A point to be noted for current valuations - Although PE is about 35 times (highest in recent times), however the Price to Free Cash Flow is more than 100 times (which is quite higher than industry average of about 50-60). I believe the valuations are currently stretched, however the stock is in upward momentum since the past few months.
Disc: Invested
Price to cashflow from operations is 59.9 which is higher than recent times but not something company hasnt seen. in growth phase and in momentum little stretched price to cashflow from operations should not be a big problem
Attaching herewith a Press Release regarding receipt of Establishment Inspection Report (EIR) from the U.S. Food and Drug Administration (FDA) with Zero 483 observations for the unannounced inspection conducted at Caplin Steriles’ injectable and ophthalmic manufacturing facility located at Gummidipoondi between August 05th and 09th, 2024.
Chennai, January 06, 2025: Caplin Point Laboratories Ltd. (“Caplin Point” or the “Company”) (BSE: 524742 | NSE: CAPLIPOINT), announced today that it has received the Establishment Inspection Report (EIR) from the U.S. Food and Drug Administration (FDA) for the recent inspection conducted at Caplin Steriles’ injectable and ophthalmic manufacturing facility located at Gummidipoondi. The unannounced USFDA inspection was conducted between August 5th and 9th, 2024 and was concluded with Zero 483 observations, reflecting the company’s commitment to maintaining the highest standards of quality and compliance.
- The subsidiary received final approval for its Abbreviated New Drug Application (ANDA) for Levetiracetam in Sodium Chloride Injection in various dosage forms (500mg/100mL, 1000mg/100mL, and 1500mg/100mL).
- This approval marks the company’s second success in the Ready-To-Use (RTU) Infusion Bag segment.
The approved drug addresses epilepsy-related conditions, with US market sales for this drug estimated at $19 million for the 12 months ending November 2024.
Curious to understand why the market is beating down Caplin Point labs despite no events? While nothing changes long term, curious to know if there’s any current affairs that I might be missing
Trump is likely to impose tariff on pharmaceutical imports from other countries.
This will affect their US business, if it happens.
According to its annual report only 18% was US buisness. US was supposed to be a major growth area for them in the following years. Maybe the market is rerating Caplin as future growth might not be possible. Maybe the management can clarify in the next concall
If this pullback were due to anticipated tariffs by the new U.S. administration on pharmaceutical companies, large-cap Indian pharma companies—predominantly focused on the U.S. market—would likely have seen significant corrections. However, this has not occurred.
IMHO this is simply technical correction.
so if this is the case then what would be the ideal valuation for caplin as i have read many times that valuations are overstretched
Caplin Point Laboratories | USFDA Approval
Received USFDA approval for Procainamide Hydrochloride Injection USP (1g/10mL & 1g/2mL vials), a generic equivalent of PRONESTYL (Apothecon Inc.).
Some more insights on concall dated 07.02.2025 :
Page 2 of 17: When others focused on the top of the pyramid for the creamy layer, we created our creamy layer by catering to the bottom of the pyramid with good quality medicines at affordable costs. Now, we are also working with four non-negotiables in our factories - integrity, quality, safety and productivity by teaching and training the middle of the factory pyramid.
Page 5 of 17: So, what will please the investors is what we achieved in FY22-23 full year revenue, we have achieved it in FY24-25 nine-month period, INR 1523 crores was the revenue for the whole year FY22-23, which we are almost close to that in FY24-25 nine-month period. And not only revenue, the PBT was INR 451 crores in FY22-23, we are already at INR500+ crores.And PAT was INR 377 crores, we’re at INR 396 crores. So we’ll be consistently growing quarteron-quarter, which enabled us to grow year-on-year as well.
And while we focus on growth, we are also not losing sight on the other parameters like COGS, opex, etc., which enables healthy cash flow, what Chairman specifically mentioned.So the COGS, which is about 48% in the year FY19- 20 has dropped to 40% over a period with a lot of efforts from our shop floor, supply chain team and all the senior people who have been contributing to that. So the 8% of turnover is a huge number, which you would appreciate Operating expenses, despite our employee strength going up in the last four years, it has almost doubled still and other more factories coming up in place, our operating expenses are hovering around 25%, 26% of the revenue. So we have been conscious about keeping the operating expenses controlled, and we don’t indiscreetly spend the money on any of the expenses.
Q3FY25:
• Free Cash Reserves at ₹1,081 Crores
• Gross Margin for Q3 FY 25 is 60.4% vs 56.3% in Q3 FY24 and 9M FY25 is 60.3% vs 57.1% in 9MFY24, aided by new product launches across existing and new markets.
• Cash Flow from Operations in 9MFY25 is ₹284 Crores vs ₹189 Crores in 9MFY24.
Business Highlights for Q3 FY25:
Emerging Markets:
• Oncology business of the company, through Caplin One Labs, clocks a revenue of ₹34 Cr during the nine months of FY25 and has turned profitable. Injectable division of the Oncology entity will go on stream by Q4FY25.
• Mexico Update – Company has filed 28 products (23 PQ), with 10 approvals (0 PQ) received. Working on a pipeline of 45+ products (40+ PQ), to be filed within the next 12 months.
• Company files Insulin Analogues in certain Central American markets, through strategic partners from China. Further filings in LatAm targeted for Insulin, Biosimilars/Biologics and GLP-1 range of products, in the next few Quarters.
• Company’s API unit at Vizag nears completion, with trials/scale ups targeted for Q4FY25. First few DMFs to be filed from the site before end of 2025, for key US ANDA products, as part of backward integration.
• Company breaks ground on Oncology API site in Thervoy, near Chennai. Facility expected to be completed within 15 months, and will cater to Company’s budding Oncology business for Regulated and Emerging Markets.
• Capacity expansion at CP-1 (Puducherry site) nears completion, which includes higher Lyophilization capacity for Injectables and inclusion of unique Dual Chamber Pre-Filled Syringes line, a niche segment in LatAm with limited competition.
**US & Regulated Markets:**
• Company receives approval for first Ophthalmic Emulsion product Difluprednate, and also second Bag product – Levetiracetam Bags. Total Approvals as on date – 28 (25 PQ), with a further 13 (14 PQ) products under review with FDA, which includes Injectable Suspensions, Emulsions and RTU Bags.
• Company expects 10 more ANDA approvals within next few Quarters, setting the momentum for continued robust growth in FY26 for CSL.
• Company is in active discussions with several parties for acquisition of Injectable/Ophthalmic ANDAs for US.
• Company will launch its first RTU Bag and Opthalmic Emulsion product in the US in Feb’25, both under own label and with Partners.
• Qualifications for Pre-Filled Syringes line (Line-6) completed. Company plans to file 7 Pre-Filled Syringe products within FY2026. Plans also to file GLP-1 products (Cartridges) from this line, in Emerging Markets.
• Company continues to file multiple products in non-US markets of Mexico, Canada, Australia, Brazil, UAE, Saudi Arabia and South Africa. Meaningful revenue expected from these markets in FY26.
Update on Caplin Steriles USA Inc, - company’s own label in the US:
• Company makes good progress with its own label (CSU), clocking a revenue of $0.5 million within the first 2 months.
• CSU has launched 14 products already, with a further 10 products to be launched in the coming months. Going forward, all approvals of CSL will be launched under CSU label.
• - Company has entered into contracts with the 3 largest Wholesalers in the US, with multiple mid-level contracts underway, to be completed in Q4.
• Company enters into supply agreements with 15 direct buyers (IDNs and Hospital Systems) in the US, with ongoing discussions with 30+ more health systems. CSU targets maximum revenue through these direct buyers in the next 24 months.
• Company aims launching 35+ products (30+ PQ) within the first full year of operations.
•
(Capex budget increased from 700 to 1000cr. COL Injectable facility is the new capex)
CONCALL NOTES:
• MEXICO AND CHILE: Our next big targets are Mexico and Chile for the short term and also Colombia and Brazil for mid- to long term in Latin America.
We have identified two factories for oral solid, ointments and suppositories in Mexico for our contract manufacturing. The advantage is to enjoy the 15% duty which is not applicable for local manufacturing. Further, we have identified some 10 products for contract manufacturing in Mexico.
Chilean business will start in the middle of this year. And Mexico, we are going to get some orders because we participate in the tender. So, the business is coming in bits and pieces so far. The real growth will start maybe one year from now. This year, we expect a substantial increase compared to the previous business in Chile. The Mexican business will start from next year. We got only ten products registered. We are going to start some CMO opportunities, look at some CMO opportunities in Mexico itself. And many products are in the pipeline. Some are already there in the Ministry of Health. So, it will take one year for us to actually show some substantial revenue from these two geographies.
In Mexico, there are two types of market. One is the institutional business; the other one is the private market. And most of the Indian companies, of course, they have established at least 10 or 12 companies are established, but they don’t go directly. See, in countries like Central America, we replace the importer. In countries like Mexico, we’ll replace the wholesalers.
• We are expanding our brand marketing in West Africa, which we are sure would increase our business substantially.
• We also started our frontend in US and you are aware that no injectable company that created the front end has failed in the U.S. business
• We’ve developed 80 to 85 APIs in our R&D for captive consumption. The same will be manufactured in China where they have excess capacity in some of the factories for high volumes. It will be an asset-light model for Caplin.
• In addition to our own R&D for various areas, we now engage two groups of private R&D for the following products:
o One, semaglutide tablets, where the patent is expiring in many countries by 2026.
o Two, MC-1, which is a new chemical entity which you also know, involves biostudies that can be conducted in our US FDA-approved CRO, Amaris Clinical.
o The fourth one is specialty products we are developing in CP-1 which now, of course, are manufactured by Japan and sells a lot in India and China.
o Fourth is biosimilar. The toughest part of biosimilar is sourcing the API, which is the 90% of the complex activity. Formulating it in bio is just 10% of the job. We are talking to a couple of companies for API and we’ll do the formulation in our factory for the ROW markets. We already started outsourcing insulin from China for our LATAM market. We’ll look at the possibility of this business in the form of manufacturing at a later date.
The above models might take two to three years, but again, the built-in benefits will be immeasurable for future
• TARIFFS & GEOPOLICTICS: As medicines are lifesaving drugs whether it is for India or USA, it’s not life-threatening. Building factories are also not that easy. And moreover, 40% of the pharma requirement of US is met by Indian companies. And the multinationals they believe more in asset-light model in the form of outsourcing the API to formulation from India mainly and to some extent in China. Some of the multinational generic companies have even sold their factories for meagre sum. Hence, the focus on molecules for multinational is more on the R&D for new molecules and also for the meaningful association for their actual business. They are not very keen to compete with the vanilla generics in ROW market as well as unregulated markets.
I think impact at this point, it’s too early to say because I think we don’t know what is exactly going to happen in terms of when the enforcement will happen
Our impression is that medicine is the last one to get affected or the least one to get affected. I don’t think actually they will jump on that one because as I told you in course of my speech, it’s all lifesaving. There is nothing in the form of life-threatening to anybody.
• US MARKET AND CAPLIN STERILES: Revenue from operations of Caplin Steriles is INR 87.8 crores with EBITDA of INR 24 crores.
We have an average timeline of around 14 months for receiving ANDA approvals compared to almost 20 plus months which is industry average. So, it goes to show that when it comes to R&D and also regulatory, I think we are doing things the right way.
In addition to own ANDAs, we are in active discussions with other players to acquire ANDAs in the injectable and ophthalmic space wherever it makes sense for us, both from a market angle and from a commercial angle. Going forward, I think the company will be focusing a little bit more on slightly complex products, including drug-device combinations, etc., and focus more on global launches.
In addition to U.S., we have also filed multiple products in non-U.S. markets such as Canada, Mexico, Saudi Arabia and recently in Brazil as well.
B2C OWN LABEL: Going forward, all the products that we’re getting approvals for will be launched using Caplin Steriles label. In addition to that, in due course of time, we will be on the lookout for other good molecules that we can in-license using the cash reserves that we have on hand, especially for focusing on targets where we don’t have that in our internal pipeline or products that we cannot manufacture due to various complexities such as antibiotics, etc.
When it comes to the sales channels, our long-term objective is certainly to go as direct as possible, targeting these large markets, etc. But due to how the system is consolidated in the U.S., we understand that this will be more of a mid- to long-term target. It might be a little bit slower progress compared to what we have done in the past in Latin America, etc.
But our long-term focus will very much remain on how do we get closer to the customer.
Before the end of next year, we’ll have close to 50 products that we will launch with our own label.
ON WHY US GROWTH WAS SLIGHTLY MODERATED AND STRATEGY GOING AHEAD: We should remember that we took a conscious call as a company that we are going to be launching a label of our own in the U.S., right? So, when that be the case, at least almost around eight to nine months ago, we stopped doing these exclusive deals where we take on a large milestone payment upfront. Now, we knew that this was going to be a pivot in our business model. It’s going to be a shift in our business model where we want to replicate what we do in Latin America in the U.S. as well. So, at some level, you can expect a certain amount of moderation in growth when it comes to this year because we no longer do any exclusive partnerships, we no longer take any milestone payments or even large royalty payments or anything upfront. Now, this is going to be important for us for a mid- to long term because what happens is for so long, we’ve been working on a business model where we do a transfer pricing and there’s a milestone and a profit share where we share 50% of the profit with the front-end partner. Now, why I say mid- to long term is that over the mid- to long term, that 50% that we’ve been sharing over the last few years, it accrues directly back to us now. So, this is more of a strategy shift that we have taken consciously, and this will pay good dividends for us going forward.
B2B VS B2C: Our B2B business will continue, no doubt about it. I don’t have a percentage as to what it’s going to be in the next five years. Our B2B business will certainly continue because, look, there are some pockets of the market, which are very much favourable to the largest companies. So, I don’t have an answer to when the transition will be completed. It probably will not be entirely completed at all, right? Because we want to make sure that our capacities are put to full use. So, we will always do B2B business. We will always do some amount of CMO, but the focus and the precedence that we are giving to our own label will obviously take a front step from here onwards.
We have a long-term aspiration to be very much in control of how we do our business in the U.S., how Caplin Steriles works in the U.S., right? So definitely, as you can imagine, as we launch our products, as our products come into the market, they go through the wholesaler channel, they go directly to the health systems and all of that. You can imagine that the larger companies that do business with us will start to take notice and they may not do any more deals with us. In fact, we are also not approaching them to do any newer deals. So naturally, there will be some amount of plateauing in terms of our B2B business. How quickly does our own label catch up with it and how quickly the scale shifts in that direction is entirely down to our launches and our capabilities, our progress in the U.S. So once again, it’s very difficult to put a number or a percentage down. But you can imagine over the next three to five years that our own label will certainly be larger than our B2B business.
• EMPHASIS ON OPERATING EFFICIENCY: And while we focus on growth, we are also not losing sight on the other parameters like COGS, OpEx, etc., which enables healthy cash flow. So, the COGS, which is about 48% in the year FY19- 20 has dropped to 40% over a period with a lot of efforts from our shop floor, supply chain team and all the senior people who have been contributing to that. So, the 8% of turnover is a huge number, which you would appreciate. Operating expenses, despite our employee strength going up in the last four years, it has almost doubled still and other more factories coming up in place, our operating expenses are hovering around 25%, 26% of the revenue. So, we have been conscious about keeping the operating expenses controlled, and we don’t indiscreetly spend the money on any of the expenses.
• Margins will continue to remain similar/get even better going ahead.
• We are also expanding our capacities in Caplin Steriles Phase III, having five more lines.
• 20% will be the tax rate, effective tax rate on a consolidated basis for the company.
THINGS TO TRACK
CAPLIN STERILES B2C DIVISION PROGRESS: NEW PRODUCT LAUNCHES; LICENSING DEALS; MARGINS GOING AHEAD.
• MEXICO, BRAZIL AND CHILE MARKET PROGRESS
• NEWER GROWTH INITIATIVES PROGRESS (BIOLOGICS/INSULIN, CHINA PARTNERSHIP, SPECIALITY CHEMICAL)
• ONCOLOGY DIVISION PROGRESS
• CAPLIN STERILES B2B DIVISION PROGRESS: B2C DIVISON EFFECT ON B2B GROWTH RATES?
• EXISTING LATAM MARKET GROWTH PROGRESS
Caplin Steriles has received final ANDA approval from USFDA for an ophthalmic solution which had US sales of approximately $242 million (INR 2100 crore) for the 12-month period ending December 2024. Additional notable points are:
- Caplin Steriles Limited has developed and filed 46 ANDAs in USA on its own and with partners, with 34 approvals so far.
- The Company is also working on a portfolio of 40+ simple and complex Injectable and Ophthalmic products, that it intends to file over the next 4 years
- The company also has multiple products filed with several approvals in non-US markets such as Mexico, Australia, Canada, South Africa etc.
Disclosure: Invested.
I was trying to understand why an EM market focused player like Caplin would have better margins than an US focused player ? any insights here ?
new to this company ,
haven’t seen a more consistent chart for earnings than this !
whats so special in the business ? what is the moat ?
My viewpoint is :
They are highly focused on the backend for the margin purpose.
And second, they are a big player in Latin America and their sales strategy is to open warehouses near residential areas for distribution for dealers. so this also reduces transportation expenses
Not sure about the exact reason but margins are a top priority for the management.
An oft repeated theme in the concalls is that they won’t sacrifice profit for growth.
There’s no moat, but their focus so far has been on catering to the bottom end of the pyramid, where competition is less as per management. It’s only recently that they’ve started pursuing the US market. Even in US their focus will be on the bottom strata.
Source: Concalls over the years
US market is a commodity market and not a branded market. US FDA make sure the quality of the product same in all the manufactures, now when a US pharma company wants to buy Paracetamol, it can go to any manufacturer with US FDA approval. Indian manufactures keep their pricing low to be competitive. If you read concalls of US focused companies, you will find this pricing erosion and pricing pressure often. So everybody compete and makes less margin.
On other hand central america market that caplin caters is more like Indian Market, we are branded market. Its like FMCG. We have so many paracetamol brands with equal quality but why Dolo is market leader. Doctor will write that brand, if you ask paracetamol in pharmacy they give you dolo, because thats where their margin is high.
And more over Caplin is vertically integrated business model - They hold the entire value chain manufacturing till distributor in the respective country. In US business, companies only manufacture and export to other US pharma companies, So This model also adds margin to caplin profile