, it is still a 25%+ ROCE business and growing at 20-25% CAGR. Additionally, the high margin Latam business continues to grow fast and there is huge potential there - Brazil being the largest. I personally believe that a PE of 16x is very reasonable for the quality of business that it is. It still continues to deliver 30% operating margins, which many pharma companies with huge economies of scale find it difficult to achieve. I think the pharma cycle should start to do well after the recent beating due to price erosion in US, increase in raw material prices and supply chain issues.

At some point the market should start to give some premium to this company and the overall improvement in the pharma cycle should also help that. At WealthCulture we believe pharma companies that have less exposure to regulated markets will do well irrespective of the size of the company. Caplin should do well.

Disc: we are invested in Caplin in our personal and client accounts as well; this is not a reco

CIO - WealthCulture