Cupid Ltd – Helping the world play safe!

Cupid Ltd. Q3FY23 earnings call highlights.

• Main reasons for healthy performance in Q3FY23 are:

  • 96% sales in exports, where we have advantage of Government of India export incentives as well as we have the benefit of depreciating rupee against the US dollar when we submit our invoices to the customer.

  • Steady and declining input costs during the quarter.

  • We had more sales of high-margin item, which is female condoms as compared to the quarter before.

• Our projections for the fourth quarter is for improving the top line at 20% and the bottom line by 20% also using the third quarter as a base. So we expect a minimum of INR 10 crores profit in the fourth quarter.

• Cupid has applied for a WHO and CE mark for our IVD products during the quarter.

• Cupid started an employee share plan ESOP for 27 employees. Cupid has done this ESOP plan for the first time in its 25-year history. we have offered this option to 27 employees at a price of INR 140 per share. And it’s a one-year lock-in period and could be cashed out in the next two years or a total of three years.

• Order book is robust at INR 171 crores as of January 1, ‘23. 60% of the orders are for male condoms, 31% orders are for female condoms and the balance 9% is for lubricants.

• We are expecting some big tenders coming out later in the year for male condoms from South Africa from Tanzania and from India. Also, in March or April, we are expecting a tender from Brazil for female condoms. And also, the South African requirements for the second year of the three-year contract is expected to be out in the first week of February.

• IVD update

  • For the Indian market, we are eligible, and we have started to do the commercial operations to the various state governments through their tenders and also sales to the private sector. However, for the central government tenders, we need a three-year manufacturing experience to qualify for the participation.

  • Now in terms of the export orders, we need WHO and CE mark to be able to export the goods. This is the requirement of most of the countries and in some countries, there is a requirement for ISO 13485 Certification, which Cupid has already obtained.

  • The margins are quite a bit better in the export sales, 35% to 45% as compared to about 20% in the domestic sales. And the five countries we have identified, with the most potential are South Africa, Kenya, Tanzania Nigeria and Zimbabwe.

  • In terms of the products, the most in demand are HIV, Malaria, syphilis and hepatitis.

  • So although we have been slow in starting the commercial operation, we expect a good business in the second year and certainly, starting from the third year.

  • In the year ’25, we expect INR 50 crores to INR 100 crores turnover in FY ’25 from IVD.

  • The FY ’23, the IVD sales would be minimal. We are pegging it at a maximum of INR 1 crore. And in FY ’24, our target is INR 5 crores to INR 10 crores only because of the limitations I mentioned i.e. lack of the WHO prequalification and the CE mark. However, in the next year, financial year ’25, we should be able to participate in the export orders for IVD.

  • Breakeven will be at about INR 5 crores sales.

• we have over INR 100 crores available with Cupid. we have the dividends is one outlet for the funds. And number two, if we look at any further expansion or adding for an another vertical like feminine health and wellness program, that could also require some funding and third and most important, we are also considering buying back of Cupid shares.

• in terms of the stable and declining input prices, we have in general, 7% to 8% decline in terms of the foil purchases and in terms of the packing material. And in case of silicone oil, it’s upward of 20% decline in the price, during the quarter. The only exception is a 5% to 7% increase in the price of latex, during the quarter as compared to the previous nine months. So we are expecting the stable or downward trends to continue, and that should directly impact on the profitability of Cupid business.

• The most important is the latex. And I mentioned then this in the past quarter, there was a slight increase and beyond the rainy season in Kerala, starting from May, we expect the downward trend to resume in terms of latex prices. The second most important component is the silicone oil, which was getting imported from China. And suddenly, because of the economic slowdown there, the prices crashed. And actually, in the last quarter, we had a decline of as much as 27% in the silicone oil prices**. China opening up won’t affect negatively to input prices to us as we have done the procurement for the next six months until June**.

• FY25: IVD alone, it would be INR 50 crores to INR 100 crores and from the condom business, we could expect easily INR 180 crores plus.

• FY ’24 projection, it’s about, I would say, a minimum of 10% improvement in the top line and at least a 20% improvement in the net profit after tax as compared to the FY ’23. So we are looking at a very healthy performance even during FY ’24.

• The reason we are expanding our business verticals is because there is a limitation in terms of how much we can do the expansion in the condom business. And number one, the space we are located in, is completely occupied. We have to buy new land or move the factory to completely a new location and with all the infrastructure there. We have to look at a consistently high demand from the world market. If we build the new facilities and there are no orders, so we would not like to be in that situation.

• the discussions with the Singapore party are going on, and we are looking at the agreement whereby Cupid would do the manufacturing on their patented products. It’s going slower than we thought, but it is very much in the process. Further last month, we also received another request from a company in the United States, who would like Cupid to manufacture their products in India for them. So they have visited the factory, and we have initiated the discussions with them as well. Both these possibilities are going a bit slower than what we thought, but they provide a good indication of the market demands for manufacturing going forward. Singapore party are looking to manufacture their two patented products related to the detection of diabetes.

• For the female condom, the US FDA is reviewing our application for approval of the female condom. So the feedback from US FDA is that they would like Cupid to do a clinical study in US using US participants as compared to the earlier study, which we did in South Africa. in terms of male condom penetration, there was a question of product liability issue under discussion.

• if we work at full capacity, we can easily have at 480 million male condoms at INR 2.5 per piece. So it would be about INR 120 crores -or-so from male condom. And for female condom, we can produce 25 million pieces if we – have the orders and which is at a minimum of INR 20 per piece. So that is again over INR 100 crores revenue from female condoms.