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Caplin Point Laboratories Ltd>
  • CMP : 744.4 Chg : 15.45 (2.12%)
  • Target : 1,000.0 (21.65%)
  • Target Period : 12-18 Month

06 Aug 2022

In line numbers; growth momentum, capex execution to be key…

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 ~45% of products (China: 30%; Indian vendors:70%) and in-house manufacturing of the remaining ~55%
  • Caplin Steriles caters to the rapidly growing demand for injectable products in US and other regulated markets

Growth driven by core geographies and US.

  • Sales were up 15% YoY to ₹ 346 crore
  • EBITDA was at ₹ 102 crore, up 10% YoY with margins at 29.5%
  • Consequent PAT was at ₹ 85 crore (up 20% YoY)
What should Investors do?

Caplin’s share price has grown by ~2x over the past three years (from ~₹ 413 in August 2019 to ~₹ 822 levels in August 2022).

  • Maintain BUY due to 1) steady growth from legacy LatAm markets and increasing footprints in other geographies, 2) traction from visible order book in US, and 3) calculated capex decisions to expand capacity, widen portfolio and backward integration
Target Price and Valuation

Valued at ₹ 1000 i.e. 20x P/E on FY24E EPS of ₹ 49.9

Key Triggers for future price performance
  • Execution of the ~₹ 400 crore+ capex towards Caplin Steriles, RoW facility, oncology (OSD & injectable) project and API backward integration
  • 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
Alternate 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
  • BUY with a target price of ₹ 345

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 Year CAGR(FY17-FY21) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Revenues 648.7 863.2 1,061.3 1,269.4 25.9 1,497.2 1,722.6 16.5
EBITDA 231.3 260.1 328.7 394.7 26.0 444.6 521.1 14.9
EBITDA Margins (%) 35.7 30.1 31.0 31.1 - 29.7 30.3 -
Net Profit 176.6 215.1 242.3 299.8 25.7 337.6 378.5 12.3
EPS (Adjusted) 23.3 28.4 32.0 39.6 - 44.5 49.9 -
PE (x) 35.4 29.1 25.8 20.8 - 18.5 16.5 -
EV to EBITDA (x) 26.1 23.1 17.7 14.5 - 12.7 10.4 -
RoCE (%) 34.6 26.5 25.4 25.3 - 23.7 22.6 -
RoE (%) 27.9 22.7 20.4 20.2 - 18.7 17.5 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q1FY23 Results: Revenues grow with momentum in both LatAm, US

  • Revenues grew 15% YoY to | 346 crore propelled by Latin America & RoW growing 11% YoY and US also growing 61% YoY. EBITDA margins declined 132 bps YoY to 29.5% while EBITDA grew 10% YoY to | 102 crore. Adjusted PAT grew 20% YoY to | 85 crore
  • Caplin’s LatAm business model continues to drive topline and bottomline growth while Caplin Steriles’ grew 61% YoY to | 41 crore in Q1FY23. Outlook for the US remains robust with order book of | 175 crore in FY23. It has set an aspirational target of US$100 million by FY26 in US. In the RoW, the company is increasing footprint in Chile, Vietnam and Cambodia. 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


Q1FY23 Earnings Conference Call highlights

  • Geographical breakup of sales for Q1FY23: LatAm & RoW – 88%, US – 12%
  • LatAm & RoW: Caplin won tenders in two LatAm markets for US$21 million
    • Current break-up of sales: Private market sales to distributors: 62%; Sales to Pharmacies/Retail: 20%; Institutional Sales: 18%
    • Caplin has finalised plans to start a warehouse in Chile, focus on private market and specialized generics in tenders. The company had won two institutional tenders at El Salvador (US$6.2 million) and Ecuador (US$14.5 million) with supply to El Salvador to be completed by Q2 and Ecuador over the next 15-18 months. The company has set up a new marketing team for Vietnam and Cambodia with first order for Cambodia already received
  • US:Caplin Steriles order book position for FY23 at | 175 crore
    • About 33% of topline came from profit share in this quarter while 66% came from product sales. The management expects product revenues to climb up, going forward, and reach about ~ 80%. US business to reach break-even in FY23 and the management indicated the required annual sales to be around | 190 crore
    • Caplin plans to launch its own label through front end by December, 2022 for three approved products
    • The company has five ANDAs under review with USFDA and plans to file 10-12 more by FY23, of which five are ophthalmic/Otic products, two are complex injectable and three being ready to use bag products. Two complex emulsion injectable (one own and another for partner) will also be filed by January, 2023. Four more complex products are in the pipeline
  • Guidance: The management is guiding an increase in capex by | 40-50 crore due to split up the expansion at Caplin Steriles into two separate units. Phase 2 of Unit 1 to have a high-speed vial line and expansion of warehouse capacity. Unit 2 will have a high-speed vial line with large lyophilisation capacity and a pre-filled syringe line.
Variance Analysis

  Q1FY23 Q1FY22 Q4FY22 YoY (%) QoQ (%)   Comments
Revenue 346.3 300.4 339.2 15.3 2.1   YoY growth amid Latin America & RoW growing 11% and US growing 61% 
Raw Material Expenses 157.2 136.0 151.9 15.6 3.5    
Gross margins (%) 54.6 54.7 55.2 -15 bps -62 bps    
Employee Expenses 32.4 26.7 30.2 21.4 7.2    
Other Expenditure 54.5 45.2 57.1 20.7 -4.6    
Total Operating Expenditure 244.2 207.8 239.3 17.5 2.0    
EBITDA 102.2 92.6 99.9 10.3 2.2    
EBITDA (%) 29.5 30.8 29.5 -132 bps 4 bps   YoY decline mainly due to lhigher employee and other expenditure
Interest  0.1 0.3 0.1 -77.8 -25.0    
Depreciation 11.0 12.0 11.5 -8.8 -4.2    
Other income 13.9 9.2 11.5 51.4 21.1    
PBT before EO 105.1 89.5 99.9 17.4 5.2    
Less: Exceptional Items 0.0 0.0 0.0 0.0 0.0    
PBT 105.1 89.5 99.9 17.4 5.2    
Tax 18.8 18.0 19.1 4.4 -1.6    
MI & Share of loss/ (gain) asso. 1.3 0.7 1.8 94.1 -25.4    
Adjusted Net Profit 85.0 70.9 79.1 20.0 7.5   Delta vis-à-vis EBITDA due to lower interest, depreciaton and higher other income

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