Caplin Point Laboratories - Will it sustain its growth ?

A few days back someone talked to me about Caplin Point Labs. He spoke to me very glowingly about it. I was hooked, so I went home ran some basic numbers. They look really good.

- Both ROCE and ROE are above 40%
- Debt is practically zero
- Revenues have a five year CAGR of 30%
- Operating profit ( at 23%) has a five year CAGR of around 57 % !
- Net Profit ( at 16% ) has a five year CAGR of 58.18% and the profitability has grown from 7% to 16 %
- Debt is practically Zero
- EPS at INR 27 has shown a five year CAGR of 56%
- Operating Cash Flow is positive and growing with a five year CAGR of 41%
- ROCE is 56%
- ROE is 45%

Like most quality stocks it is expensive and quotes at about 47 times its earnings of INR 27 ( CMP : INR 1294)

Has someone researched this ? Can this firm sustain such a scorching growth rate ? I am unable to find any research report which could explain the sources of such a strong growth and possibly hint at sustainable levels of growth for the future.

Seen just numerically, this appears to be a very well run but expensive business at current levels.

Any insights would be really helpful

 

I'm sure you'll see many such stories being sold with all glittery financials. Not saying anything about the company, but when the going is good, everything is selling.

Do you remember Surya Pharmaceuticals? It was a small company too. Last reported sales was like INR 1500-1600 crore! It was last traded at like 25 paise.

Opto Circuits was like Infosys, bonus and dividend. Then came reports of corporate governance issues and now it is in the duds.

The growth rate can be sustained given the small base. Screener data shows last year sales of INR 240 crore.

From your picks, I'm considering Shilpa Medicare once all my selling is done and the buying begins.

 

I am keen on Shilpa Medicare as much for management integrity as for business opportunity. Multiple checks I ran have always added up to just one thing : Mr. Bhutada is a man of very high integrity AND competence.

 

Valuepickr has good thread and scuttlebutt done by seniors. They dumped this stock because of transparency. As per them there are lot of opportunities in market. Ace investor blog recommended it saying that it is selling viagra in latin america so the model is like Ajantha. After this recommendation share price started climbing and no stopping. They take commission from dealers in Latin America for their product. As per them they cant take drug selling license in Latin America so they have to sell through local dealers. Now question is why they are not giving less commission instead of taking back. Why they dont disclose their products in Latin America. They have built big facility for Injectables by this commission to sell in Brazil. Thus the growth looks like secular but the questions remain unanswedred. Market is ignoring these facts and assigning high PE.
Favourable points are that they are paying good dividends, tax. It means books are not cooked. Injectable facility involved big capex, it means they are earning money. Surprisingly no brokerage report, no big name of investor involved why ?
I am too much confused with this company. Sometimes story looks real, sometimes I see red flags.
Fun_Da_Mentalist,
I request you to go through the threads and comment please your observation. I have small position in stock and confused to sell or not. Presently sitting on 1.8 bagger. They import drugs from china to sell in Latin ...Also they have plant in India to sell in Latin America. Promoters were trapped in debt before and fled the country. after that they started business in Latin America and paid all dues. They have good hold in Latin America market as they have recruited people from their village to get loyal workers even his son married there and living there for market. Big companies cant do this that is why they succeeded in Latin America. As per them this small money is big for them and after this much planning and endeavour, nothing for big companies. This is the secret of their success. Please go through all threads on valuepickr and Ace investor and comment. Still there might be a big thing in this company.

 

I have decided to not go further because I already have a large allocation for pharma . So from a sectoral allocation point of view have decided to not be tempted by any more pharma stocks.

 

Large allocation means what? 20% or more? Can you share break up of other sectors like Bank/ FMCG/ Textiles etc.

 

40 pharma
30 finance and banking
20 housing & related
10 others

 

Nothing in tech, fmcg, auto?

 

Same Q from me. Auto stocks are up today. It may be in "others". What about housing finance? It is part of finance and banking or in housing and related? Any contra picks like PSU Banks, Metal?

 

No Sachin. I think pharma and finance will be better sectors than it and fmcg to generate alpha. Here I am talking of my investment portfolio clearly.

Somehow I don't like auto stocks too much. I prefer housing allied stocks like HSIL to fmcgs ( only exception is ITC )

Housing finance gets allocation on account of housing and related and on account of banking and finance.

No. There are no contra picks. Certainly not metals and commodities. I don't have the conviction to buy PSU banks at all. I think the crap will hit the ceiling sooner rather than later.

In tech. The interesting plays are in digital, so either persistent systems or mind tree or a transformation play like Infosys. But I like banking and pharma and housing enough to find really good allocations.

Finally under others is simply really good companies, managed well.