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  • CMP : 1,963.9 Chg : 11.90 (0.61%)
  • Target : 895.0 (31.62%)
  • Target Period : 12-18 Month
Result Update

13 May 2022

Q3 in-line; outlook positive amid expansion plans…

About The Stock

Caplin derives entire revenues through exports with 90% of revenues from Emerging Markets (LatAm + RoW) where it has an end-to-end business model through last mile logistical solutions for its exclusive distributors.

  • In the US, Caplin has filed 21 ANDAs on its own and through partners, 18 approvals from the USFDA (five with partners)
  • For LatAm markets, it outsources ~40% of products from China, ~20% from Indian vendors and in-house manufacturing of the remaining ~40%
  • Caplin Steriles caters to the rapidly growing demand for injectable products in US and other regulated markets
Q4FY22

Growth driven by core geographies and better offtake in US

  • Sales were up 22% YoY to ₹ 339 crore
  • EBITDA was at ₹ 100 crore, up 17% YoY with margins at 29.5%
  • Consequent PAT was at ₹ 79 crore (up 19% YoY)
What should Investors do?

Caplin’s share price has grown by ~2x over the past five years (from ~₹ 335 in May 2018 to ~₹ 680 levels in May 2022).

  • Maintain BUY due to 1) steady growth from legacy LatAm markets, 2) traction from US injectable, 3) calculated capex decisions to expand capacity, widen portfolio and backward integration
Target Price Valuation

Valued at ₹ 895 i.e. 18x P/E on FY24E EPS of ₹ 49.6

Key Triggers for future price performance
  • Execution of the ~₹ 400 crore+ capex towards different projects
  • Overall development pipeline for US remains robust, with 55+ ANDAs under development with addressable market in US ~ US$4.9 billion
  • Growth momentum to persist mainly due to further expansion in front end, increasing product basket, change in product mix, launching of own brands
  • Plans to expand in six major markets of US, Mexico, Brazil, Europe, South Africa and CIS countries with differentiated strategies. Additionally, Caplin is forming domestic market sales team focused on niche hospital injectable
New Stock Ideas

Apart from Caplin, in our coverage we like Granules.

  • Granules India is a vertically integrated company that manufactures API, intermediates and finished dosages with vision to play on its strength of economies of scale and expansion into more complex products/forms
  • BUY with a target price of ₹ 360

Particulars

Particulars (₹ crore) Amount
Market Capitalization 14,928.0
Debt (FY22) 2.0
Cash (FY22) 463.0
EV 4,693.0
52 week H/L (₹) 2,641.0/1,599.0
Equity Capital 231.8
Face Value (₹) 2.0

Price Chart

Recent Events & Key Risks

  • Amaris Clinical completed USFDA virtual and physical audits
  • Key Risk: (i) Regulatory hurdles (ii) Slower ramp-up in new markets

Research Analyst

Result Update
ICICI Securities – Retail Equity Research

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Revenues 648.7 863.2 1,061.3 1,269.4 25.9 1,492.1 1,718.5 16.4
EBITDA 231.3 260.1 328.7 394.7 26.0 457.1 526.4 15.5
EBITDA Margins (%) 35.7 30.1 31.0 31.1 - 30.6 30.6 -
Net Profit 176.6 215.1 242.3 299.8 25.7 331.7 376.3 12.0
EPS (Adjusted) 23.3 28.4 32.0 39.6 - 43.8 49.6 -
PE (x) 29.2 24.0 21.3 17.2 - 15.5 13.7 -
EV to EBITDA (x) 21.3 18.9 14.3 11.8 - 10.0 8.2 -
RoCE (%) 34.6 26.5 25.4 25.3 - 23.7 22.5 -
RoE (%) 27.9 22.7 20.4 20.2 - 18.5 17.5 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY22 Results: Revenues grew with momentum in both LatAm, US

  • Revenues grew 22% YoY to | 339 crore propelled by Latin America & RoW growing 23% YoY and US also growing 13% YoY. EBITDA margins declined 129 bps YoY to 29.5% while EBITDA grew 17% YoY to | 100 crore. Adjusted PAT grew 19% YoY to | 79 crore
  • Caplin’s LatAm business model continues to drive topline and bottomline growth while Caplin Steriles’ grew 44% YoY to | 122 crore in FY22. It has set an aspirational target of US$100 million by FY26 in US. Caplin is undergoing on a capex journey to expand existing capacities, widen its product portfolio and backward integrate its products. Caplin plans to enter more regulated markets such as Canada, Australia, China, Russia/CIS as well as enter the bigger LATAM markets of Mexico and Brazil.

Q4FY22 Earnings Conference Call highlights

  • Geographical breakup of sales for FY22: LatAm & RoW – 90%, US – 10%
  • LatAm & RoW: Caplin won tenders in two LatAm markets for US$21 million
    • Current break-up of sales: Private market sales to distributors: 65%; Sales to Pharmacies/Retail: 20%; Institutional Sales: 15%
    • Caplin has earmarked Mexico and Chile as the next immediate avenues for growth in LatAm. The company has one product approved in Mexico, with six more approvals expected in the next few quarters. It currently has 66 product registrations in Chile
    • About 63% of Russian market is with western companies and amid geopolitical issues, there is a vacuum and Caplin plans entry into Russia/CIS markets with direct presence model, similar to LatAm
  • US:Caplin Steriles order book position at | 160 crore
    • Caplin plans to launch its own label through front end by December, 2022
    • ANDAs Launched:15, Approved:18, Another 3 to be launched by H1FY23. The management expects three ANDAs to be approved in two to three quarters. Caplin plan to file 12 ANDAs by FY23 (Opthalmic:5, complex injectables:2). The management expects to start filing pre-mixed bag products by Q4FY23, a niche segment with limited generic competition
  • Projects Update:
    • Oncology Facility: OSD equipment received and civil construction to be completed in six months while injectable equipment to be received by H2FY23
    • API Facility: Caplin is evaluating inorganic opportunities. API Plant will cater to US and LATAM business as well as upcoming Oncology business. The company targets being backward integrated with own APIs for 70% of all filings in US by FY24
    • CP-1 (RoW facility): Addition of a new softgel line and expansion of warehouse to be completed by December, 2022
    • Caplin Steriles – Phase 2: Pre-Filled Syringes line by Nov,22; Vial filling lines by Feb,23; Lyophilizer by November, 2022. Civil construction to be completed in six months and overall project is expected by Q1FY24 with capacities to expand 3x
  • Guidance: Management is guiding for 15-20% growth, going ahead, while Caplin expects to maintain current margin levels. US business is close to break-even, only hindered by R&D and filing expenses. The management expects to break-even in FY23. Currently, 75% comes from product sales and 25% is from milestones/profit shares. The management guided for current break-up to sustain, going forward.
Variance Analysis

  Q4FY22 Q4FY21 Q3FY22 YoY (%) QoQ (%)   Comments
Revenue 339.2 278.7 326.2 21.7 4.0   YoY growth amid Latin America & RoW growing 23% and US growing 13% 
Raw Material Expenses 151.9 118.7 143.8 28.0 5.6    
Gross margins (%) 55.2 57.4 55.9 -220 bps -69 bps    
Employee Expenses 30.2 25.9 29.4 16.9 2.9    
Other Expenditure 57.1 48.5 52.0 17.9 9.8    
Total Operating Expenditure 239.3 193.0 225.2 24.0 6.2    
EBITDA 99.9 85.7 101.0 16.6 -1.0    
EBITDA (%) 29.5 30.7 31.0 -129 bps -149 bps   YoY decline mainly due to lower gross margins and higher freight cost
Interest  0.1 0.3 0.1 -75.0 -42.9    
Depreciation 11.5 9.9 11.7 16.1 -2.1    
Other income 11.5 9.5 9.5 21.7 20.6    
PBT before EO 99.9 85.0 98.7 17.6 1.3    
Less: Exceptional Items 0.0 0.0 0.0 0.0 0.0    
PBT 99.9 85.0 98.7 17.6 1.3    
Tax 19.1 17.1 19.4 12.0 -1.5    
MI & Share of loss/ (gain) asso. 1.8 1.5 4.3 14.9 NM    
Adjusted Net Profit 79.1 66.4 75.0 19.1 5.5   Delta vis-à-vis EBITDA mainly due to higher other income

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pankaj.pandey@icicisecurities.com

 

 

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