Fortune Scrip     

Published: January 31, 2025
Updated: January 31, 2025

Caplin Point Laboratories Ltd

Indian by birth, foreign by revenue!

This time we have selected a unique small cap pharmaceutical company as the Fortune Scrip for this fortnight. It is Chennai-headquartered Caplin Point Laboratories Ltd, a fully integrated generic formulation company, present across a wide range of therapies. It is unique as it derives 100% of its revenues from export markets — it has a dominant position in Latin American countries and subSaharan Africa.

Established in 1990 to manufacture ointments, creams and other external applications, it has subsequently transformed itself into a generic formulations player with a difference, establishing a dominant position in the unregulated/semi-regulated pharmaceutical markets of Latin American countries like Guatemala – which accounts for around one third of LatAm revenue. The balance is spread across EL Salvador, Nicaragua, Equador and Honduras, among others.

The company has also entered Caribbean, Francophone and southern Africa. Today, it has emerged as a leading supplier of pharmaceuticals in these LatAm and sub-Saharan African countries. With over 4,000 product licences across the globe, the company thrives on a unique business model of owning distribution networks, catering predominantly to the bottom of the pyramid in the areas of its presence.

Caplin Point maintains a deep focus on innovative technologies and products, with a sizeable part of its annual earnings invested in research and development of safe and effective products across varied dosage forms.

CHINESE INPUTS

The company has set up four manufacturing facilities in India — one at Suthukeny in Puducherry, two units at Gummidipondi in Chennai, and one at Baddi in Himachal Pradesh. In order to meet the rising demand for its products in LatAm countries, Caplin Point procures upto 40% of its requirements from China. The company has made rapid strides on the financial front. During the last 12 years, its sales turnover has spurted around 13 times from Rs 127 crore in fiscal 2013 to Rs 1,694 crore in fiscal 2024, with operating profit shooting up over 25 times from Rs 22 crore to Rs 552 crore and net profit surging around 33 times from Rs 112 crore to Rs 451 crore.

The company's financial position is extremely strong, with reserves at the end of September 2024 standing at Rs 25,927 crore -- over 168 times its equity capital of Rs 15 crore. Caplin Point has almost completely wiped out its debt, which has drastically reduced from Rs 222 crore in fiscal 2023 to just Rs 2 crore as of September 2024. Its fundamentals are heartwarming, with profit growth of 21.1 per cent CAGR over the past five years, and a good return on equity (RoE) track record of 25.3 per cent for the last three years. However, we have not picked Caplin Point as the Fortune Scrip for its past laurels. We strongly feel that future prospects for the company are all the more promising. Consider:

• The company is an export-oriented entity with almost its entire revenues coming from exports. It enjoys dominant position in half a dozen Latin American countries --Guatemala, El Salvador, Nicaragua, Equador, Honduras and Dominican Republic -- as well as in sub-Saharan Africa. As mentioned earlier, it thrives in these two regions on the basis of a unique business model of owning a distribution network catering predominantly to the bottom of the pyramid in the areas of its presence. These two regions account for over 86 per cent of the company's revenues. Caplin has now planned to penetrate deeper in the existing LatAm markets and has also decided to enter the larger LatAm markets of Mexico, Brazil and Chile. In order to meet the new demand for its products, it is undergoing a capex journey to expand its existing capacities, widen its product portfolio and backward integrate its products.

EYEING WEST

• Having achieved remarkable success in the unregulated/semi-regulated markets of LatAm and sub-Saharan Africa, Caplin has plans to cater regulated markets such as Canada, the US, Australia and China. As far as the US market is concerned, it has filed 21 ANDAs (Abbreviated New Drug Application) on its own and 19 approvals from USFDA have already been received. The company has prepared a strong growth plan and has launched 10 ANDAs in the US market with an aim to gross $ 100 million in sales from the US over the next 4-5 years. It also looks to double its LatAm revenues within the next five years. Overall, development in the pipeline remains robust with more than 55 ANDAs under development with an addressable market in the US of $ 5 billion.
• Caplin also plans to enter new markets in Turkmenistan, Uzbekistan, Vietnam, Cambodia, Mexico, Iran and Russia. It looks like the company will spread its footprint in 50 countries in 3-5 years and in over 100 countries within a decade.
• Meanwhile both the Latin American and the US markets continue to grow. With a healthy order book and ANDAs approvals, the company hopes to clock revenue growth of 50 per cent y-o-y for the US market in the current year.
• With a view to meeting the continuously rising demand for its products, it has embarked upon an expansion programme for almost all its divisions. In its 'Rest of World' facility at Puducherry, the softgel capacity expansion has been completed, doubling the existing capacity established for existing markets. In the ongoing injectables expansion, capacities will be expanded almost four times. As far as the OSD facility (global markets) is concerned, the company is setting up a new plant near Chennai which will expand the existing OSD Coral solid dosages.

INJECTABLES UNIT

• As far as injectables (Caplin Sterilies) are concerned, the company has strategically split up the expansion of the unit into two separate units so as to achieve better flexibility and quicker qualification. The expansion was completed a few months ago and it is now able to leverage large batches faster for injectable vials. The company has completed orders for 2 vials filling lines from Syntegon (Bosch-Germany), pre-filled syringe lines from Stiriline (Italy) and Lyphiliser from Tofflon (China). The total outlay is expected to be around Rs 200 crore. The oncology plant at Kakikkalur, Chennai, has been recently completed.
• Caplin is a net cash-rich company with cash and equivalents of around Rs 772 crore and the management has guided for building a minimum of Rs 200/250 crore deposits every year. Of late there has been a sustained demand for Caplin Point shares from knowledgeable investors and the share price has almost doubled to Rs 2,230. There is a lot of steam left in the scrip as yet, and discerning investors with a long-term perspective will do well to include this stock in their portfolio as the long-term prospects of the company are extremely healthy.