Caplin Point Laboratories

[shashikanth]

Adding, as there is a new ANDA approval from the USFDA.

Ketorolac Tromethamine Injection - 15 mg/mL and 30 mg/mL Single-dose Vial.

US sales per year - 53 million USD (as per the disclosure by caplin)

Other active Indian competitors for this injection : Alembic, Gland, Sun pharma, Wockhardt

Caplin was already producing Ketorolac from 2017-18. They were selling it to Baxter Healthcare.

I think now they can independently sell on their own with better margins. This injection has good competition, but the opportunity size also looks relatively large.

Alembic management comments on Ketorolac opportunity (Ref Q2 FY23 concall)

Disc: Invested, No transaction in last 30 days.

[Sudharsan]

This Gift of share to P Vijayalakshmi(Prompter Group) - close to 1.5% if i am not wrong - Have been wondering where these came from, gift is one person transferring shares to other right…? contrary to this the total number of shares has gone up and could not find any fillings reg this. Am I missing something…?

[pranavpallod12]

Q4FY23:
• Caplin Steriles(US Injectable business) Total Revenue crosses Rs. 213 Cr in FY23 with 67% YoY growth; achieving PAT breakeven.

• Geographical breakup of sales: LATAM & ROW - 86%(PY:90%), US – 14%(PY:10%)

• Softgel expansion at CP-1 plant completed, with commercial exports commencing in Q4

• Company plans entry into Brand Marketing at Latin America, specifically in CNS and CVS segments.

• Development of 65+ API’s both in General Category and Oncology completed at R&D scale, to be scaled up when Company’s API units go on stream in the next few months.

• Company’s exports to newer markets such as Cambodia, Turkmenistan and Uzbekistan has commenced in Q4FY23.

• Company has received 2 tender awards from a LatAm country for Speciality & Oncology products, to be delivered in Q1 and Q2 of FY24.

• API Facility:
a. General Category API site refurbishment work ongoing, company targeting completion within 4 months.
b. Oncology API site construction starting in adjacent facility to the Finished Dosages Oncology plant at Kakkalur, Chennai. Targeting completion latest by Q3FY24.

• Capacity Expansion at CP-1 (ROW facility) – Softgel capacity expansion completed, with 2x the current capacity established for existing markets. Injectable expansion ongoing – lyophilization capacities to be expanded by 4x.

• - Capacity expansion in Caplin Steriles:
o Phase 2 of the facility nearing completion, commercial batches targeted by Q3FY24 from this unit. Post completion, company will be able to leverage large batches with faster filling speed for Injectable Vials. Also, an automated Pre-Filled Syringe line is being added, a new delivery system previously not available at Caplin Steriles.
o Phase 3, a standalone plant close to the current site is expected to be completed within Q4FY24, which will have high Lyophilization capacity, and plans to add complex dosage forms such as Inhalations.

• Oncology Facility – Oral Solid Dosages nearing completion. Injectable phase to be completed within 9 months.

• OSD Facility for Global markets – Construction work to commence shortly on a new Oral Solid Dosages plant in Thervoy SIPCOT, near Chennai. The facility, which is expected to be completed in 12 months, will increase existing OSD capacity by 3x and will cater to additional demand from larger LatAm markets such as Mexico and Brazil, in addition to regulated markets such as US and EU.

• CAPLIN STERILES: With a healthy order book, Company targets 50% growth in revenues in the FY24. Increase in revenues targeted through new product launches and higher market share from current products.

• Company has 8 ANDAs under review with FDA as on date, which includes Injectables and Ophthalmics.

• Company has completed 4 complex products Exhibit Batches, which includes 3 Injectables and 1 Ophthalmic. Plans to file all 4 with US and Global markets during FY24

• Company has launched its co-labelled product in the US, for 4 approved products.

• Overall development pipeline remains robust, with 55+ ANDAs under development with an addressable market in US at over $5 Billion.

• Company has earmarked Mexico and Chile as the next immediate avenues for growth in LatAm. Company has 1 product approved in Mexico, with 6 more approvals expected in the next few quarters. Company currently has 75 product registrations in Chile.

• Planning to have front-end presence by H1FY24 in the US market to launch own label & expand.

CONCALL NOTES:

• Growth drivers for FY24: One, our additional line of Softgel we produce a business of INR80 crores to INR90 crores from LatAm markets for the current year. Two, the brand marketing that we started in Central America, that is LatAm would also fetch us a revenue of INR30 crores to INR40 crores. Three, the introduction of generic business in West Africa might also result in an additional revenue of INR10 crores. You are aware that we are currently doing only brand marketing in this part of the world.
Four, our new initiatives in CIS and Southeast Asia could also fetch us a business of INR20 crores to INR25 crores for the current financial year. Five, Caplin Steriles would generate an additional income of INR90 crores to INR100 crores for the current year.

Overall 250cr sales growth. (17% over FY23)

• We are, of course, very happy with the progress Caplin Steriles has made in the last financial year, where we have grown nearly 70% and also achieved the full break even with a small profit as well. We need to also take into account that this includes all of the expenses that we incur in the way of ANDA filing, the R&D cost, the regulatory costs, etcetera which I believe amounted to close to INR20 crores, which is a direct hit and now specifically most companies I believe capitalize these expenses, whereas we charge them off with expenses. So, achieving the break-even despite a large regulatory and filing fees is something that we can all be appreciative of.

• CAPLIN STERLIES: We are sitting on an order book of close to INR230 crores to INR240 crores as we speak. So, the key is to make sure that we execute the production with high degree of compliance like what we have always maintained. The focus right now is to complete the validation of our new line, especially the ones that Chairman explained, which is high-speed and highly compliant line that we’ve bought from Bosch. Now we feel that this is going to significantly reduce our turnaround time. It will significantly increase our productivity as well. We are hopeful that this should go onstream by October of this year and that will free up quite a bit of capacity for us to continue doing our R&D work and exhibit batches work and stuff, which is the last thing that we need to do before filing the ANDAs.

• In terms of market share, for a majority of the products that we have live in the market, we have increased our market share

• But of course, the most important thing for us is to make sure that our business model is differentiated because that is the one that is going to be impactful over the long run and that is what is going to make it even more sustainable. This should happen once we start making more regular visits to the U.S., which will start in the coming couple of months onward.

• As a smaller company, we would like to believe that over a longer broader portfolio, we would have a good hold on the COGS. And once we go for backward integration on a few of these products, we will have even more control on COGS as well. So, we can be certainly encouraged by what we would see in the market on these products.

• “There are only two things that are permanent in the world, one is change and the other one is poverty. As long as you cater to the bottom of the pyramid, by removing the intermediaries and the bottom of the pyramid business itself will become a creamy layer and that is what actually has helped the company to where it is today. So, we’ll continue to do the same business, we’ll try and do the same thing in the regulated markets, ROW and the bigger geographies. Only difference is it takes time. It’s not like actually the ROW market where the registration gets completed in six months, their own places where we have studies, their own in fact actually expect the kind of dossiers and the regulatory hurdles that we have in the biggest geographies is not there. However, we will continue to grow in this domain and we will also go for something long term in the regulated markets where the big boys are ruling currently.”

• MEXICO: The model that we will be adopting in Mexico definitely is going to be very unique. But again, Mexico is a market where the registration and other things it takes long time. And now we are in the process of registering our injectables towards there and we will also get into OSD and other product shortly. Once we get a basket of actually 50, 60 products with different buckets in the form of tablets, capsules and injectables, probably we’ll start our business. We are doing actually a bit small business, not a big business, the consistency will start, say, one to two years from now in a big way, maybe two years from now, that would be the right timeline.

• BRAZIL: We are still in the registration stage. Here, the arrangement is totally different, it’s not like continue, which we do in Central America in the form of our work. We have a partner; he is registering the products. Again, it will take actually as we told you right now, Mexico, it will be still more, maybe definitely not less than two years.

Okay. So, both of these markets will only significantly fall into sales in two years

• Of course, I mean, the thing is, touch wood, we have filed by ourselves around 25 products and we have filed another five with partners. We have not even received one refusal so far, we have not had any product that has taken more than 18 months to get approved, right? So, we have an excellent track record for a company that is very new in this space.

• CAPEX DETAILS: Yes, what is visible as of today is the ongoing CSL project, Phase II and Phase III, which will consume anywhere between INR150 crores and INR170 crores. The Onco project will consume another INR50 crores, INR60 crores. And as Chairman was mentioning, another OSD plant, greenfield plant is being initiated this year. The total outlay is about INR150 crores, I’m not sure how much of that will get consumed within this year. Between FY24 and H125 anything between INR350 crores and INR360 crores will be capex as planned today.

[Krishna_Kumar]

Concall CC Parthivan

1. Financial Performance: The company has shown strong top-line and bottom-line growth, with benchmark cash flows. The return on capital employed stands at 26.19%. Despite investing INR650 crores in capex, the company has increased its cash-and-cash equivalents by INR17 crores to INR770 crores over the past 10 years.
2. Expansion Opportunities: The company has identified several growth opportunities. These include an additional business of INR80 crores to INR90 crores from the LatAm markets through their Softgel product line, revenue of INR30 crores to INR40 crores from brand marketing in Central America (LatAm), introduction of generic business in West Africa with potential additional revenue of INR10 crores, new initiatives in CIS and Southeast Asia for a business of INR20 crores to INR25 crores, and an additional income of INR90 crores to INR100 crores from Caplin Steriles.
3. Strong Financial Position: The company’s liquid assets are in excess of INR1,450 crores, while payables amount to only INR160 crores. Accruals to cash balance have been INR300 crores each year in the last two years and are expected to continue in the future.
4. Sustainability and Scalability: The company recognizes that employable talent comes at a cost and offers good salaries, performance bonuses, ESOP, and employee engagement. They have invested in developing 65 APIs (Active Pharmaceutical Ingredients) and have acquired API facilities to reduce costs and ensure consistent supply. They have also invested in imported machinery to increase productivity and have a strategic focus on expanding their business model in larger geographies.
5. Future Outlook: The company aims to complete expansions in oncology, OSD (Oral Solid Dosage), and API projects, as well as product registrations in the next two to three years. They believe that by leveraging positive trends, analyzing markets, and catering to stakeholders’ needs, they will become one of the best companies in their size category.

Vivek Parthipan

1. Regulated Market Business: The company is pleased with the progress of Caplin Steriles in the last financial year, achieving nearly 70% growth and breaking even with a small profit. Despite incurring expenses for ANDA filing, R&D, and regulatory costs, the company achieved break-even, which is commendable.
2. Product Mix and Approvals: The product mix is currently around 70% product sales and 30% milestone and profit share. The company has received three approvals recently, with one product already launched and two more to be launched soon. They have eight products under FDA review and another 13 products under stability, including complex products like ophthalmics, bags, and vials. The company aims for an additional 50% revenue growth in the coming year.
3. Order Book and Production Execution: The company has an order book of around INR230 crores to INR240 crores. The focus is on executing production with a high degree of compliance and completing the validation of the new high-speed and compliant line acquired from Bosch. This will reduce turnaround time, increase productivity, and free up capacity for R&D work and exhibit batches before filing the ANDAs.
4. Front-end Progress: The company has made progress with its front end in the U.S., with more information expected in the next few months. Approvals have also been received in Canada and Australia, but the revenue potential from these markets is currently considered small.
5. Market Share and Differentiated Business Model: Despite price erosion and market share challenges in the industry, the company has managed to increase its market share for most products without reducing prices. The focus is on maintaining a differentiated business model to ensure long-term sustainability and impact. Regular visits to the U.S. and the completion of Line 6 (pre-filled syringe) and Line 7 (lyophilized products) will enhance the product portfolio and provide visibility on label products and the U.S. market.

[Aagam_Parikh]

ABOUT THE COMPANY

Caplin Point Laboratories Limited is a rare mid-sized company in India’s pharmaceutical sector to be engaged in the R&D and manufacture of finished formulations, APIs, clinical research, front-end generic presence in Latin America, brand marketing in Francophone Africa and a USFDA/EU-GMP approved injectable facility. Caplin Point has 4000 + products registrations across the globe with 650 + pharmaceutical formulations & over 36 therapeutic sections.

It has grown consistently over the last decade with a unique business model which provides them with cost advantage, research and innovation, cash generation, strong distribution networks, channel partnerships and accretive growth opportunities. They started out in the deeply underserved Latin American countries where other Indian competitors did not see potential revenue sources.

BUSINESS MODEL

• Robust Infrastructure with 4 manufacturing facilities and 3 R&D facilities. They acquired an API plant recently for backward integration. The complex products are manufactured in India.
• The company has long term contract manufacturers in China for their generic products. This ensures the lowest possible manufacturing prices for their products. Chinese trade agreements with LatAm countries helps Caplin export products without attracting higher duties. China amounts for 35% of the company’s exports.
• Caplin Point has built extensive distribution networks from the scratch which reduces their logistical cost and thus adding to their profit margins.
• Introduction of pharmacy automation and portals to simplify the ordering process for pharmacists in Latin American countries and create stickiness.
• Caplin Steriles is their subsidiary which caters to the USA and other regulated markets for injectables, ophthalmic and other related products.

REVENUE BREAKUP

• By Geography: 83% LATAM, 14% USA, 3% Africa – They have scaled up the USA business in the last 3-4 years to cater to 14% of their business
• By Business Segment (except Regulated Markets): 75% Generics, 25% Branded Generics – The share of branded generics has gone up from 5% to 25% in the last 10 years which adds to higher margins
• By Channel (except regulated Markets): 65% Distributors, 20% Direct Sales, 15% Tender Business

GROWTH OPPORTUNITIES

• Additional business of Rs.80-90 crores from LatAm markets through their Softgel Product line and Rs.30 to 40 crores from Brand Marketing
• Introduction of Generic business in West Africa with potential revenue of Rs.10 cr
• Business of Rs.20-25cr through new initiatives in CIS region and Southeast Asia
• Strong order book to the tune of ~Rs.230-240 crores and additional income of Rs.90 to 100 cr from Caplin Steriles
• Received 2 tender awards from LatAm countries for speciality and oncology products to be delivered in Q1 and Q2 of FY24
• Potential entry into new regulated and unregulated markets like Canada, Australia, Brazil, Chile, Mexico
• Strong order book for Caplin Steriles to the tune of ~Rs.230-240 crores

CAPEX PIPELINE

Capex pipeline of Rs.500-550 crores to expand existing capacities, widen portfolio and backward integrate the products has been undertaken through internal accruals.

• Capacity expansion at Caplin Steriles: Phase 2 of the facility nearing completion, commercial batches targeted by Q3FY24 from this unit. Post completion, company will be able to leverage large batches with faster filling speed for Injectable Vials. Also, a PreFilled Syringe line is being added, a new delivery system previously not available at Caplin Steriles. Phase 3, a standalone plant close to the current site is expected to be completed within Q4FY24, which will have high Lyophilization capacity, and plans to add complex dosage forms such as Inhalations.
• Oncology: Oral Solid Dosages nearing completion. Injectable phase to be completed within 9 months.
• API Plant: General category API site refurbishment work ongoing, completion expected within 4 months. Oncology API site construction starting in Chennai plant to be completed by Q3FY24.
• Capacity expansion at ROW facility: Softgel capacity expansion completed , with 2x the current capacity established for existing markets. Injectable expansion ongoing – lyophilization capacities to be expanded by 4x.
• Oral Solid Dosage facility for Global Markets: Facility expected to be completed within 12 months, will increase capacity by 3X to cater to additional demand.

ABOUT THE MANAGEMENT

The company was founded by first generation entrepreneur Mr. CC Parthipaan in 1990. The company was on a downfall as it was caught in a storm of quality issues and rejected consignments. However, the grit of Mr. Parthipaan made it a great turnaround story in the Indian market. He chose to serve the underpenetrated countries by personally staying there, understanding the markets and forging deals .The management has converted the neglected markets into rich sources of cash which was generated at high return margins. The unique business model requires implementation which is ensured by the sons of the founder. One of them lives in China, speaks fluent Chinese, and overlooks the manufacturing in China and the other one lives in Guatemala, a risky Latin American country where he overlooks the company’s business operations. They have many executives in the countries where they conduct business, who have all come from small villages in Tamil Nadu. They were all trained in Spanish before being sent there. It is remarkable to see the management not forget their roots, their mission, and their values while at the same times running a fast growing and a profitable business. Promoter holding stands at 70.66% as of Q1FY24.

INVESTMENT RATIONALE AND FINANCIAL ANALYSIS

• Exponential Topline and Bottomline Growth: Caplin Point has managed to grow revenues and profits at 30% CAGR and 47% CAGR respectively over the past 10 years. Management guidance for the next 5 years stands at a CAGR of ~30% for revenues and profits. The business had 10 consecutive years of profitable growth and managed to outperform most of the players in the Pharma sector in this period.
• Cash rich business with strategic cash allocation: Caplin Point stood with Cash and Cash Equivalents of Rs.772 crores on 31st March,2023 from a meagre position of Rs.17 crores 10 years ago. The free-flowing cash of the business and the judicious use of cash at disposal has made the company grow consistently. They have spent more than Rs.700 crores on CAPEX in this period, entirely from company reserves.
• Debt free: The company has virtually been debt free since 5+ years and has only resorted to short term borrowings for operational activities. This throws light on the strategic decision making of the management who have managed to compound the business without external funds, i.e., diluting equity or raising debt.
• Healthy R&D and ANDA Pipeline: Caplin Point is one of the few pharma companies with an extensive focus on R&D. On an average they have spent about 6-7% of their revenues on R&D. They also have setup their own CRO wing for internal and commercial use. Their successful innovation has converted into a healthy pipeline of 55+ ANDAs for the regulated market. 20 ANDAs are already approved while 29 are filed.
• High Return: Their average ROCE for the last 10 years has been 47% while it has been 32% in the last 5 years on a higher base. Their FY23 ROCE stood at 27% and moving forward, one can expect ROCE in the range of 25-30%. Their ability to regenerate profits out of the available capital has been remarkable.
• Unique and efficient business model: Caplin Point has used a different business model from the rest of the industry which enables them to manufacture and export at extremely low rates and their own FMCG like distribution channel saves them from higher logistical costs. They have gained significant market dominance in countries like Guatemala, Nicaragua, El Salvador, and Ecuador.
• Huge scope of business with margin expansion: The company’s next steps are to move into regulated markets while expanding their business of Caplin Steriles which caters to the US market currently. They have managed to scale it up to 10% of their revenues and are already PAT breakeven after accounting for the registration, license, R&D fees. With the business scaling up from these levels, the injectables business can expand their EBITDA margins to 35-38% from the current 32%. The oncology business setup is soon to be operational which will add to the margins as well. Once their ANDAs in pipeline are approved, their addressable market size will be $5B+, 8x potential from current levels.

VALUATION

The company is currently trading at a PE of 15 which is cheaper than the median PE of 25 times for the pharmaceutical industry. As per FY24 forward EPS of Rs.65, it is trading at a PE of 12. Therefore, the market has undervalued the stock and it offers a significant upside from current price levels. It is a potential candidate for a re-rating. Measuring at the current PE basis FY26 forward EPS of Rs.112, we get a price target of Rs.1680. Given that the company is rerated on a conservative basis at a PE of 20 against 25x of the industry, we get a price target of Rs.2240 for FY26, i.e., 3x from the current price levels.

WHY YOU SHOULD NOT INVEST IN THE STOCK

• Increasing Working Capital Cycle: Caplin moved from a negative working cycle in FY2018 to a cycle of 198 days in FY23. The company has had a substantial increase in their receivables and inventory as they are expanding into newer geographies and taking up Government contracts. Any mismanagement of inventories or increasing bad debts can hinder growth and the smooth operations of the business.
• Highly competitive USA Market: The management has made an aggressive bet on the USA markets, a market which is catered to buy the most pharma players in the world, including numerous Indian companies. Their injectables business has tough competition from Indian companies like Alembic Pharma, Dr.Reddy’s, Gland Pharma, Glenmark, Cadila and many more. The pharma sector in the USA has faced significant price erosion in the last year and there are challenging times ahead for the companies catering to the market. The management’s bet is staking the future of the company in a lucrative but difficult market.
• Reliance on China: Caplin Point heavily relies on their Chinese business and manufacturers to cater to their generic segment. In these complicated geopolitical times, when countries are following the China+1 policy, Caplin Point is exporting 35% of it’s products from China. They are also reliant on Chinese trade agreements with the Central American countries which can be cancelled due to some adverse event.
• Increased regulation in countries of business operations: Caplin Point built its business model in a way that they had to cater to the unregulated and semi regulated countries in the world. Any activity of increased regulation in any of these countries can affect their business for a short time, until the approvals can be met.
• Claims/Allegations against the company: Being a part of the pharmaceutical industry, Caplin Point always has the risk of production going wrong, batch qualities being affected, customers developing adverse side effects and their products being banned.
• Overambitious management guidance: The management has given a guidance of FY28 bottom line being the same as FY22 top line. This converts to a growth at CAGR of ~27%. However, the first two years, the company grew at CAGR of 17%, which means that they have to grow at 32% CAGR while maintaining profit margins, in order to reach the target. Though achievable as the management has backed their guidance with results in the past, this ambitious target can go wrong, which could result in stock price correction.

Disc: Personally invested. My first post on this forum, feedback would be appreciated

[Dr.Bharath_Murugavel]

7517bc46-545f-42a0-a66d-a9c0007b0887.pdf

Attaching herewith a Press Release regarding grant of United States Food and Drug Administration
(USFDA) approval for the Abbreviated New Drug Application (ANDA) Cisatracurium Besylate
Injection USP to our Subsidiary Caplin Steriles Limite

[phreakv6]

I looked at Caplin over the weekend since it looked cheap.

PAT has gone up 4x while price has been stagnant in the same time of 6 yrs

What stood out immediately in early checks was this. Why has the cash conversion become so worse since FY17 or so?

So what’s ailing the price is what I set to find out and ended up reading almost this entire thread. My take is that the company was under-reporting its profits until FY16-17 or so. While it was supplying to its “partners” and booking revenues at those sales numbers, the company also made profits in its distribution along with its partners but this was under-reported in profits but reported as “Advanced from customers”. This has since then become 0. The business seems to have even used these “Advances” to fund capex in the past.

This artificially showed much higher RoCE than what the company was making (~65%), while also depressing the tax it was paying. What should have been assets of the company (cash post tax) was ending up as liabilities (Advances from customers). This should have been outright fraud which is probably why the company refused to open its mouth back in 2011-12 period when VP-ers grilled them how they could get advances on generics. The company was infact probably telling the truth that their strength was avoiding the middleman but hiding the fact on the Advances.

Taking over its partner’s distribution business has brought the inventory and receivables of the distribution business into the company’s books and has suppresed the ratios. The current RoCE of around 25-30% is probably where the actual returns of the business are and is still admirable (Maybe will trend evenlower as US business grows).

So the business has grown from strength to strength in the last 10 yrs and its 150x in returns since the early discussions on the company. While the business itself is probably legit but the poor governance is continuing to haunt the company.

The reason why there are no returns is probably because though there is 4x growth in profits, this is probably just mostly restating of numbers. The growth in sales is probably due to the price the distributor is selling being booked instead of what Caplin was selling to its partner. The growth in margins (in FY1 8 and FY19) towards 37% also aligns with this theory (Advances becoming profits) - though the company seems to have said its due to branded business and so on and cash conversion worsening due to govt. business etc. - All this is probably untrue.

Also, notice how the payouts have reduced from 20-25% levels to all time low 4%. How will this increase the confidence on shareholders that the cash equivalents (770 Cr) is indeed real and shareholders will actually get it?

I found this interesting in the 2012 interview by VP-ers.

I don’t think the management has learnt how dividends affect stock value yet. Paying 15 Cr dividend when you have 770 Cr cash - even with a capex outlay of 350 Cr over the next 2 yrs, is poor optics. They should have at the very least paid a 40 Cr dividend and maintained the 10% payout rate. I will be interested here if the payout rates go up above 20% levels and the company puts out a dividend policy. That has the potential to re-rate this stock and make returns for shareholders than any growth in US business can.

Disc: No positions

[Ranjit_Solkar]

Quite an interesting analysis, not sure how much of it is valid though.

Anyway, on the dividend being 4%, if I’m not wrong, this is the interim dividend, as I remember last time also, the company paid an interim dividend and then a final dividend after.

[Sumit_Agarwal]

@phreakv6

While it was supplying to its “partners” and booking revenues at those sales numbers, the company also made profits in its distribution along with its partners but this was under-reported in profits but reported as “Advanced from customers”.

@phreakv6 Not very clear how this can be done. The mechanism is a little abstruse for me. Please if you can elaborate step wise how company can report the sales on the liability side.

[manhar]

@Sumit_Agarwal when you take advance from somebody then what happens is that you have to deliver the product or service in future but you have already received the money now. So in accounting terms lets say you sell a product and receive cash in this case you asset reduces ( INVENTORY) and asset increases (CASH) hence your balance sheet is balanced but in case of advance you asset increases (CASH) but asset does not decrease since it is ADVANCE hence to balance the balance sheet you increase the liability. This means I am liable to give them the good or services in future for which I have received cash today.

[JeetB]

Can anyone comment on why the founder’s elder son (Mr. Ashok Gorkey Parthiban) who has been managing the Latin American operations (which is 85% on the company’s revenue) since long, is not getting any salary?? Or at least they have not mentioned this anywhere on their present or past annual reports. He is a shareholder, almost 12% - about equal with Mr. Vivek Parthiban (younger son).
Also, Vivek Parthiban withdraws a salary of Rs. 12-18 lacs a year, since past 5-6 years now, which seems to be very less; considering that his father and elder brother do not withdraw any salary.
Having been involved in a family managed business, I find this a little absurd, and more charity like mindset.
Are they really so grounded that they hardly need money to run their families, or are we missing something here.

Disclosure: Invested

[Vineetjain111]

This kind of speculation has been rife with Caplin Point for years now. Are the cash flows real, are the sales inflated, why no salary for promotors etc etc. I don’t think anyine has found any concrete evidence of any wrong doong on any front so far, at least mot that I kmow of. In the meanwhile, they have strengthened their core unregulated market business and have successfully set up Caplin Steriles which is now breaking even.

While things are usaually good untill they are not, I find it rather unproductive to try and force fit reasons for the stock price underperformance of the last few years. The truth is that the stock was overvalued in 2017-18 and is probably slightly undervalued right now. Once the market sees the returns from Steriles and the resulting improvement in overall return ratios, a rerating is on the cards. Best to be patient and wait ut out.

Disclosure: invested from 400s and added another chunk in April. About 8% of my portfolio.

[manoopatil]

I have extracted some snippets from the annual report in an attempt to establish the cash available to the company as reported. To establish the authenticity, can we ask the bank names where the deposit of about 232 Cr. is placed from the company secretary?

[Sumit_Agarwal]

@manhar Thanks for the explanation. What I meant was not how a normal advance mechanism will show up on the balance sheet. I wanted to understand @phreakv6 statement that Caplin was booking revenues by supplying to channel partners but this was under-reported in profits and shown as advances from customers.

I had two questions emanating from this

1. Why would a company do this in the first place? Why would someone under-report profit?
2. How from an accounting point of view can a company shift profits from sale of products to advances from customers?

[Ranjit_Solkar]

There could be multiple reasons as to why promoters take salaries that range between Rs.0 to Rs.100cr a year. I think during a couple of investor’s calls, they clarified this question also - that they own 70% of the company and they’ve been paying a healthy dividend, of which obviously 70% goes to them, so how many more crores does someone really need to maintain a good lifestyle? From what I have seen/heard, they seem to be simple first gen guys from Chennai, a city that doesn’t have too many flashy entrepreneurs anyway.

[Dr.Bharath_Murugavel]

if caplin gets 100 crores advance from customer
advance is by definition here recognized as a liability as you may have to pay back so it cannot be put in profit and loss statement
balance sheet-changes
asset-cash(100)
liability-obligation to pay it back(100)

profit and loss no change

when they sell whole thing they have say the distributor sells for 1000 crores and they owe caplin point 1000 crores
balance sheet
the 100 crores advance is nullified as there is no obligation to pay back the distributor
so the distributor gives back 900 crores(1000-100=900)
however the company has to recognize the advance cash it received earlier in the profit and loss statement so total profit is 1000 crores for caplin point
because it cannot keep the amount in balance sheet as there is no liability attached to it
read about profit and loss statement and balance sheet see the differences

correct me if i am wrong?

[Mithun_Maity]

All good but 100 will be adjusted against the sales. Similarly 1000 crores will be sales. whatever profit comes out. It will move to reserves and surplus of balance (After considering tax and dividend)

[Dr.Bharath_Murugavel]

balance sheet will be like
assets 1000 cash from (100 advance +900 cash from profit)
liabilities= 100 subtracted because there is no obligation now
retained earnings -1000 will be added
hence balanced

[Akashdeep]

Another set of good result from Caplin… but the market punishes the result

[amat]

Good set of numbers from Caplin for 1Q24, with consistent growth in both topline and bottomline. Despite this, the stock fell ~6% from previous close, with a ~9% decline from the intra-day peak. This could possibly be due to profit booking, since the stock has had a big 7% rally in the last week and reached an ATH today before starting to drop.

Financial Highlights:

• YoY growth: 14.1% in Total Revenue, 19.3% in EBITDA, and 20.8% in PAT
• EBITDA margin at 34% vs 32.2% in 1Q23 and 33.8% in 4Q23
• Basic EPS increased by 21% YoY to ₹13.62. TTM EPS of ₹52 implies a P/E ratio of 17.2, close to 5-year median of 17.6
• Cash Flow from Operations was ₹88cr (63.5% of EBITDA), with FCF of ₹37cr
• Share of revenue (vs. 4Q23): LatAm & ROW - 88% vs 86%; US - 12% vs 14%
• Caplin Steriles (US business) reported 12.2% YoY growth in Op. Revenue to ₹46cr
• End of quarter inventories at ₹310cr and Cash and Cash equivalents at ₹807cr
• Final dividend of ₹2.5 per share for FY23

Business Highlights:
Emerging Markets:

• Good quarter for LatAm business both in terms of revenue and profitability
• Management credited the expansion of Softgel capacity at CP1 plant (Puducherry) completed last quarter with having quick payback and helping improve market position
• Entered pre-filled syringe market in LatAm with the launch of 8 new products
• Brand marketing business expected to meaningfully contribute to financials only by FY25
• Good momentum in SE Asia and CIS countries. No specific countries mentioned but likely to be Cambodia, Turkmenistan, and Uzbekistan as per 4Q23 investor presentation.

US & Regulated Markets:

• Establishment of front-end in US through incorporation of Caplin Steriles USA Inc. to be completed within 6-8mos. Plannning to launch 15+ new products within 12mos of incorporation
• No mention of profitability; had achieved PAT breakeven in FY23
• 7 ANDAs under review with the FDA; planning to file 10+ in the next 12mos.

Fairly good results overall. Things to watch going ahead would be growth in US business including ANDA approvals, and completion of capex projects (4 due in FY24).