Caplin Point Laboratories Ltd.

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 Caplin Point Laboratories Ltd.
Industry LTP Recommendation Base Case Fair Value Bull Case Fair Value Time Horizon
Pharmaceuticals Rs 860 Buy on dips to Rs 813 & add more at Rs 720 Rs 894 Rs 951 2 quarters
HDFC Scrip Code CAPLINEQNR Our Take:
BSE Code 524742 Caplin Point Laboratories is a formulations player with a differentiated approach as it focuses on the semi-regulated markets of LatAm and
NSE Code CAPLIPOINT Africa, which contributes to ~92% of overall sales, while the balance is from the US. Over the years, the company has established its presence
Bloomberg CLPL IN in LatAm markets of Guatemala, El Salvador, Nicaragua, Dominical Republic, Ecuador and Honduras with its own distribution network. The
CMP Aug 12, 2021 860 company has a leadership position and a strong first mover advantage in these untapped markets. Revenue from LatAm+Africa have grown
Equity Capital (Rs cr) 15.1 at 28%+ CAGR over the last seven years. Now, the company aims to expand its presence in the bigger markets of Mexico, Brazil, Argentina
Face Value (Rs) 2 and Colombia etc. Further with an expanding product portfolio, it plans to increase penetration in the existing markets which will also drive
Equity Share O/S (cr) 7.55 growth from the LatAm markets. Company has started supplying niche Injectables to Mexico and Brazil, on emergency procurement tenders.
Market Cap (Rs cr) 6498 Currently, branded generics business contributed to 25% of revenue while 75% comes from generics in FY21. Caplin has presence across 36
Book Value (Rs) 157 therapeutic areas and 650+ formulations products as of Jun-2021.
Avg. 52 Wk Volumes 461209
52 Week High 1034 After establishing a strong presence in the semi regulated markets of the LatAm, Caplin is now eyeing US market through injectables, which
52 Week Low 402 offers immense growth opportunities. Company has increased R&D spending from 3% of sales in FY17 to ~9% in FY21. Caplin has substantially
increased R&D team from 100 people in FY17 to ~370 as on FY21. Caplin has a strong growth plan for the US, backed by expanding product
Share holding Pattern % (Jun, 2021)
basket and establishing front end presence by FY23. It has launched 8 products in the US in FY21 and 4 more in Q1FY22. Also it plans to
Promoters 69.03
launch another 4 products before Dec-2021 and this would drive US revenues. The product filling pipeline is strong and the company looks
Institutions 02.63
Non Institutions 28.34
to file 7-8 products over the next 3 quarters. Overall development pipeline remains robust, with > 45 ANDAs under development with
addressable market in US at around US$ 3bn. Company expects phase 2 expansion of its injectable facility to get completed in the next 15
Total 100.0
months. Management aims for US$ 100mn sales from the US over the next 5 years and looks to double LatAm revenues as well in the similar
Retail Research Risk Rating: time frame.
Blue*
* Refer at the end for explanation on Risk Ratings
Valuation & Recommendation:
Fundamental Research Analyst Caplin’s operating margin contracted to around 30-31% levels from around 36% as of FY19. Contraction in the margin was due to change in
Kushal Rughani the product mix as well as higher R&D spends, (~9% of sales) largely for the US business. A strong filing pipeline of 45 ANDAs in the next
[email protected] three years would boost the US sales. We estimate 19% CAGR in revenue led by strong 16% growth from LatAm markets and 48% CAGR in

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Caplin Point Laboratories Ltd.
US business on a low base over FY21-23E. We expect margin to expand by 120 bps to 32.2% by FY23. Net profit is expected to clock a ~21%
CAGR over FY21-23E. As per the management, it aims to achieve a Cash Surplus of Rs.1000-1500cr in the next 5 years.
Despite its smaller size and aggressive capex for the US, Caplin has remained net debt-free due to sustained operational performance in the
emerging markets (EMs). The company has cash & equivalents of around Rs 550cr as on Jun-2021. Institutional sales may contribute higher
in the coming quarters, as the company received tender orders worth US$ 18mn in two of its markets in LatAm.
At CMP, the stock trades at ~19x FY23E EPS. We recommend buy on Caplin Point Laboratories on dips at Rs 813 (17.5x FY23E EPS) and add
more on declines to Rs 720 for base case target of Rs 894 (19.25x FY23E EPS) and bull case target of Rs 951 (20.5x FY23E EPS) over the next
two quarters.
Financial Summary
Particulars (Rs cr) Q1FY22 Q1FY21 YoY (%) Q4FY21 QoQ (%) FY19 FY20 FY21 FY22E FY23E
Total Revenues 300 240 25.1 279 7.8 649 863 1,061 1,279 1,522
EBITDA 93 72 29.3 86 8.1 231 260 329 412 487
Depreciation 12 9 34.4 10 22.2 23 32 37 46 59
Other Income 9 7 41.5 9 -2.1 19 41 24 32 39
Interest Cost 0 1 -40.0 0 0.0 0 0 2 2 2
Tax 18 14 27.7 17 5.3 50 54 62 85 105
APAT 72 55 31.2 68 5.1 177 215 242 302 351
EPS (Rs) 23.4 28.4 32.0 39.9 46.4
RoE (%) 35.4 27.2 22.7 22.8 21.6
P/E (x) 36.8 30.3 26.9 22.7 18.6
EV/EBITDA (x) 26.1 23.2 18.4 15.3 12.4
(Source: Company, HDFC sec)
Q1FY22 result update
Total sales increased 25.1% YoY at Rs 300.4cr driven by a strong performance in Latin America (LatAm) and Emerging markets. Operating
margin improved 100bps YoY at 30.8% due to lower employee cost. Net profit was up 30% YoY at Rs 70.9cr. Cash and Surplus stood at Rs
522cr for Q1FY22 – an increase of Rs 52cr over March 2021. Cash flow from Operations (CFO) stood at Rs. 75cr in Q1FY22. Inventory stood

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Caplin Point Laboratories Ltd.
at Rs 193cr for Q1FY22 as against Rs 179cr in Q4FY21. Company’s CRO wing Amaris Clinical received confirmation of virtual US FDA audit in
the quarter.

Q1FY22 Conference Call highlights

 Geographical breakup of sales: LatAm & RoW - 91%, US - 9%. The company continues to witness strong growth momentum in core
LatAm markets.
 Prior to entering the organic business in key target markets of Mexico and Brazil, the company started supplying speciality injectable
products on an emergency procurement basis.
 Caplin has started manufacturing Covid-related products such as Liposomal Amphotericin and Enoxaparin for domestic market supply.
 Overall development pipeline remains robust, with 45+ ANDAs under development with addressable market in US at ~US$ 3bn.
 Total capex outlay of Rs 300-350 crore in the next two years: injectable (~Rs 150 crore), oncology (Rs 100 crore), APIs (Rs 100 crore).
 Capacity expansion at CP-1 (RoW facility) - Order placed for additional Lyophilizer in view of increased demand in niche Lyophilized
products in current markets. Expansion plans under evaluation for Softgel section.
 Caplin has launched four products in the US during Q1FY22, to launch pending four more ANDAs, which is targeted before Dec-2021.
Market share for already launched products is in the range of 7-12%.
 The company aims to file eight ANDAs within the next three quarters, which will have equal mix of Injectable and ophthalmic products.
 The company is targeting US front end presence in 2023, by which time 30+ ANDAs are likely to be approved/under review.
Management has maintained US$ 100mn revenues from US by FY26.
 Capacity utilisation for injectable at 70%. Capacity expansion in Phase 2: Two vial filling lines from Syntegon (Bosch) ordered, delivery
within 12 months. Pre-filled syringe line from Steriline ordered, delivery within 10-12 months. Company expects phase 2 expansion to
be completed within 15 months.
 55% of the products are outsourced from quality conscious partners in India and China.
 Current breakup of sales: Private Market sales to Distributors – 60%; Sales to Pharmacies/Retail – 20%; Institutional Sales – 20%.

Company looks to double sales from LatAm region in the next five years
LatAm is a key geography for Caplin and contributes to ~85% of the total sales. It has established strong presence (among the top 3 players
in the region), a well spread distribution network, new product pipeline and expansion in new geographies. It has a strong first mover

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Caplin Point Laboratories Ltd.
advantage in these countries when it entered in these markets in early ‘90’s, they were mainly dominated by branded players and there was
a vacuum of any large affordable generic player and strong distribution network and presence across varied categories. The company’s key
procurement of generic drugs was routed through China and were dispatched to Latam in a finished dosage form. The company still
outsources ~35% of its formulations from China. After a sizeable presence in Central America, it is now looking to leverage its expertise and
experience to tap the key major markets in the LatAm including Brazil, Mexico, Peru and Colombia for further growth. Given the company’s
capabilities to offer affordable solutions to the masses at large, provides ample visibility. Caplin has commenced exports to Mexico supplying
injectables which is a part of the emergency procurement from the government. Going ahead, Caplin looks to increase its presence in Mexico
markets by the end of FY22. Strong product portfolio, new launches, expand the reach of B2B portal services and foray in the new markets
in LatAm would be key growth drivers and the management looks to double topline from LatAm over the next 5 years.

US sales to touch US$ 100mn over the next 5 years

US is one of the key markets globally for pharmaceutical players and constitutes a significant chunk of the share of global sales. US market
is governed by extremely stringent regulatory norms. Caplin is one of the late entrants into the US. It has entered the US market in FY18
with a foray into the high growth and high margin injectables segment. Caplin Steriles recorded revenue of US$ 12mn or Rs 85cr accounting
for almost 8% of the overall sales in FY21. Going ahead, the company expects revenues for the US business to be US$ 100mn (~Rs 750cr),
over the next five years. Company targets being backward integrated with own APIs for 70% of all filings in US by 2024, a critical differentiator
for generic Injectables. Company has launched 8 new products in the US markets in FY21 and 4 new products in Q1FY22. Over the next 3
quarters, the company plans to launch 4 more products in the US. Company guides to file 7-8 ANDAs over the next 3 quarters. Further by
FY23, Caplin looks to have its own front end established in the US markets. With respect to the products launched, company has market
share in the range of 7-12% and aspires for a double digit 10-15% markets share. A strong product pipeline, aspirations for market share
gains, plans to establish own front in the US are the key factors that would drive growth for the company in the US markets.

Large capex plans to support next phase of growth

Caplin Point has embarked on a capex plan which would support the growth for the company across markets. Currently, US business
(comprising of injectables only) is operating at a utilization level of around 45-50% (and including exhibit batches the utilization rate stands
at ~70%), which provides headroom to ramp-up production. However, the company has lined up strong capex plans of Rs 300-350cr which
includes Rs 100-110cr towards the oncology facility (with both Oral solids as well injectables) - In Oncology Facility – Process equipment
ordering has been completed. Design drawing and detail engineering completed. First batches targeted within next 9 months. API segment
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Caplin Point Laboratories Ltd.
would entail capex of Rs 100cr (Design Drawing and Detail Engineering completed. Process equipment orders to commence shortly) and
lastly the phase 2 of the injectables plant would entail an outlay of Rs 130-140cr. The above capex programme would be sufficient to support
the company’s goal of doubling the revenues from the existing markets and to achieve sales of US$ 100mn from the US markets. Currently,
the company has a total annual product capacity of 1000 million tablets, 400 million capsules, 65 million vials of liquid injections,
20 million liquid injection ampoules, 170 million soft gels, 30 million suppositories, 6 million bottles of liquids, 12 million pre-filled
syringes and 12 million ophthalmic units.

Caplin Steriles got Rs 218cr investment from Eight Roads Ventures and F-Prime Capital
In Jan-2019, Caplin Point Laboratories announced an investment in its injectables subsidiary, Caplin Steriles, by Eight Roads Ventures, the
proprietary investment arm of FIL, Fidelity International Limited and its US-based sister fund, FPrime Capital.
The Investors invested a total of Rs 218cr in the form of CCPS of Caplin Steriles Limited. The CCPS shall be converted into equity shares of
Caplin Steriles Limited based on the agreed terms. Upon conversion of CCPS, the Investors will hold at least 25.3% of the equity share capital
of Caplin Steriles on a fully diluted basis and it will continue to be a subsidiary of Caplin Point Laboratories Limited.
Caplin Steriles, its subsidiary, will cater to the rapidly growing demand for injectable products in the regulated markets, especially the US
and Europe. Caplin Steriles established a 550-person business with R&D facilities in Chennai and high-quality manufacturing infrastructure
that is approved both by the US FDA and European regulatory authorities. At that time Caplin Steriles had filed 8 ANDAs on its own and
through partners with the US FDA, with 2 approvals. Eight Roads' healthcare investments in India and Southeast Asia include Carestack, Cipla
Health, Core Diagnostics, Eywa Pharma, Laurus Labs, Medwell Ventures, Pharmeasy, Plasmagen Biosciences, Richcore Lifesciences and
Trivitron Healthcare.

Caplin Steriles’ injectable facility successfully passed through US FDA inspection in Jun-2019
Caplin Steriles, a Wholly Owned Subsidiary Company of Caplin Point Laboratories, announced that US FDA has completed inspection at its
Sterile Injectable site at Gummidipoondi (Chennai) between Jun 6 and Jun 14, 2019. At the end of this scheduled GMP inspection, there
were only two observations. The observations were procedural in nature. This was the last audit at the facility since then US FDA has not
conducted inspection at the site. The observations made were not repeat observations or related to data integrity. This was the third US
FDA audit at the plant since 2016.

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Caplin Point Laboratories Ltd.
Company Background
Caplin Point Laboratories has transformed itself to be a generic formulations player with a differentiated geographical presence. Company
focuses on the emerging markets of LatAm (Central and South America), took early mover advantage in these largely untapped markets.
LatAm and Africa constitutes around 92% of the overall sales, while the balance 8% is from the US. With respect to Segments, Caplin has
two segments – Generics and the Branded Generics, which constitute around 75% and 25% of the overall turnover of the company. In the
LatAm markets the company has a strong presence in the markets of Guatemala, which constitutes around one third of the LatAm revenues
while the balance is spread across El Salvador, Nicaragua, Ecuador and Honduras among others. Over the years, the company has gained a
leading position and is either amongst top-3 / top-5 in these respective markets and gradually is looking to tap the other key markets of
Brazil and Mexico etc. in the LatAm region. In addition to the LatAm, Caplin is also building its presence in developed markets of the US with
a focus on injectables segments. Also Caplin Point is also looking for entry in other regulated markets of Canada and Australia. China sourcing
enables the company to garner better operational efficiencies. Caplin procures a part of its supplies from China for the LatAm markets
(around 35%) while the balance is from in-house production and vendors based in India.

Key Risks
 Higher price erosion in the US
 Higher than expected erosion in the US may lead to decline in margin and profitability. Delay in approvals/launches may impact the US business.
 Inability to scale up highly competitive US business which is likely to be the key future growth driver for the company.
 Currency Risk
 Adverse currency fluctuations could hinder revenues and margin especially as the company derives about 92% of revenue from LatAm and
Africa.
 Compliance Risk
 Any negative outcome of inspection of its key manufacturing facility by the US FDA could affect the company’s growth prospects. Till now, the
company has a clean compliance track record.
 Delay in approval of its key products
 Company continues to spend heavily in the R&D for ANDA filings. Any delay in approvals from the US FDA could hinder its growth prospects.
 Supply disruptions from China
 Company sources 55% of the products from China and India while the balance are produced in-house.
 Geographic concentration
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Caplin Point Laboratories Ltd.
 Company may be exposed to geo-political risk as it derives ~85% of revenue from LatAm markets. A slowdown in the economy of the region
could hamper its growth prospects.

Revenue Mix (%) Revenue by Channel (%)

5 20
8

20 60

87

LatAm US Africa Distributors Pharmacy Sales Tender Business

Gross and EBITDA margin (%) Strong Return Ratios (%)

60.0 35 35 32
55.9 55.5 55.5 55.3 55.9
50.0 52.1 30 27
40.0 25 23 23 24 22 23 22
23
36.1
30.0 35.7 31.0 31.5 32.2
30.1 20
20.0 15
10.0 10
0.0 5
FY18 FY19 FY20 FY21 FY22E FY23E FY19 FY20 FY21 FY22E FY23E

Gross margin EBITDA margin RoE RoCE

Source: Company, HDFC sec Research
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Caplin Point Laboratories Ltd.
Financials (Consolidated)
Income Statement Balance Sheet
(Rs Cr) FY18 FY19 FY20 FY21 FY22E FY23E As at March FY18 FY19 FY20 FY21 FY22E FY23E
Total Revenue 540 649 863 1061 1279 1522 SOURCE OF FUNDS
Growth (%) 34.4 20.2 33.1 22.9 20.5 19 Share Capital 15.1 15.1 15.1 15.1 15.1 15.1
Operating Expenses 345 417 603 733 867 1035 Reserves 349 618 933 1171 1451 1771
EBITDA 195 231 260 329 412 487 Shareholders' Funds 364 633 948 1186 1466 1786
Growth (%) 56.5 18.8 12.5 26.3 25.2 23.3 Net Deferred Taxes 22 16 5 1 2 5
EBITDA Margin (%) 36.1 35.7 30.1 31 32.2 32 Long Term Provisions & Others 5 6 13 15 17 21
Depreciation 19 23 32 37 46 59 Minority Interest 0 0 9 18 18 18
EBIT 176 208 229 292 365 429 Total Source of Funds 393 655 977 1221 1505 1833
Other Income 13 19 41 24 32 39 APPLICATION OF FUNDS
Interest expenses 0 0 0 2 2 2 Net Block 183 234 288 312 416 497
PBT 188 227 270 314 395 465 Intangible Assets 2 2 5 7 7 7
Tax 44 50 54 62 85 105 Long Term Loans & Advances 9 11 5 8 9 10
RPAT 145 177 215 242 302 351 Total Non-Current Assets 194 247 299 328 434 520
Growth (%) 51.7 22.1 21.7 12.7 24.7 16.3 Current Investments 46 70 60 11 37 129
EPS 19.1 23.4 28.4 32 39.9 46.4 Inventories 29 37 238 179 245 296
Trade Receivables 126 160 229 279 343 396
Cash & Equivalents 79 153 224 460 488 564
Other Current Assets 24 74 72 107 121 131
Total Current Assets 307 494 823 1036 1234 1516
Short-Term Borrowings 0 0 37 18 22 31
Trade Payables 94 61 64 89 100 125
Other Current Liab & Provisions 14 24 42 37 40 45
Short-Term Provisions 1 1 1 0 1 3
Total Current Liabilities 109 86 144 143 163 203
Net Current Assets 198 407 678 893 1071 1314
Total Application of Funds 393 655 977 1221 1505 1833

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 Caplin Point Laboratories Ltd.
Cash Flow Statement Ratios
(Rs Cr) FY18 FY19 FY20 FY21 FY22E FY23E FY18 FY19 FY20 FY21 FY22E FY23E
Reported PBT 188 227 270 314 395 465 Profitability (%)
Non-operating & EO items -13 -19 -41 -24 -32 -39 Gross Margin 55.9 55.5 52.1 55.5 55.6 55.5
Interest Expenses 0 0 0 2 2 2 EBITDA Margin 36.1 35.7 30.1 31 32.2 32
Depreciation 19 23 32 37 46 59 EBIT Margin 32.5 32 26.5 27.5 28.6 28.2
Working Capital Change -92 -106 -161 5 -150 -167 APAT Margin 26.8 27.2 24.9 23.7 24.2 23.7
Tax Paid -36 -43 -55 -66 -85 -105 RoE 49.1 35.4 27.2 22.7 22.8 21.6
OPERATING CASH FLOW ( a ) 66 83 45 268 177 216 RoCE 44.9 31.7 23.3 23.9 24.3 23.4
Capex -28 -65 -77 -73 -150 -140 Solvency Ratio
Free Cash Flow -41 8 -86 215 27 76 Net Debt/EBITDA (x) -0.6 -1 -0.9 -1.4 -1.2 -1.3
Investments -54 -54 -18 41 -2 -4 D/E 0 0 0 0 0 0
Non-operating income 13 19 41 24 32 39 Net D/E -0.3 -0.4 -0.3 -0.4 -0.3 -0.4
INVESTING CASH FLOW ( b ) -69 -100 -54 -8 -121 -106 PER SHARE DATA
Debt Issuance / (Repaid) 2 103 104 -19 4 8 EPS 19.1 23.4 28.4 32 39.9 46.4
Interest Expenses 0 0 0 -2 -2 -2 CEPS 21.6 26.4 32.6 36.9 46 54.2
FCFE -33 4 -85 206 29 82 BV 48 84 125 157 194 236
Share Capital 0 0 9 0 0 0 Dividend 2 2.2 2.5 3 3.8 5
Dividend/Buyback -11 -15 -33 -3 -30 -40 Turnover Ratios (days)
FINANCING CASH FLOW ( c ) -10 88 80 -24 -28 -34 Debtor days 85 90 97 96 98 95
NET CASH FLOW (a+b+c) -12 71 70 236 28 76 Inventory days 17 19 58 72 70 71
Source: Company, HDFC sec Research Creditors days 122 65 49 56 53 55
VALUATION
P/E 45.0 36.8 30.3 26.9 22.7 18.6
P/BV 17.9 10.3 6.9 5.5 4.5 3.7
EV/EBITDA 31.0 26.1 23.2 18.4 15.3 12.4
EV / Revenues 10.8 9 6.8 5.5 4.7 3.9
Dividend Payout 10.5 9.4 8.8 9.4 9.5 10.8

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 Caplin Point Laboratories Ltd.
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HDFC Sec Retail Research Rating description

Green Rating stocks

This rating is given to stocks that represent large and established business having track record of decades and good reputation in the industry. They are industry leaders or have significant market share. They have multiple streams of cash flows and/or
strong balance sheet to withstand downturn in economic cycle. These stocks offer moderate returns and at the same time are unlikely to suffer severe drawdown in their stock prices. These stocks can be kept as a part of long term portfolio holding, if
so desired. This stocks offer low risk and lower reward and are suitable for beginners. They offer stability to the portfolio.

Blue Rating stocks

This rating is given to stocks that have strong balance sheet and are from relatively stable industries which are likely to remain relevant for long time and unlikely to be affected much by economic or technological disruptions. These stocks have emerged
stronger over time but are yet to reach the level of green rating stocks. They offer medium risk, medium return opportunities. Some of these have the potential to attain green rating over time.

Red Rating stocks

This rating is given to emerging companies which are riskier than their established peers. Their share price tends to be volatile though they offer high growth potential. They are susceptible to severe downturn in their industry or in overall economy.
Management of these companies need to prove their mettle in handling cyclicality of their business. If they are successful in navigating challenges, the market rewards their shareholders with handsome gains; otherwise their stock prices can take a
severe beating. Overall these stocks offer high risk high return opportunities.

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 Caplin Point Laboratories Ltd.
Disclosure:
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HDFC securities Limited, I Think Techno Campus, Building - B, "Alpha", Office Floor 8, Near Kanjurmarg Station, Opp. Crompton Greaves, Kanjurmarg (East), Mumbai 400 042 Phone: (022) 3075 3400 Fax: (022) 2496 5066
Compliance Officer: Binkle R. Oza Email: [email protected] Phone: (022) 3045 3600
HDFC Securities Limited, SEBI Reg. No.: NSE, BSE, MSEI, MCX: INZ000186937; AMFI Reg. No. ARN: 13549; PFRDA Reg. No. POP: 11092018; IRDA Corporate Agent License No.: CA0062; SEBI Research Analyst Reg. No.: INH000002475; SEBI Investment Adviser Reg. No.: INA000011538; CIN -
U67120MH2000PLC152193
Mutual Funds Investments are subject to market risk. Please read the offer and scheme related documents carefully before investing .

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