High end good bracelets retail for around Rs 10000. A Good bracelets may have same revenue potential as a good dial. So effectively we are talking about potential of doubling revenues if plan and execution falls in place.

So 25cr is not huge investments.

A sample
https://www.amazon.in/Ceramic-Bracelet-Silver-Stainless-Deployment/dp/B07M9XZ28N/

Stainless steel bracelets finished well add a lot to a watch and it’s quality perception. The Tissot PRX (A sub 1000$ watch) is appreciated not only for it’s movement but the integrated SS bracelet. If they can get approval for supply to some of the more lower end Swiss/Japanese watch makers like Tissot,Seiko,Orient etc , it can be a huge recurring revenue source. (Tissot,Seiko,Longines etc sell Billions of Dollars of Watches every year,bracelets on their higher end watches can contribute as high as 10-15% to COGS).

What is this bracelets about?
Is the demand of bracelets are so high that need a separate factory?
Is it worth to put 25 crs for same? Is this a good capital allocation?

Started to look at the company recently. A few positives that I liked are…the company makes decent margins (28-30ish), is debt free, investing in expansion and R&D. The target which the mgmt has given that they could do 1000cr topline by FY27 could be achieved by following triggers (these triggers would also contribute growth beyond FY’27):

1. 10 year vitamins API contract with DSM (european customer) which will have peak revenue of 40cr by FY27
2. Contract with Plasma Nutrition for ioProtein, exclusive manufacturing and mareketing for Indian market involving tech transfer from the client.
3. Contract with KIT for oral cancer detection kit, revenue from FY27
4. Contract with KIT for GelHeal
5. Revenue from regulated markets for the next 8-10 products, scale up of revenues from US and Brazil.

Considering the above triggers/drivers, feels like the company can achieve a growth rate of about 20% which will help reach 1000cr by FY27. They could surprise on the upside if all the above triggers fire. Assuming a NPM of 19% and a P/E of 20, they could double the market cap from current levels (1000cr x 0.19 x 20 = 3800cr) in about 4 years. That looks decent.

However,I have the following queries/doubts to which I will try to seek answers:

1. When will their products count increase from current 38?
2. The latest presentation states that 15 products are now backward integrated (earlier it was 12), with 3 more in the pipeline. Is this correct, and if yes, by when the backward integration will be achieved for the 3 pipeline products.
3. When China market was doing well for us, what led us to believe that the pricing for the key product wont fall because based on that single product the company was hopeful of sustaining 40% margins (assuming that the volume cap was present even when we were getting good price leading to high margins).
4. What is the expectations on CMO/CDMO business. It was expected that by Q1FY23 the contribution from CMO/CDMO would start. Has it happened, and what is the %. What is the medium term expectation. Would be great if the company can start quarterly disclosure of CMO/CDMO revenue.
5. By when can we start seeing the contribution for the top 3 products start going down, and any medium term plan/expectations would be good to know.

Looks like it is possible to achieve 30% and above margins in API business. Divis had 35%+ for a long term, GLS also earns 30%, Supriya also is around the same. I have read that if in an industry more companies earn good margins, then valuations may not be high. Divis trades at high valuations, GLS trades at low valuations, Supriya is slightly higher that GLS. I havent looked at other peers, but Supriya looks like a decent investment idea which could give a 15-19% CAGR in around 5 years.

Disc: tracking