Caplin Point Laboratories Ltd:-The "Chill Pill" for your core portfolio

Stock idea:-

Scripscan:Caplin Point Laboratories Ltd
Bse code:524742
CMP:60
Target:50% CAGR for coming few years.

Story:The genesis of Caplin Point took place in the year 1990 as a Private Limited company mainly to manufacture a wide range of Ointments, Creams and other External applications in addition to the regular segments of pharmaceutical formulations. In 1994, Caplin Point was converted into a Public Limited company and the public issue was successfully oversubscribed by 117 times which is a record in the Pharmaceutical industry in India. The entire proceeds of the public issue were deployed in the manufacturing facility and then translated into a state of the art factory at Pondicherry spanning 51,000 sq. ft.With the merger of May (India) laboratories P Ltd, Chennai in 2006 and Malind Laboratories P Ltd, Baddi in 2009, Caplin Point had substantially increased its production capacity to cope up with the growing demands of the markets.Its also one of the early entrants in India in the area of Biotechnology. Caplin Point has already started constructing its latest and largest project, a facility that would be in compliance with US FDA, UK MHRA, and other regulatory bodies for multiple dosage forms such as liquid injectables, ophthalmic drugs and lyophilized bio-tech products.Caplin Point is focusing on expanding into South America, increase its presence in brand marketing in West Africa and also exploring the possibility of starting up operations in CIS and Eastern European markets.The company is having a large capex of 75crs to be mostly funded by cash flows.The facility to manufacture sterile speciality products would go on stream in 3 phases – Phase -1 during Q4 of the current fiscal, Phase -2 during Q2 next fiscal and Phase -3 during FY’14-15.The result of this would be an additional 300-400crs turnover in the coming 3-4 years. Upon completion of the new plant,Caplin Point will be starting up operations in the fully regulated markets of Europe, USA, Mexico and Brazil.The so far success of Caplin Point is primarily attributed to its unique business model.Caplin Point decided at an early stage that the conventional style of exports would mean diminishing margins and reduced opportunities for expansion, and had taken the unique step of setting up sale points at strategic locations in Central/South America and various parts of Africa. This way, Caplin Point is not only the manufacturer and exporter, but also the importer and distributor of its products by its collaborators. One of the main reasons for the success can be attributed to the wide range of products offered. Caplin Point has over 1500 products registered in various countries and further registrations are on the way.It also envisage creating a retail chain and reach the end users with an innovative product basket that would include Caplin Point’s own products and other consumables by direct marketing. With this, the whole spectrum of business involving the Manufacturing, export, import, distribution and retain sales will be covered.

Its unique in a number of ways.A quick glance through its website would reveal a nomenclature of shareholder names lying in the "unpaid dividend account" category.I in living memory is yet to find even a single listed entity which cares so much for the minority shareholders.There's little or even no attrition problem in the company as the chairman himself has recruited talented employees and placed them in countries where it has got a foothold.Was interacting with its chairman the other day and it was some experience.Mr paarthipan is all about his company.He fears debt as had past debt issues which forced him to go in some other remote countries.Learned lesson the hard way,came back and now is committed to be a force to reckon with in the coming years.On asking questions like whether the stunning price rise in his counter is about operators interest received answers like who are operators?Enquiring about creeping acquisition, was absurd to him.He answered by questioning whether its ethical,legal and to the best of investor's interest or not?He is totally ignorant about stock markets but be rest assured the man surely knows how to grow,and grow really big.Caplin is kinda a mix of my earlier bets,say relaxo and thangamayil,both been multibaggers in their own right.Caplin too posses all the ingredients to find its name amidst this two in the coming few quarters.Like relaxo its debtors day stands at a mere week or even less than it.Its comparable to thangamayil as its concentrating on select regions where the larger entities shy away from because of small market sizes(2000-3000crs).Caplin's balance sheet shows capital work in progress of 13crs(expansion work value going on at the end of fiscal in simple words)and advances from clients at around 34crs.I mean give it a thought folks-This is a 100crs turnover company and it has already received more than 1/3rd as an advance from its clients.The company gets 90% of its present revenues from non regulated overseas markets where there's not much competition to talk about(the chairman himself understand the places very well).I put additional efforts on "Intangible property or say on an entrepreneur's brain".Its equivalent to 5rs extra earning per share for me.This same strategy has been very successful over the past few years.Betting on Havells coz of Mr Anil Gupta,Axis IT&T coz of Mr Chandrasekhar, all have been huge multibaggers previously.Caplin is an unique company with a sound visionary experienced leader in place.His aversion towards taking much debt and expansion through internal accruals would always make sure its in the reckoning of much investors interest.Caplin's turnover stood at 108crs and profit of 8crs in 2011-12(it follows a june year ending).Company's bottomline is expected to grow 50% CAGR for the coming couple of years.This fiscal NP should be around 15crs resulting an EPS of 10rs.Next year fy13-14 a 50% growth would see it clocking 15rs EPS(22.5crs PAT).For a growing company with healthy ratios(ROE of nearly 25% and ROCE of over 28%),high cash flow generation ability,negligible debt and sound business strategy,it looks to be a sound buy.It paid a cool dividend of 2 bucks last fiscal.With higher profits the dividend too should see a decent spike resulting in hefty yields.

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