Caplin Point Laboratories (CAPPOI): Shallow retracement of the previous rally augurs well for next up move…
The stock resumed a fresh up move after the last five weeks of a breather. It has rebounded taking support around Rs 500 levels as it is the confluence of the previous breakout area and the 50% retracement of the previous rally (Rs 305-686), thus offering a fresh entry opportunity to ride the next up move.
o Earlier, during July 2020, it registered a resolute breakout above the long term falling supply line joining the highs since August 2017 signalling a structural turnaround and resumption of the primary uptrend o The stock has already taken more than five weeks to retrace just 50% of the previous four weeks strong volume-based rally highlighting a higher base formation and a robust price structure.
o The weekly 14 period’s RSI is in a strong uptrend and is seen rebounding taking support at its nine period’s average, thus validating the overall positive bias in the stock.
o Based on the above technical observations, analysts expect the stock to continue its positive momentum and head towards Rs 710 levels as it is the 123.6% external retracement of the previous breather (Rs 686-490)
Market Capitalisation Rs 4520 crore
Debt (FY 20) Rs 39 crore
Cash (FY 20) Rs 223 crore
EV Rs 4335 crore
52 week H /L (Rs) 686/180
Equity capital Rs 15.1 crore
Face value Rs 2
Caplin Point Laboratories was established in 1990 by first-generation entrepreneur CC Paarthipan, the company as a matter of strategy focused on emerging markets of LatAm (Central and South America), Francophone and Southern Africa to cash in on the early mover advantage in the then untapped markets. Over the years, the Caplin Point Laboratories has established a strong and deeper presence in semi-regulated markets of Central America (CA) such as Guatemala, El Salvador, Nicaragua, Ecuador and Honduras among others.
• Emerging markets (EM) account for 92% of revenues and consist of LatAm – 87% (both Central, South America) and Africa- 5%. Revenues grew at 25% CAGR over a decade mainly due to 1) early mover advantage in these untapped markets, 2) geographical expansion (starting with two countries to 10 currently), 3) ability to address market gaps, especially in generics space (via trading model) with a hold on end-to-end distribution channels. analysts expect growth momentum to persist mainly due to further expansion in the front end, increasing product basket, change in product mix, launching of own brands. Also, entry of Caplin Point Laboratories into South American countries is likely to propel growth. analysts expect EM revenues to grow at ~22% CAGR in FY20-22E to Rs 1141 crore.
• With a calculated approach to focus on injectables in the US, the company established an injectable plant in Tamil Nadu in 2014. Currently, the portfolio comprises 19 filed ANDAs, of which nine have already been approved. At present, the company has ~33 products in the pipeline. In FY20, revenue contribution from the US increased to 8% from just 2% in FY19. analysts expect US revenues to grow at ~56% CAGR in FY20-22E to Rs 170 crore on the back of incremental product launches.
• After scripting a unique story by growing in uncharted territories, Caplin is looking at growth in known markets. These new markets of South America, US are a big opportunity but fraught with new challenges. That said, analysts continue to believe in the capability of Caplin Point Laboratories to replicate the success story in new markets. Secondly, despite likely dent in margins, return ratios due to the investment phase in new markets, these prints continue to demonstrate earnings, balance sheet strength. By thriving in lesser-known CA markets and cracking the most difficult US generic pharma code of injectables, that too in different therapies, Caplin Point Laboratories has created its own identity with long drawn plans. The company continues to offer a compelling risk-reward scenario at current valuations.
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