Caplin Point Laboratories

CNBC TV 18 hosted Vivek, Partheeban, COO of caplin points today on their show and here are the takeaways.

  • 34% EBITA margins attained in Q2 are expected to sustain.
  • Aspire to clock 280-300crs from the US business (Caplin Steriles). especially with the new production line commercialized.
  • Oncology business has been kick started in LATAM with contract manufacturing. The capex to do this in-house is in progress (Which might aid the margins even further).
  • Aspire for a 15-17 percent revenue growth for FY24.
  • Comfortable with the cash on books.
  • Open to inogranic growth LATAM market, especially Brazil and Mexico.

Link for the full interview.

What’s interesting is that Vivek thinks the EBITDA of 34-35% are manageable. In the earnings concall the management had mentioned that the gross margins of 60% that they attained this quarter might be difficult to sustain, but I think with Caplin sterile picking up pace I think the margins may sustain at these levels.

Disc : Invested and biased

6 Likes

Three reasons for the increase in Q2 EBITDA and PAT are as follows:

  • oncology sales outsourced

  • soft gel sales increase

  • reasonable increase in the revenue of Caplin Steriles

Growth drivers for the next three years:

  • In the financial year 2023-2024 outsourcing of onco business has continued to contribute revenue and profits

  • CSL line 5 which is a new line that increased the capacity

  • the new registration of soft gels will also contribute to the top and bottom line of our current financial year

They are sure to maintain current metrics such as EBITDA and PAT in the financial year 2023-2024.


FY 2024-2025 plans:

  • CSL line 5 and line 6 will contribute to company growth

  • increased ANDAs

  • replacement of line one with a high-speed lines

  • Completion of onco OSD such as tablet and capsule will also increase the revenue

FY 2025-2026 plans:

  • Expect completion of onco injectables in addition to OSD to expand OSD general facilities for the new markets

  • New and larger geographies of various countries such as Mexico and others where the increase in registration will also contribute to company growth

  • Expansions such as API in Vizag, Onco facility in Kakkalur, Thiruvallur, and the new OSD general facility in Gummidipoondi and line 6 in CSL will be completed between 12 to 18 months without fail

  • goods next to the customer and the warehouse have created a new ecosystem for preventing supply chain challenges

11 Likes

Senior management resignation*

Business head & President - R&D -API

6c01b27b-09bc-491b-a1c1-e927e4e83a76.pdf (730.3 KB)

It is normal for senior people to move for many reasons. Intriguingly, they have not been allowed to serve their notice period. Usually, senior management has 3-month or more notice period to ensure smooth transitions. Maybe in the conference call management can talk about it. D-invested.

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yeah, you are right. But I’ve noticed one thing they are not telling you the reason for resignation. They only write personal reasons for resignation.

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That is the norm. No matter what, it is always for personal reasons/ health/ wanting to spend time with family. Very rarely do senior management or even junior people give the real reason for leaving.

Losing 2-3 good people ain’t a good sign…
Esp for Cap Steriles

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Finally, the company has decided to invest its 700 cr free cash flow with the Tamil Nadu Government

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Can someone provide product list ? I could not find it on their website.

Please check the Orange Book database published by FDA (US)

https://www.accessdata.fda.gov/scripts/cder/ob/search_product.cfm

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Good Numbers

  • Gross Margin for Q3 FY24 is 56.3% vs 55.9% in Q3 FY23 and 9M FY24 is 57.1% vs 54.8% in 9MFY23

  • EBITDA Margin for Q3 FY 24 is 35.2% vs 32.0% in Q3 FY23 and 9M FY24 is 35.3 % vs 32.2% in 9MFY23, aided by new product launches across existing and new markets

  • Basic EPS increased by 22.2% to Rs.44.19 in 9M FY24 compared to Rs.36.17 in 9M FY23

  • Cash Flow from Operations in 9MFY24 is ₹189 Crores

  • Free Cash Flow is ₹72 Crores after Capex investment of ₹117 Crores

  • Geographical revenues: Latin America and the Rest of the World 83%, US 17%

  • Caplin Steriles Ltd (“CSL”) 9M FY24 Operating Revenue of ₹210 Crores, a 40.3% Y-o-Y growth

  • CSL’s revenue composition demonstrates a balanced mix of Product Supply and Milestone + Profit
    Share, with the split for 9M FY24 is in the range of 75% and 25% respectively

  • Receivable days are at 107 days

  • As of 31st Dec 2023, Inventories (including in-transit inventory) are at ₹374 Crores and Cash and
    Cash equivalents are at ₹832 Crores

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In the recent concall, Mr.C.C Paarthipan mentioned that he has recently removed certain people who were not meeting the required standards. I think this might answer why these people left without any notice period

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Q3FY24:
• Gross Margin for Q3 FY24 is 56.3% vs 55.9% in Q3 FY23. Operating Ebitda margins are 33% vs 29% yoy aided by new product launches across existing and new markets

• Caplin Steriles Ltd (“CSL”) 9M FY24 Operating Revenue of ₹210 Crores, a 40.3% Y-o-Y growth.

• Receivable days are at 107 days (103 qoq). Inventories (including in-transit inventory) are at ₹374 Crores (337 qoq).

Emerging Markets:
• Company targets first revenues from its own Oncology site in Q4 FY24. Company already owns 100+ product approvals across 5 markets in Central America, in Oncology segment.

• Company receives Colombia’s INVIMA approval for Caplin Steriles site. Newer markets of Mexico, Chile and Colombia expected to aid revenue growth in the coming quarters, through this approval.

• Amaris Clinical, CRO wing of Caplin Point, completes BE studies for 9 products, with a further 3 products planned for the coming Qtr.

• Company will install unique Dual-Chamber Syringe line at CP-1 facility in the coming months. The line will produce Dual-Chamber Pre-Filled Syringe products for LatAm, a segment with limited competition.

US & Regulated Markets:
• Company receives its first Otic product approval from FDA, product will be launched in Q4 FY24.

• Company files first Injectable Suspension ANDA, and also its first Plastic Vial ANDA with US FDA

• • Company has 13 ANDAs under review, with 3-4 approvals expected within coming months. Products under review are combination of Injectables in Vials, Ready-To-Use Bags and Ophthalmic products.

• Caplin Steriles USA Inc applies for 50-states licenses in US. Approval process likely to take 6-8 months, post which company will launch its own label in the US.

• Line 6 (Robotic Pre-Filled Syringes Line) undergoing qualifications and expected to be operational in 3-4 months.

• CAPEX: Almost Every capex is delayed by 1-2 quarters.

• 4 ophthalmic products approval will come in the next few months.
CONCALL:
• MEXICO: We have already filed 24 products in Mexico and received the registration of five in the recent past. We are sure of increasing our filing to at least 60 to 70 before the end of 2024.

• We have already started outsourcing dossiers from some reputed companies from China.

We have been exporting quality products directly from China to Latin America especially to the smaller markets. Now we are moving to the next level of business in the form of outsourcing from China companies for the regulated market. Here we are using our advantages and experience of catering to the markets such as U.S. which helps us to associate with bigger companies in China for our second innings in the larger markets of Latin America.

• BIOLOGICAL PRODUCTS: We also understand that there are some big companies in India which import Insulin and other biological products from China in bulk and do the fill and finish before they export to the regulated markets after conducting the necessary clinical trials. We do have plans to identify some good companies to do the same as we also have the necessary wherewithal with us in the form of CRO which has been approved by USFDA where we can conduct the clinical trials before we market the products. This will be an asset light model where we do not have to invest huge money to manufacture the biological products from the scratch

We are verifying the technical feasibility and commercial viability of fill and finish of biological products which includes Insulin.

These are things even the big companies initially used to import and test the orders and go for their own manufacturing. Of course, they are all companies which have deep pockets. We also will be in a position to do it after we test the waters by importing of Insulin and other things for which we have the necessary warehouse and then the surplus cash today.

• We are also getting into business of manufacturing double chamber PFS for the Central American markets shortly. The machinery will be installed either in March or April and the registration may take six to nine months before we hit the market. Here the volume of business may not be high, but the profitability will be very good as there is only one competitor, that too is a multinational company.

• We will also be starting one more warehouse in Guatemala border which is closer to Mexico and many of our customers feel that it is very difficult and expensive for them to come to the capital of Guatemala.

• We will continue to focus on the bottom of the pyramid and also the bottom of the business pyramid where the traffic for competition is always lesser.

• API FACILITY AND ITS DELAY: It is also true that we have been delaying the general API facility in Vizag as we are looking for some niche products other than our own injectable API for captive consumption. Finally, we have appointed an API expert who has filed 10 DMF for some niche products and he has joined with his team recently. We will now focus on the completion of Vizag API at the earliest.

General API we wanted to complete it for the captive consumption. Later we have found out that there is an opportunity for us to add some more and that too we were looking for a niche product which of course we have found a person as I told you before so now that it will be speeded up and it is true it was delayed that is the reason, I mentioned in course of my speech also. Coming to Onco API we thought of doing it in the existing facility and we have been told by our head of project that we could do it there but later we felt it will not be that viable in the sense this is a product API you need more land. When you expand at a later date, we will not be in a position to accommodate the API there so now what we have done is we have bought land in the form of 18.5 acres in an industrial estate at Thervoy Kandigai that is why we have decided to start it and we are going to start it now and we will be able to complete it in the next nine to ten months’ time from now.

• “Now let me come to the important area of my focus for the last two to two and a half year of managing the CSL Facility to make it very unique. My stay in the factory initially and the subsequent stay closer to the factory made me to understand the importance of perfection for integrity, quality and safety in addition to improvements in productivity. I personally went to the shop floor areas many times in the day and night to find out some disobedient minds whom I removed them later. I went to start this factory next to my village only to help the poor not to become a poor. I also learnt that bottom-up approach which helps the company to reduce the deviations and OAS which are very important for any pharmaceutical company and needless to say it is pertinent to a USFDA facility.” – C.C Partheeban

• CAPLIN STERILES: We have around 14 products that are under active review with FDA and we expect most of these to be approved within the next 12 months. Some of these are ophthalmic products which we have a line that is largely underutilized at the facility so we will be aiming at launching these products as close to the approval date as possible. We will also shortly be working on a pipeline of prefill syringe products as well so you can imagine that we are trying to cover a broad spectrum of products that are used in hospital and clinical settings. This will certainly be augmented when some of our Oncology injectables start to feature in the coming years onwards.

We have also filed several products in Mexico, Canada, South Africa, Australia, etc., and we can start to see some non-US based revenue within the coming 18 months so overall we are making good progress on the US side and with prices stabilizing and also injectable shortages continuing, we feel that our razor-sharp focus on digitalization and quality and supply continuity at Caplin Steriles will certainly augment the company’s progress in the years going forward.

• US FRONT END: In the next eight months, we will have licenses to distribute our products on our own label in all 50 states in the US. We hope to launch around six to seven products in the initial period within the first year itself and as Chairman was saying we are going to be attending more and more expos in the US trying to identify the underinsured and uninsured population which we believe is anywhere between 30% to 35% at this point and these pretty much belong to the tier two and tier three cities and also tier two and tier three buyers of the US which is what our focus has always been on including in Latin America. This also will not have any impact on our current business partnerships in the US which is more of a B2B model because our partners are much larger in size and they are much more focused towards the GPO related business.

• 55-56% will be normalized gross margins.

• Red Sea issues will not have any major impact to us – Shifted to CIF from FOB Basis – pooling all goods together and then moving them by road through Guatemala warehouse

• LATIN AMERICA GROWTH: Actually, the growth has been about close to 11% in the conventional business. I am sorry to differ with you that we have saturated in Central America and Latin America but again definitely we will do well once we enter into the bigger geographies of South America like Mexico, Brazil, Chile, Colombia and all but these countries as you know well it takes time to complete the registrations and then these are countries where you will not be in a position to do big business with 10 to 12 products. We have to have different buckets in one big basket which is going to happen say one year or two years from now. That is the time we will do again extraordinarily good business the way you ask

In the next two to three years, we will have all the facilities and then second maximum registrations will be completed in majority of the countries in the next three to five years

One more thing in the form of LATAM, I am sure in five to six years from now we will be the number one company. In all humility I can claim that we can do it. The reason being in the smaller geographies where all these six countries put together the population is less than Tamil Nadu. We are doing close to Rs. 1,000 Crores. Once we get into the bigger geographies as I told you in the years to come, we will be the best of the best business and we are sure of becoming number one also in these countries. These are the few things I would like to convey to prove that we are a force to reckon with in the years to come.

• Caplin sterile capacity expansion: Now with line five that has come into place we actually have expanded the capacity by more than double so we are actually good till about I would say next four to five years at least.

• Now like with all of these approvals coming through we are starting to get more and more visible in the US which is why I think it is at very good time for us to launch our own label in the US and one of the three largest distributors in the US has already tied up with us on about five products now and we are in active discussions to create a private label for them for another four to five products also so it is again in the nascent stages and we see that there is a certain level of disruption that is happening in the US also with certain companies and then making deals directly with manufacturers and stuff so we think that there is going to be more opportunities in that direction and we do not want to confine ourselves to the GPO space or the CMO space or anything like that. We want to be open to all ideas and so far, so good we will be patiently cautious about what we want to do in the US.

13 Likes

Overall, The compounding machine of caplin goes on its merry way!

US to contribute majority of growth for next 1-2 years with tradional LatAm business growing steadily at 10-12%

Then, once approvals and registrations come in the next 2-3 years for the bigger geographies of Latam like mexico and Brazil, growth can go into the next league.

Plus, management is constantly on the lookout for new growth drivers like Insulin, Acquistion etc.

And with such a strong balance sheet, serious risks become very low

5 Likes

Caplin Point Laboratories Limited Q3 FY2024 Earnings Conference Call

  • The current cash flows and profits are mainly from the smaller markets of Central America in addition to the U.S. now. We are entering into bigger geographies such as the U.S., Mexico, Chile, and others.

  • Mexico is the second largest market in Latin America and Mexico’s advantage is its geographical proximity and cultural compatibility to both South and North America. We have already filed 24 products in Mexico and received the registration of five in the recent past. We are sure of increasing our filing to at least 60 to 70 before the end of 2024.

  • We have been exporting quality products directly from China to Latin America, especially to the smaller markets. Now we are moving to the next level of business in the form of outsourcing from China companies for the regulated market. Here we are using our advantages and experience in catering to markets such as the U.S. which helps us to associate with bigger companies in China for our second innings in the larger markets of Latin America.

  • We are also getting into the business of manufacturing double chamber PFS for the Central American markets shortly

  • The machinery will be installed either in March or April and the registration may take six to nine months before we hit the market. Here the volume of business may not be high, but the profitability will be very good as there is only one competitor, that too is a multinational company.

  • We will also be starting one more warehouse on the Guatemala border which is closer to Mexico and many of our customers feel that it is very difficult and expensive for them to come to the capital of Guatemala. This will also increase our profitability and cash flow in the coming years.

  • We will continue to focus on the bottom of the pyramid and also the bottom of the business pyramid where the traffic for the competition is always lesser.

  • We have Onco products under registration in Latin American markets where we are very confident of doing business in the initial stage itself, unlike Caplin Steriles.

  • Our injectable and API for Onco facilities will also be completed in nine to 10 months from now. We are sure of doing profitable business in the future after the completion of our injectable division and registration.

Caplin Steriles business:

  • We have around 14 products that are under active review with the FDA and we expect most of these to be approved within the next 12 months. Some of these are ophthalmic products which we have a line that is largely underutilized at the facility so we will be aiming at launching these products as close to the approval date as possible

  • The rest of the products and the review are under active development and are a healthy combination of injectables and vials, ready-to-use injectable bags, injectable suspensions, emulsions, and also ophthalmic.

  • We will also shortly be working on a pipeline of prefill syringe products as well so you can imagine that we are trying to cover a broad spectrum of products that are used in hospital and clinical settings.

  • In the next eight months, we will have licenses to distribute our products on our label in all 50 states in the US.

  • So overall we are making good progress on the US side and with prices stabilizing and also injectable shortages continuing, we feel that our razor sharp focus on digitalization and quality and supply continuity at Caplin Steriles will certainly augment the company’s progress in the years going forward.

8 Likes

Caplin has been growing steadily with latest Q3 numbers. Overall, it’s the best stock currently in the Indian market giving decent revenue growth, best-in-class GP/EBITDA margins and other efficiency metrics. I don’t think any other stock comes near to Caplin even by an inch.

With the US market coming in, focus should be on their strategy. They talked about underinsured or non-insured market. Point taken, but US market is ruthless for generics when it comes to pricing. They need to have a differentiated approach with their offerings.
With steriles & injectables as well, the same approach works.

Good point is that LATAM market will also give them a consistency while US markets with given them sudden jumps in revenue.

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True, it has been a consistent compounder. Hopefully in the coming years as they enter bigger Latin American countries like Brazil and Mexico, they should benefit from from their differentiated model. Also the presence of the Caplin Steriles would continue to increase in the US (with more complex molecules), which is an additional lever of growth. Once it reaches the maturity, I won’t be surprised if it manages to outgrow the parent company. In the coming quarters the API plant coming online should would boost their backward integration.

Having said that, the red sea crisis has resulted in increased freight costs and it will be interesting to see how it impacts the quarterly results in the near term. They managed it pretty well at the peak of covid, when there were freight shortages, but the red sea crisis will remain an overhang in the near term. The management had mentioned in the concall that this wouldn’t impact their business, but from the reports looks like the freight rates have increased by many folds since mid of Dec, when the red sea crisis started unfolding.

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