loader2
Partner With Us NRI
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
Q1FY23

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

Terms & conditions and other disclosures

ANALYST CERTIFICATION

I/We, Siddhant Khandekar, Inter CA, Raunak Thakur, PGDM, Kush Mehta, CA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products.

ICICI Securities is Sebi registered stock broker, merchant banker, investment adviser, portfolio manager and Research Analyst. ICICI Securities is registered with Insurance Regulatory Development Authority of India Limited (IRDAI) as a composite corporate agent and with PFRDA as a Point of Presence. ICICI Securities Limited Research Analyst SEBI Registration Number – INH000000990. ICICI Securities Limited SEBI Registration is INZ000183631 for stock broker. ICICI Securities is a subsidiary of ICICI Bank which is India’s largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which are available on www.icicibank.com.

 

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities and its analysts, persons reporting to analysts and their relatives are generally prohibited from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

 

Recommendation in reports based on technical and derivative analysis centre on studying charts of a stocks price movement, outstanding positions, trading volume etc as opposed to focusing on a companys fundamentals and, as such, may not match with the recommendation in fundamental reports. Investors may visit icicidirect.com to view the Fundamental and Technical Research Reports.

 

Our proprietary trading and investment businesses may make investment decisions that are inconsistent with the recommendations expressed herein.

 

ICICI Securities Limited has two independent equity research groups: Institutional Research and Retail Research. This report has been prepared by the Retail Research. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, and target price of the Institutional Research.

 

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances.

 

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice.

 

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.

 

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

 

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months.

 

 

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives have any material conflict of interest at the time of publication of this report.

 

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

 

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

 

Since associates of ICICI Securities and ICICI Securities as a entity are engaged in various financial service businesses, they might have financial interests or actual/ beneficial ownership of one percent or more or other material conflict of interest various companies including the subject company/companies mentioned in this report.

 

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

 

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

 

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

 

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction.

 

Read More