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Thursday, July 20, 2017

Here comes the "Next Caplin Point"

It's been one heck of a journey over the last 13 years meeting exactly 227 small cap companies till date,though average company meets seem a tad poor at less than 20 a year but the learning and the exposure received could be termed overwhelming. As you all know I have got a superb team in place and this days our " ShareBazaar Workshop" is kinda twice in a month be it Pan India or Pan international. Done with nearly 30 such whole day workshops with cumulative passionate attendance of over 2500 guys. Workshops in Australia,USA and U.K. are next on the list after recent completion of Dubai and Singapore. Pan India workshops meanwhile would continue too. It's such a a previlage and a satisfaction to meet you all in person.

Btw: The Corporate ShareBazaar Workshop is debuting next week with PepsiCo India. It's on 28th July,Friday. Would also love to meet up few passionate Delhi folks.

Note: Blogging after quite a while. I have shifted the blog to the much relevant "ShareBazaarApp" which is available in both Android version as well as IOS. Go to playstore or Apple Store and search "Share Bazaar Arun". It's been a rage since its revamped launch with downloads of nearly 43000 times. Hope you like it peeps.

Scripscan: Next Caplin ltd(M.B)
Traded in: BSE
Marketcap: 550-600crs
High low: 589/105
Teaser: Tweeting since 78 levels.

Special mention: Often as even being a shareholder so much of things can be done. Imagine there's 4-5 similar listed companies and you are acquainted with them. You can take the initiative to make them meet with one another. It's kinda nothing to lose but could be something to gain. Some one may have a great product and the other one may have an amazing supply chain and distribution reach. So much of synergy could be on cards. I mean it's not that hard as it may sound. I myself have done it a number of times. Even Caplin promoters may have met the Next Caplin promoters(You do know what am hinting at). Coral lab,Lykis and few other companies are doing decent business in the Africa region. May soon take the initiative to make them meet with Next Caplin. It's not restricted to a single company but goes for all. It's all about incremental value addition folks.

Quote: I have been tweeting about a certain company which to me is a replica of Caplin point and should replicate its story. Caplin as you all know has been a 60 bagger in the last 4 years since my coverage in this blog itself. From 12rs (Split adjusted)in 2013 to 700 bucks now. Let's get back to present and I recently met the management of this so called Next Caplin( This was my 3rd meeting with this hungry visionary pedigree in the last 2 years)in the EGM and here's the detailed update.Company also should set the trend for the rest of the year from its first quarter itself. I expect the company to treble its PAT in the 1st quarter vs last years 1st quarter. 

Story: Incorporated in 1993, Next Caplin(NC) manufactures pharmaceutical formulations for the overseas and domestic markets. NC has two finished formulation Plants-One at Bhiwadi (Rajasthan) and other at Haridwar (U.K.) The Bhiwadi plant is constructed in an area of 210,000 sq. ft. The constructed area is conceptualized on the block system comprising five block; each block has a covered area of about 20,000 sq. ft. The different blocks house different sections of manufacture viz. Beta-lactum (Penicillin) block, Non-Beta-lactum (Non-Pencillion Block, Cephlosporin Block, ORS and Oral liquid block, R & D quality control departments, store and the utility block. At Haridwar the company is having a single three storied manufacturing unit to manufacture Non-Betalectum range of product including Iron-Folic Acid tablets, ointments and lotions. In November 2015, SR Ltd, another BSE-listed company, along with five persons acting in concert, acquired a stake of 44.15% in NC .After taking over the company,the new management under the dynamic and able leadership of Mr Rahul Vishnoi,immediately resorted to some game changing tactics which was the need of the hour to catapult the company in the next level league.

Retained Ashutosh Gupta (erstwhile promoter) on the BoD due to his extensive business development background in the pharmaceutical industry. Promoted Rajesh Madan (former CFO) to the CEO position to drive the execution strategy of the company.Brought in Klaus Snej Jensen who is a COO of Missionpharma A/S Denmark as non-executive independent director.

Completely changed its focus to the export markets and stopped taking any fresh govt tenders which earlier contributed the lions share. NC earlier also dealt in some trading activities aka wafer thin margins stuff which also got eradicated.

In order to improve the bottom line of the Company it changed the product mix. More and more lifestyle diseases are now covered in product range. Earlier the Company was concentrated in Africa only but now it has reached LATAM countries, where product mix all together are different with comfortable margins. The company is least interested in Anti-Biotics range and has shifted its focus more to anti malarial and Anti-Diabetic products etc.

The Company has also set its eye on manufacturing of Cephalosporin.The demand in Africa and Asia has started picking up and it sees a big opportunity in getting contract work for export as many small players have not opted for manufacturing of Cephalosporin due to finance involved in construction of new block. In Haridwar plant the Company also intends to export ointment and lotions beside iron and folic acid tablets which will give big boost to the topline from this financial year itself.An interesting report on Folic Acid and how NC is placed is available in this link.

Concentration is further on the expansion of the plant and product portfolio along with stricter credit policy and cost control through long term contracts with suppliers and tightening of expenses so as to improve margins. With the addition of 2 new blocks the Company can produce goods worth Rs.500 crores per year.

NC always remained the golden goose which the previous promoter through its improper means couldn't capitalise. Let alone capitalising it rather lost as much as over 50crs of business from its captive client Mission Pharma,a Danish company,which also owns around 13% stake in the company. The new promoter convinced mission Pharma which till such time blacklisted medicamen biotech to redo the factory audit and brought it back in the most spectacular manner by Dec 2016. Mission which outsources goods worth over 600crs from India through its 83 products has started outsourcing 19 of them from NC. Company is fairly confident of covering many more of mission products in the coming years.

Possibilities are endless to say the least. There's some interesting crossholdings which makes the NC story a very interesting proposition. Euro Pharma,which is more than a billion USD firm owns Mission pharma.Euro pharma again happens to be a part of the multi billion dollar Toyota Corporation. The same can be verified from the website of Mission pharma which states," Since 2012, we have been a proud member of Eurapharma and the CFAO Group – a multibillion-dollar group owned by Toyota Tsusho Corporation". NC is actively exploring the outsourcing opportunities from this giants who are eager for a bigger base in Asia and other continents. 

When you aspire big,a proper foundation and a great core team helps in a long way in achieving your goals. The company has hired top management talents from behemoths like Dr Reddy,Akme formulation and Alkem. It's of ones easy presumption that these bigtime experienced folks can only join a tiny company with hardly 80crs revenues sensing the bigger story and the potential.

It's kinda a misnomer if someone says the new management hardly delivered in its maiden year as sales only increased from 67crs to 82crs. Now out of 67crs,as mentioned earlier more than 60% of the revenues came from sticky nil margin Govt tenders and trading activities. If I talk about 82cr revenues,only 15-18crs came from the govt side(NC is bound by contract to supply to govt till 2018,albeit with a much lower proportion). Now that changes the picture completely. So it's obvious the new management adjusting the govt thing and trading activities more than doubled its revenues. No wonder PAT vaulted to 5crs from almost nothing. The PAT would have looked way different had it not been some write offs and settlements,thanks to the earlier jugglery of the old promoters.

The company under the new management has been on a product registration spree. It's already done with 450 registrations covering 45 countries. The approvals have started coming thick and fast. Yet it's not satisfied and aims for the sky. The company aims for a "WHO- Geneva" Approval for its Haridwar unit which will expand its base to some 180 semi regulated countries. NC,if successful would only be the 14th company from India to enjoy such accolade.

The company have got the following Approvals in place. Not a pharma expert by any means but I am told some of the Approvals are pretty tough to bag this days. 

Brazil  –       ANVISA
Uganda -     NDA
Zimbabwe -MCAZ
Nigeria    –  NAFDAC
Tanzania  -  TFDA
Malawi    -    PMPB
Ivory Coast -MOH
Philippines  -BFAD
Sri Lanka   -  CDDA
Vietnam    –   Drug Administration
Zambia    –    MPB
Bhutan    –     DRA
PAHO    –      Pan American Health Organization  
Ghana      –    Food and Drug Board
Ethiopia    –    DACA
South Sudan  - MOH
Namibia    –    NMRC
Congo      –    Ministry of Public Health
Cameroon    –Ministry of Public Health

Company is targeting to develop 6 new lifestyle disease molecules which will be its acting agent for the next level of growth. The company plans to get it developed by its parent SR,since this comes with a cost and need certain set of skills and experience which SR is well capable of. At a certain royalty,the same would get passed on to NC which will pave its growth way at a thundering speed.

Company has risen by 41X in the last 2 years yet the promoter is ready to hike its stake after such a gigantic rise. It only signifies how supremely confident they are about the company. The promoter would always be the biggest insider of a company and if they are ready to swallow at this levels,that speaks volumes. Even Mssion Pharma is participating in the warrants,which only hints at the upcoming bigger picture.

Concerns: So what could be the concerns? The generic concerns remain just like any other similar Pharma story. At least here there's no USFDA vagaries which can come and derail the story. One can argue about Africa and bad debtors but Mastermind Vishnoi ji happens to be your perfect Marwari Baniya who avails 30% advances and gets everything remaining backed by proper LC thereby elemanitimg any bad debts.

The medium term story is simple. Mission Pharma outsourcing and the contribution from countries like Ethiopia,other Latin American countries,CIS countries. Africa presently is in the cusp of an economic revolution resembling the Indian economic era of 2003. Huge set of growth is expected to come in. The more distributors you tie up with the more you sell. Often one big distributor can take you to several countries with several addition of products.

Quote: The Ethiopian Govt has approached NC to set up its base in the country with some couple of million USD investment. The govt has committed 175crs of sales every year. With such a lucrative offer in hand,the management is contemplating the same and a positive decision in this regard is expected very soon. Let's be conservative and I ain't putting it in my number estimation.

So with so much of developments,how would be the numbers? Sales are expected to vault from 80crs to 150crs this fiscal. Company would also become debt free this year. Next fiscal company may well achieve 250crs. All in all by 2020,It won't be an exaggeration to expect a bounty of 375-400crs of revenues with conservative estimation of 20-22% EBITDA. With Zero interest costs and not much in depreciation costs either,you don't need a calculator to arrive at the PAT. Wait,it ain't over,the molecules too would start to chip in bigtime. Chalo,let's not consider them too. It's all set to be a scrip to rewrite a new scripture for itself.

Btw: It takes several months of hardcore meticulous research and efforts to unearth the true potential of a smallcap company with almost nothing in public domain.Often you need to be more than average persuasive to get that unbiased gold standard scuttlebutt info from the clients of that company or its raw material suppliers or even the driver of the promoters. Hits and misses or successes and flops hardly bothers me as even a 7 flops out of a portfolio basket of 10 stocks would still ensure a superlative Alpha for me. What pains me is when the electronic media aka the TV Chanels and the print media ,I.e, some garbage inane magazine would rubbish this "Amazing small cap companies" as simply manipulation and extreme over expensive. Just some 3 mins stuff and 5 liners and they would form that conclusion. Where's the bloody passion? Where's that effort to unleash the real story? Where's that fire in belly to learn daily and evolve?Anyways,It's high time we ignore such jokers and get the due diligence done by ourselves. Happy investing folks.


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