India focused Portfolio Advisory - Exp of 40+years, Das Capital Management and Advisors

Arun Thirumalai

India focused Portfolio Advisory - Exp of 40+years

Das Capital Management and Advisors

Das Capital is a research boutique with an aim to continuously map and plan the investment needs of investors focused on India. We have a six member research team with a combined experience of over 40 years as a part of our investment wing. Our team assisted in the setup of Premji Investments, which was one of India’s first family offices focused to managing Mr.Azim Premji personal wealth. We also serve as a research team to two Indian private equity energy funds “Small is Beautiful” and “KSK Emerging India Energy Fund”.

Equity Bottom-Up

Cupid Ltd one of the largest manufacturers of condoms in India 9MFY19 revenue was largely as per our expectations, as there was some order slippages. As forecasted in our initiation report <a href="https://www.smartkarma.com/insights/cupid-ltd-protecting-the-needy" target="_blank" data-smartkarma-citation="insights:22246">Cupid Ltd: Protecting the Needy,</a> the company reported a 20% decline in revenue at Rs 505mn, which also resulted in lower profitability both at the operating as well as net level. EBITDA stood at INR 161.6 mn declining by 32.53% with EBITDA margin at 31.95%. PAT was INR 108.5 mn declining by 24.58% with PAT margin at 21.46%.Despite this below-par performance in the 9MFY19, we are fairly positive on the future growth prospects of the company. As of March 2019, it has a healthy order book of INR 1300 m with Book to Bill ratio of  1.99 times on its TTM sales. We expect revenues to grow at 15% over FY18-19 and margins to improve in medium to long term horizon. Having corrected by 67% from its peak, the stock currently trades at 10.20x its FY19 EPS and 8.34x its FY20 EPS; we believe that this provides a good entry point for this niche high margin healthcare company with attractive long term growth possibilities.

Cupid Ltd one of the largest manufacturers of condoms in India 9MFY19 revenue was largely as per our expectations, as there was some order slippages. As forecasted in our initiation report Cupid Ltd: Protecting the Needy, the company reported a 20% decline in revenue at Rs 505mn, which also resulted in lower profitability both at the operating as well as net level. EBITDA stood at INR 161.6 mn declining by 32.53% with EBITDA margin at 31.95%. PAT was INR 108.5 mn declining by 24.58% with PAT margin at 21.46%.Despite this below-par performance in the 9MFY19, we are fairly positive on the future growth prospects of the company. As of March 2019, it has a healthy order book of INR 1300 m with Book to Bill ratio of  1.99 times on its TTM sales. We expect revenues to grow at 15% over FY18-19 and margins to improve in medium to long term horizon.  Having corrected by 67% from its peak, the stock currently trades at 10.20x its FY19 EPS and 8.34x its FY20 EPS; we believe that this provides a good entry point for this niche high margin healthcare company with attractive long term growth possibilities.

Cupid Ltd: Attractive Valuation Post Significant Correction

<a href="https://www.smartkarma.com/entities/7097" target="_blank" data-smartkarma-citation="entities:7097">Cupid Ltd (CUPD IN)</a> is involved in the manufacturing of Male Latex condoms, Female Latex condoms and Lubricants among other products. Cupid Ltd is one of the two companies in the world to be pre-qualified by the World Health Organization(WHO) and United Nations Population Fund(UNFPA) for worldwide public distribution of condoms. The company has an order book worth INR 950 mn of confirmed and repeat orders and is currently pursuing tenders from countries like India, South Africa, Brazil, United States of America etc, with whom the company already has long-term relationships.
Growth Drivers
<ul>
<li>
Low use of contraceptives among the sexually active women: The average use of modern contraceptive among women aged 15- 49 in more developed regions of the world in 2017 was 69% whereas the average for least developed regions was 40%. This provides opportunities for companies like Cupid Ltd to work with governments of these regions to help create awareness and encourage the use of condoms.</li>
</ul>
<ul class="">
<li class="ILfuVd yZ8quc">
Increasing number of people HIV in Southern Sub-Saharan Africa: The share of the population with HIV in Southern Sub-Saharan Africa is 16.4% about 22 times more than the world average of 0.73%. 72 percent of people with HIV positive were based in Sub-Saharan Africa. It is of paramount importance for the local governments of these countries to work with the World Health Organization and other international agencies to eradicate HIV/ AIDS. Cupid being pre-qualified by the WHO and UNFPA for worldwide public distribution of condoms is in the right position to take part in these programs.
</li>
</ul>
Due to these factors, we expect the company to clock in a growth rate of 17.35% CAGR in short to medium term 
Valuation: The company is currently trading at 15.4x its FY18 EPS, 16x its FY19 EPS and 12.3x of its FY20 EPS. The stock has seen higher volatility in the recent months; we believe the PE of 15.4x expensive. We await a reasonable correction before we could change our view with respect to valuation.

Cupid Ltd (CUPD IN) is involved in the manufacturing of Male Latex condoms, Female Latex condoms and Lubricants among other products. Cupid Ltd is one of the two companies in the world to be pre-qualified by the World Health Organization(WHO) and United Nations Population Fund(UNFPA) for worldwide public distribution of condoms. The company has an order book worth INR 950 mn of confirmed and repeat orders and is currently pursuing tenders from countries like India, South Africa, Brazil, United States of America etc, with whom the company already has long-term relationships.
Growth Drivers


Low use of contraceptives among the sexually active women: The average use of modern contraceptive among women aged 15- 49 in more developed regions of the world in 2017 was 69% whereas the average for least developed regions was 40%. This provides opportunities for companies like Cupid Ltd to work with governments of these regions to help create awareness and encourage the use of condoms.



Increasing number of people HIV in Southern Sub-Saharan Africa: The share of the population with HIV in Southern Sub-Saharan Africa is 16.4% about 22 times more than the world average of 0.73%. 72 percent of people with HIV positive were based in Sub-Saharan Africa. It is of paramount importance for the local governments of these countries to work with the World Health Organization and other international agencies to eradicate HIV/ AIDS. Cupid being pre-qualified by the WHO and UNFPA for worldwide public distribution of condoms is in the right position to take part in these programs.


Due to these factors, we expect the company to clock in a growth rate of 17.35% CAGR in short to medium term 
Valuation: The company is currently trading at 15.4x its FY18 EPS, 16x its FY19 EPS and 12.3x of its FY20 EPS. The stock has seen higher volatility in the recent months; we believe the PE of 15.4x expensive. We await a reasonable correction before we could change our view with respect to valuation. 

India

Cupid Ltd. manufactures and markets condoms. The Company sells its products in India and elsewhere throughout the world.

Cupid Ltd (CUPD IN)

Cupid Ltd: Attractive Valuation Post Significant Correction

Cupid Ltd one of the largest manufacturers of condoms in India 9MFY19 revenue was largely as per our expectations, as there was some order...

Das Capital Management and Advisors

Cupid Ltd: Protecting the Needy

Cupid Ltd (CUPD IN) is involved in the manufacturing of Male Latex condoms, Female Latex condoms and Lubricants among other products. Cupid Ltd is...

Das Capital Management and Advisors