This question is coming up again and again – why the company needs the money. In the interview, Aditya Halwasiya mentioned that the existing cash is enough for organic expansion, while new funds would be used for acquisitions. I think going beyond that, a more pertinent point is that there is good amount of institutional interest in investing in the company. When cheap money is available in plenty, any promoter may want to take it and put it to good use, if he is ambitious enough and wants to go for aggressive growth.
In condoms, Aditya has spoken about retail expansion. Retail expansion is a very capital-intensive activity. Brand building, advertisement & promotion, deep distribution network, inventories and even getting top class talent – all of this requires investing huge amounts of cash for prolonged periods of time. People don’t think of them as investments since much of it is expensed in P&L, and hence the epithet “low margin business”. Condoms are a Rs.1500-odd crore market in the country which by itself is not large. But within that a lot of innovation and premiumization is happening. Last year, Raymond sold KS and Kamasutra brands to Godrej (GCPL). Listen to what the GCPL management has to say about the acquisition:
And this:
But going beyond condoms, Aditya Halwasiya’s comment seemed more oriented towards IVD kits and the broader medical devices business. This is a 10X bigger market and growing faster than condoms. Here, Cupid is starting from near zero, so growth can be very fast. In the interview, Aditya said Malaria, Dengue, Typhoid, Syphilis, HIV etc. all require tests to be made. Currently Cupid is manufacturing test kits for all. Though not an exact comparison, a small company called 3B Blackbio DX Ltd. which is into molecular diagnostics and biological devices such as RT-PCR tests, mutation detection kits, genetic sequencing kits and so on is trading at 9 times sales.
Beyond test kits lies the broader medical devices universe. Morepen Labs’ medical devices business grew 41 % in H1 FY24 and the company said the market itself is growing at 25 % CAGR. Morepen is into devices such as Oximeters, Glucometers, BP monitors, pregnancy kits and so on. TTK Healthcare’s medical devices division grew 23 % in H1 this year. This was on top of a 41 % growth in FY23 and 90 % growth in FY22.
And then there are exports. Aditya said they plan to participate in international tenders after getting regulatory approvals. Increasing adoption and usage of medical devices and health-tech is a secular mega trend. Besides, India currently is a huge importer of medical devices but there is a push towards import substitution and self-reliance under the broader Atma Nirbhar principles.
Coming back to condoms, the business will get a big boost if the next government brings in some form of Population Control Bill. Any such initiative may come with a complementary scheme for encouragement, popularizing, procurement & distribution, and subsidizing of condoms. ‘Mission Parivar Vikas’ was launched by the government in 2016 for increasing the access to contraceptives and family planning services in the country. It has been a low-profile scheme so far. But having focused on water, electricity, gas connection, housing etc. in its first two terms, the next term could see family planning being pushed higher up the priority list. Of course, I am speculating here – I do not know if there is any such move – but it is not impossible to imagine. May be someone in the government is already working on it, and the market has got a wind of it.
This is as far as we can see. Tripling of capacity is not the only thing that is changing at Cupid. An ambitious promoter with access to cheap money and a large opportunity size can do a lot of things. Aditya Halwasiya need not reveal all his cards at one go, there could be more up his sleeve. But so far at least, he has made all the right moves for sure.
(Disc.: Invested. Not a recommendation. Please do your own research)
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