The speed shows the interest… eagerness to get the results
As expected the top line is almost matching Q2 and management expects to repeat it in Q4 as well. Bottom line has gone down due to MC / FC ratio, the same reflects in higher material cost also.
The order book of 160 Cr including 88Cr of confirmed orders will ensure that they will do better in near future. They have secured 29Cr orders in recent quarter
Let us wait to hear concall and management commentary on 20th.
Peter lynch : 4th Advantage of Retail Investors: Street Lag
Under the current system, a stock isn’t truly attractive until a number of large institutions have recognized its suitability and an equal number of analysts (the researchers who track the various industries and companies) have put it in the buy or add list.
This means that by the time the stock’s analysis report is released, one should be sure that the smart money has already bought the stock at much cheaper and attractive prices as compared to the price they are currently reporting.
Excellent numbers.
I may join the concall on Monday. But if I don’t, someone please bring up the Buyback idea. I would love for the management to understand just how valuable Buybacks can be to the shareholders.
Buy back at the right price that is… doing it 250+ doesn’t make sense now… also they seem to be operating at 95% capacity… i think they should expand capacity and look for growth in core business rather than buy back … thought i totally agree that buy back is a great wealth creator if done at the right price!
That depends. If it’s based on the old numbers, even I wouldn’t buy Cupid above 150. So FV for me would be closer to 210.
But I’m not sure about the sustainability of the latest set of numbers and the plans for the US market going forward (In my opinion, the next big “trigger” for Cupid). If these are about to play out efficiently, then the FV may be higher.
Otherwise, I simply want the management to understand why Buybacks are great. I would love for them to continue doing Buybacks in the future whenever there is an opportune dip in the Price.
At this run-rate, yearly EPS will be around Rs 30. At PE=10, price of Cupid share =300 and if it get slightly re-rated due to US Positive news/any institutional entry i.e. PE=15 (which is five yearly average PE for Cupid), price of Cupid =450 by April/May 2020 (on or before yearly result declared!).
When Cupid has similar good result, its PE was re-rated to 24-28 in year 2015. Hence, PE=15 is very much possible!
At this rate , eps should be greater than 30, no?
And there is increased visibility for one year ahead with 160 crore orderbook- which means 4 quarter business. That will ensure the next year eps is 40?
The larger question is whether this earnings and revenue momentum can sustain for the next 3 years…else no scope of re-rating or institutional participation.
Marquee names like Basant Maheshwari exited just before the earnings started to fall apart few years back and retail investors as usual got trapped having entered during the growth peak time.
I hope in Monday’s call, callers seek clarity on sustainability of earnings and capital allocation more than P&L analysis.
Of course no management knows what’ll happen beyond a couple of quarters, but it’s good to get a sense of what they’re feeling
As investor we or even PMS / MF & big names would love to have visibility of a longer duration but if we go through annual report / con call details… we come to know that the product has expiry date of 1 year as most of the customers (in this case Govt agencies) don’t accept the product. Other than this majority of customers have annual budget and they float annual tenders rather than 3 or 5 year tenders. Considering these expecting longer visibility is a little bit tight until unless Cupid ventures into different customer segment and I don’t see any talks from management on this.
Other view to look into details of share holders and expecting entry of institutions, I wish increased EPS and cascading effect on P/E & market cap will help them in re-evaluating their investment strategy.
Good days are visible but these are increasing expectations MORE from management… let us see how Mr Garg responds … where I have a view that he patiently listens even smallest retail share holder but certainly reacts (or read takes decision) very slow and avoids most of the time.
From screener.in data - For Cupid
Compounded Sales Growth : 10 Years: 21.33%
Compounded Profit Growth: 10 Years: 24.18%
Return on Equity : 10 Years: 24.82%
No significant equity dilution for growth !
Sustaining performance over 10 years is a challenge for micro/small cap company but Cupid did it!
Scenario before 10 years and now -
(1) More awareness about Sexual disease,
(2) More people want sex without risk of pregnancy !
(3) More global funds / donors available to help poor country to prevent HIVs
Above scenario led to sustained demand of condoms worldwide. Cupid has focused on core condom business by adding incremental capacity and capturing new geographies and taking market share from number 1 company (Veru / FC2). Having all approval /regulatory clearance in place, lowest cost manufacturer, eligible to bid in global tenders - Cupid has good visibility! However, don’t expect LINEAR Growth but lumpy growth having upward trend!!
The cherry on the cake for cupid is US business. Currently No. 1 company (Veru) is enjoying excellent margin due to its monopoly market but that is going to burst by Cupid as USFDA degraded Female condom approval need (https://www.raps.org/news-and-articles/news-articles/2018/9/fda-reduces-regulatory-burden-for-female-condoms) and demand is growing in USA (https://www.ptcommunity.com/wire/us-sexual-wellness-market-expected-grow-cagr-around-8-during-period-20182024) …Cupid is already in process to get approval to sell Cupid Condoms in US Market.
As I being optimistic - i think for Cupid Future is Bright Than Past !!
Cupid might also bought by some other good player !!
Good thread by @dineshssairam at Thread Reader App
Moreover don’t expect any big institutional investor in Cupid. Because -
(1) Cupid has very small equity base of 1.13 crs shares and free float is only ~ 55%. i.e. only 62 lakh share available in market as free float and most of them held by retail investors
(2) Big institutional investors have criteria of minimum capital to be invested in a single company. If they are not getting enough liquidity / shares to invest minimum capital, they don’t invest in it.
If someone (institutional investor) just get crazy to buy, there would be series of upper circuit due to low liquidity condition in Cupid unless block/bulk deal done with promoters!!
Post Q3 interview this morning on CNBC. Mr.Garg very insightful as always!
Expect 160 Cr topline in current year
Expect to maintain following
EBITDA margin 32-33%
PAT margin - 25%
Current capacity utilization is almost 99%
Recently did capacity addition of 40% and looking to add more capacity after a year or so based on demand from broader market
Option to increase topline / bottom line by increasing FC, currently 44% FC & 56% MC - targeting 50-50 by next quarter
We have EBITDA margin of 15-20% on MC and 40-45% on FC
Latex prices are seeing downward trend… went down by 5% in last month… it will bring down the raw material cost
Expecting 25-30% incresae in orders from international including WHO in FY 20-21 i.e. ~100 Cr fresh new orders (projected)
USFDA inspection expected in early 2021 - expecting 10-15 Cr from US once everything goes through in US
Open to Strategic investors - waiting for but no luck till now
Raw material cost was high in Q3 due to higher MC contribution
Guideline for next year - expect 15% growth in order from current year
Current quarter fresh order 30 Cr (almost 50:50 in MC/FC) - most of them from South Africa
Brazil tender in Apr/May 2020 - assume it should be 120 Cr as was last year
Q2 order book was 173 Cr [120 Cr (confirmed)+ 53 Cr (in pipeline)]
current (Q3) order book 160 Cr (78 Cr FC + 82 Cr MC)
Expect atleast next 3 quarters to have topline of 40 Cr or more
Beside SA/Brazil… Uganda, Kenya, Nigeria are being explored for big orders
No progress on JV in SA
Normally get payment in 30-60 days… Brazil was big order and had 90 day payment term - it was the reason behind increase in finance cost
47 Cr cash or equivalent - considering dividend and acquisition in female health product business - nothing has finalized yet
Buyback was discussed, as usual Mr Garg listened patiently & confirmed to look into (its his normal reaction) but no commitment
yes, pretty neat summary, i attended the call too.
So essentially this business has 3 main levers - South Africa, Brazil and USA.
USA entry - The efficacy study is still underway and expected to finish end of this year which will be submitted to FDA in early 2021. I’m expecting sales around June-Sep 2021.
Brazil - tender size is 120 cr and Garg expects around 50% allocation. One of the chinese competitors shut shop due to high cost of manufacturing. So we are pretty much left with FHC and Cupid. But FHC is expected to give a tough competition this time.
SA - 80 cr tender for FC and 700 cr tender for MC. Its been delayed from November. Hopefully we will know results in Feb. Garg is still hopeful of doing a JV in SA although I hope he doesnt lose focus like last time and ends up getting a small allocation. He did agree that he had to improve his score on the SA tender.
This is not a business where you can give guidance. Its essentially based on the allocation they get in the Brazil and SA tender. Once they enter into US there will be less reliance on the tender business but until then its mainly tender driven.
It seems that growth for Cupid will come only if the share of FC orders goes up & outpaces the MC orders over the next few qtrs.In case that doesn’t happen we might have a flat year again in FY21.Moreover,the realizations on MCs are expected to dip more as supply from China,Malaysia hits the market.Interestingly,Mr. Garg mentioned that realizations on FCs have inched up.So a lot is going to depend on how the split between FC & MC plays out.
As of now Cupid feels like an Infra. company(dependence on institutions for tenders,tentative timelines,etc.) with much superior business economics.It is tough to get a good valuation given low/moderate visibility on orders in a B2B business.At the same time,the ratios are great & the company generates strong cash flows,has differentiated offerings and doesn’t seem to chase volumes for margins.The payouts are also good.The company did mention that they are looking for an acquisition in the women’s health segment.Any development on that front or the much awaited buyback could help in re-rating. US market entry remains a wild card.
Disc.: Invested.Views are biased.
Even if Cupid continues to post flat results for, say, 2-3 years in a row (Unlikely - since demand for Condoms is increasing worldwide and US entry will most likely bring in a lot of business), that would still mean a growth of 15-20% in the top line over 7 years or so. That is an excellent figure.
One cannot expect linear growth in a business like Cupid’s. That’s why additional Value-creation activities like Buybacks / Acquisitions may come in handy (Dividends if all else fails).
When capacity utlilization is 99% and no expansion underway, probability of growth for next 2-3 years is very less. (favorable product mix changes as @sharemarketgen_ pointed out is the only option)
For the longer term, there are risks to this business as the owner is old and the business is very much dependent on him personally
Yes the owner is old …I don’t know why my earlier post got flagged when I raised this concern …and not only that from what I know none of his family is interested in the business and are already settled in the US …I think this is a major concern. .