Hi guys…
I have a few opinions of my own about all the concerns flagged by everyone…
operting at 100% capacity - this seems to be a problem?? really? had the numbers been 38 cr topline with 8 cr bottom line and 85% utilization we would have all been rejoicing and stock would be up in hope for more… on the other hand adding capacity is not a problem, it can be done quite efficiently and quickly as mr garg is sitting on a lot of cash and he did say he will do it next year… so the question is why not this year?? as per my understanding mr garg is an astute businessman and understands when and how to expand capacity… he did capex last few years when the company was -20% on bottom line… so he obviously saw this demand coming… also he is conservative with cash burn which is not a bad thing.
2)mr garg is old and there is no future - as one of the investors in the concall said we have full faith in him and rather see him continue because of his experience and the profitability mindset and not growth driven mindset. all of berkshire companies have very old ceos and there isnt a retirement limit there… must be for a reason!
3)how will the company grow - so returns to investors are not just by growth but more from ROE. if a company is growing at 30% with ROE of 8-9% they are actually at a loss, whereas a company not growing at all but ROE OF 50% would yield great returns in the future. In cupids case what matters is how this free cash flow is deployed ( capex ,usfda, buy back, dividends) will provide returns to investors not just topline growth.
getting an investor on board - this would be the ultimate crime! if you ever asked Buffett about what he feels about propping up stock prices by getting in some fancy names youll get your answer… if we as investors feel our company is undervalued then we should act upon it,ie buy the stock and not give our equity cheaply to a marquee name who might just vanish overnight…(we seem to think that we are weak because we are just retail investors) also buy backs would be far more efficient at lower prices. the pe and market cap will eventually take care of itself if cupid continues to generate such free cash flow with deploying little capital!
im completely biased in my opinion and am a huge fan of mr garg … hes one of the best promoters i have seen in the indian environment.
I could see someone is flagging the genuine posts for past few days and flagging even the earlier posts(even 3 months old). Please understand this is a forum and we will learn only when we listen to conflicting thoughts.
Remember we all like Cupid, that’s why we are in this thread. Same time understand others’ concerns as well.
I couldn’t attend the conference call yesterday. Just wanted to know whether the below question is addressed or explained.
For past 3 quarters, We could see increase in other expenses. During previous quarter conference call, Mr. Garg answered me saying this is marketing expense and wont be having in Q3. But could see 11.4 Cr as other expense in this quarter as well.
Could you guys let me know, if anyone raised this question and the management response if any. Thank you
I have written to the CS just in case, asking for a break-up. If anyone is in touch with the CS directly, you should ask him to provide a break-up of “Other Expenses” too. And probably suggest that if “Other Expenses” is such a substantial part of Revenue, it would be useful to provide a footnote on it.
Isnt their sales linked to WHO Tenders. There will be spurts based on those tender quantity and once that gets fulfilled, new demand has to wait till new tender comes up.
As far as I remember they werent into FMCG kind of sales
Cupid is dependent on tenders and WHO is one of them. Management confirmed that they don’t want to get into FMCG kind of sales due to poor margin & huge promotional expenses. As US has good margins, they are in process of getting into and USFDA approvals (if clinical trials etc goes through smoothly) are expected early 2021. That should be the next big trigger for revenue growth. Till then management has guided top line of 40 Cr & bottom line around Q2-Q3 levels. Both top line & bottom line can see a uptick based on product mix. If they come up with buyback or any other plan with accumulated cash of approx 47 Cr (which is approx 35/- per share), it could fuel the re-rating as well.
Orders from Donor Funding (Like Orders from NGOs using their own funds)
Orders from Governments (Ex: Africa, Brazil, India)
Orders from Private Sector (Could be other companies wanting to outsource some part of production)
Domestic Retail / Wholesale (Mostly wholesale, but they also sell on Amazon, for instance)
As of today, the bulk of the Revenues are attributed to 1, 2 and 3. 4 and 5 form a very small part of the Revenue.
But the tender sizes have increased over they years (As we saw in the last two quarters). Cupid even expanded capacity by 40% now. The expectation is that it will continue to increase.
But it is true we cannot expect a linear demand. It comes in spurts, sometimes in massive quantities (Like the last two or three quarters, and probably the entire year). Perhaps when the US market is opened up post 2021, some fixed percentage of Revenues can become ‘stable’.
That is why I have been trying to convince the management about Buybacks since a long, long time. It is the perfect usage of additional Cash for a company like Cupid.
So then if anyone is buying the stock today they must first understand about existing Tenders in hand and not get excited by Trailing EPS and hence the optical cheapness.
Buyback/Dividend is tax inefficient as of now.
So then how should you value this co. No substantial growth opportunities and limited ways to give cash back. We may want to convince management to give cash back, but has management said or done anything in past.
How does it matter that Buybacks are tax inefficient? It is all about Opportunity Cost. I would much rather than the Cash be used to Buyback shares (Sure, we can have a conversation about when it should be done and what is cheap/dear as far as the Price goes) rather than it sitting in financial investments.
I also don’t mind Dividends. But Buybacks done over several years are typically more value accretive.
The final option, as expressed by the management, is an acquisition. The management wants to acquire a Female Healthcare company and expand their Product Mix that way. But this again is a recent idea and much of it has not been explored.
Also they had claimed they have capacity of 20 million condoms and till 2018 they werent utlising a lot of this capacity. So this whole talk of ramping capacity by 40% looks strange
How many condoms have been sold last year. Do you have the qty details of condoms sold last year.
The current capacity utilization is 99%. So it is not strange at all.
Like I said, demand comes in spurts. So it is certainly going to look all over the place if you compare the utilization number year on year.
Edit: Capacity Numbers
560 Million for Male Condoms and 52 Million for Female Condoms. But the capacity is fungible in the sense that if they get 100% FC Order for the entire year (Highly unlikely), they can convert all the capacity to produce 200 Million Female Condoms.
I listened in to the concall recording today morning. Few things that struck me.
Except one guy from kotak bank most guys who asked questions were retail investors.
Peak quarterly revenue potential for the company can be 50-55 crores which amounts to yearly revenue potential of 220 crores… And that is where the problem with this business lies. Very limited opportunity size to grow. If one were to wonder about growth rate post next 1-2 years, its very difficult to predict what kind of growth would be there. Hence terminal value assumption is very difficult.
The CEO Mr Garg seems be a great guy who knows the business inside out and answers all kinds of questions very patiently. As shown by length of concall which is close to 90 minutes.
This is a company which reminds me of the plight of somewhat similar management of a company called GRP- gujarat reclaim rubber ltd. Mr Gothi and his son both are gems of persons and know their business quite well. But the characteristic of the business they have doesn’t do justice to their capabilities and ethical conduct. Something similar is there in Cupid. Admittedly Cupid appears a better business than GRP but one feels that such a great guy as Mr Garg is wasted in such a business with limited opportunity size. Had either of the managements of GRP or Cupid been in businesses with good growth potentials, they could have taken those businesses places.
Cupid stock price since past 2 quarters has been following similar fate. Strong upmove in run up to results and correction post what seemingly are excellent results.
Businesses with niche are great businesses but the niche has to have sufficient room for the limited number of players to grow at a decent and predictable rate. Here it seems male condom is going to suffer soon from overcapacity while female condom orders are slow to come.
no positions as of now but did a bit of trading in the run up to the results.
I agree the growth opportunities are limited and tender business is risky but the main level is going to be the US entry next year.
FC have excellent realizations in the US and having a retail business in the US will command an excellent PE especially with Cupid manufacturing these at the lowest cost. But yes this is still 18m away and until then the stock will keep going up and down based on tender wins/losses.
But on the plus side they are a debt free company and will always have enough business to cover their costs and their ROE is excellent.
Cap expansion is not a problem at all, last time it took like 3 months to expand capacity, so I’m sure he can replicate the same this time too and the company has enough cash reserves.
Hitesh bhai, agree with your thoughts to some extent. I think mgmts are good with what they are doing. This doesn’t seem to be a poor business as of now
If we look at past, company has done really well on several fronts…having been invested earlier too, I couldn’t have imagined them doing so well and scale up to current levels…kudos to the management!
5 Yr Sales CAGR is 35% and this doesn’t include the full impact of current year.
The margins are really good and profits have flown to bottomline in the past. Plus they payout good dividends too.
The problem here is that current nos are outcome of a large order company won in past so everyone has doubt on sustainability and because of this nos can be quite lumpy. Not easy to think what is the right way to value such a company. But if they can win such orders again, the stock may do better. Perhaps they need to have more diverse order wins and expand product basket.
Cheers,
Ayush
Disc: Invested in family accounts and clients.
I tend to side with @ayushmit although there is no denying some points made by @hitesh2710.
There is no way someone can predict an exact growth number for Cupid. In fact, in some years it may also be a de-growth, as we have seen in the past. That is just the nature of the business.
But the bigger picture is this:
Demand in the B2G market is increasing for both Male and Female Condoms. Market Size Estimates range from $7-$12 Billion within 5-7 years. Even conservatively estimated, that’s about Rs. 5,000 Crores in 5-7 years. Clearly, most of this in the B2C space. But Cupid and Veru-FC dominate the B2G market (Almost 95%+ share put together). Any of this growth coming in to the B2G space will be captured exclusively by these two players.
Cupid will enter the US markets in 2021. This is bad news for most local producers in the US. But more so, in my opinion, for the already fragile Veru-FC. A short thread on this here: https://threadreaderapp.com/thread/1206276280368263168.html
By the end of this year, about 50-60% of the Book Value is likely to end up in Liquid Cash. That’s a lot. There has been enough discussion about the usage of this Cash. But I just want to note that the Cash-producing capability of Cupid is a big plus and should form part of any assessment of Value.
Mr. Garg is wonderful. But I personally disagree that Mr. Garg is the be-all and end-all of Cupid. I am someone who believes in systems and culture rather than a one-man gameshow. I think Cupid has apt systems and culture in place that will help carry the business long after Mr. Garg has retired (Of course, a bad CEO can drop the ball - but a regular one should do fine, because the business is that good).
The negatives are:
The business is not linear. Growth comes in spurts. There’s no denying this.
The search for the CEO has been sub-optimal. In fact, there has been very little indication of even a basic succession plan. I’d say this is actually a valid Risk for the company.
The management has not handled large amounts of Cash in the past. So now, they are not very nimble in allocating the excess cash available with them. It is honestly a little sad that the shareholders have presented the management with so many suggestion towards the usage of Cash and there’s little progress towards any of them. But we will see towards the end of this year, because so many people have suggested a Buyback.
Takeover is an option. The management is also open to this. I wouldn’t say this is a ‘negative’ per se, but it is a dampener.
Of course Mr. Garg wants to retire. That was obvious all along. I want understand why an Ad was put up (Which was never indicated to the minority shareholders) and that too at Rs. 125 Crores? Assuming it was put up some time ago, why is it still up now considering the current Market Cap?
the promoters share of 45% what they hold in the company is being sold. as per SEBI Norms.
I guess the 125Crs is for the 45% promoter stake which gives a total valuation of roughly 280Crs for the entire company. More or less matches with the current market cap.
Normally 45% stake sale should get control premium but the above quoted price doesn’t reflect that. Anyways good to get clarification from the company and check if it is a genuine listing by them.
