CUPIDNSEQ3FY22February 15, 2022

Cupid Limited

6,500words

130turns

15analyst exchanges

2executives

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Management on call

Omprakash Garg

CHAIRMAN & MANAGING

Om Garg

Chairman and Managing Director of the company. Mr. Garg will give a brief overview of the

Key numbers — 40 extracted

100 crore

Now, I will go to a bit of good news. Earlier this month, Cupid has received an order worth about 100 crore per year for three years extending up to January 2025 to supply male and female condoms from the G

rs 70 crore

s from the Government of South Africa. Out of this 100 crores worth of order per year for three years 70 crore worth of orders are for female condoms, which is again a high margin item. So we are very much loo

Rs. 27

o, during the quarter, we have recorded much higher sale of lubricant jelly and we hope to achieve Rs. 27 Cr sale from Jelly this year. Our current order book standards at 141 crore, most of which we plan

141 crore

ly and we hope to achieve Rs. 27 Cr sale from Jelly this year. Our current order book standards at 141 crore, most of which we plan to dispatch during FY22 and 23. With these initial remarks, I would like to

50 crore

first on the IVD business, so, IVD business in earlier concalls. You have indicated that we expect 50 crore sales in the first year of operation with 30% net margin. So, out of this total 50 crore, what is

30%

er concalls. You have indicated that we expect 50 crore sales in the first year of operation with 30% net margin. So, out of this total 50 crore, what is the proportion of COVID test kit that you have

50%

t as we believe that we can obtain the marketing services from other means, instead of sharing the 50% profit from the IVD project. So essentially, we have decided to terminate this agreement. Vaibhav

70 crore

. Keshav Garg: Okay, sir. So, basically out of 141 crore you mentioned 70, out of 100 crore order 70 crore is female condom, and out of the rest of the 41 crore order book which excludes this South Africa

41 crore

ore you mentioned 70, out of 100 crore order 70 crore is female condom, and out of the rest of the 41 crore order book which excludes this South African order how much is female out of that 41? Om Garg: O

5 crore

ludes this South African order how much is female out of that 41? Om Garg: Out of 41 crore, only 5 crore order is for female condom. Keshav Garg: Okay sir. So, basically even though we might again touch

52 crore

quarter. Keshav Garg: Sir, that may be true, but what I’m trying to say that in FY20, like we did 52 crore of operating profit at that time if I am not wrong female condoms contributed around over 70% of t

70%

52 crore of operating profit at that time if I am not wrong female condoms contributed around over 70% of the revenue. And now with approximately 50% of the revenue next year from female condom, even

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Guidance — 20 items

Om Garg

opening

“Also, during the quarter, we have recorded much higher sale of lubricant jelly and we hope to achieve Rs.”

Om Garg

opening

“Our current order book standards at 141 crore, most of which we plan to dispatch during FY22 and 23.”

Vaibhav Badjatya

“You have indicated that we expect 50 crore sales in the first year of operation with 30% net margin.”

Om Garg

“In general, the IVD project has been delayed due to a shortage of manpower and construction material during 2021.”

Om Garg

“So, the commercial operation actually been delayed till April 2022 and it is difficult at this point to make a new forecast for the first year of the operation.”

Vaibhav Badjatya

“However, based on our experience, so far, Cupid has decided to terminate this agreement as we believe that we can obtain the marketing services from other means, instead of sharing the 50% profit from the IVD project.”

Om Garg

“And after that we plan to submit our application for marketing of our products to the USFDA.”

Keshav Garg

“So, basically even though we might again touch our sales of FY20, FY21 next year, but it seems that the product mix will be inferior to those years and our margins will also be lower.”

Keshav Garg

“And also shareholders should expect some loss at least from the IVD division in the first year of operation?”

Om Garg

“I don’t expect any significant losses from the IVD operation.”

Risks & concerns — 6 flagged

So, the commercial operation actually been delayed till April 2022 and it is difficult at this point to make a new forecast for the first year of the operation.

— Om Garg

Sir another concern that I have is that if we look at the kind of the impact that post COVID companies of –24:51 medical devices have faced is that, suddenly the demand has fallen off the cliff or even the prices have gone for a toss so, what are your thoughts around this.

— Yogesh Goswami

Bulk of the 40 crore sale we are expecting in the fourth quarter will be mostly from male condoms, where the margins are 10% to 15% due to the impact of high input costs.

— Om Garg

And all the fluctuation that happen in currency all the risk and benefit is with us.

— Vaibhav Badjatya

So, any impact of local currency fluctuations are the responsibility of the local partners.

— Om Garg

So, it’s difficult to estimate the quantities right now.

— Om Garg

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Q&A — 15 exchanges

So, I had a couple of questions. So, first on the IVD business, so, IVD business in earlier concalls. You have indicated that we expect 50 crore sales in the first year of operation with 30% net margin. So, out of this total 50 crore, what is the proportion of COVID test kit that you have and the margin between COVID and other test kit are different as per your assumptions?

Om Garg

In general, the IVD project has been delayed due to a shortage of manpower and construction material during 2021. Now, having completed the construction, we have installed the equipment and we have done the validation of the equipment and also the facilities have been audited. Now, we are going through the regulatory processes to obtain the manufacturing licenses for the different products. So, the commercial operation actually been delayed till April 2022 and it is difficult at this point to make a new forecast for the first year of the operation. Got it. And sir again for the IVD business it

Sir wanted to understand that in our order book of 141 crore that you mentioned, this 100 crore South African order per annum, is it included or excluded?

Om Garg

This 100 crore is included in 141. Okay, sir. So, basically out of 141 crore you mentioned 70, out of 100 crore order 70 crore is female condom, and out of the rest of the 41 crore order book which excludes this South African order how much is female out of that 41? Out of 41 crore, only 5 crore order is for female condom. Okay sir. So, basically even though we might again touch our sales of FY20, FY21 next year, but it seems that the product mix will be inferior to those years and our margins will also be lower. And also shareholders should expect some loss at least from the IVD division in t

So, in the last concall you said that we are looking for a revenue in FY23 for about 170, 180 crores with a profit after tax of minimum 20%. So are we on track?

Om Garg

No, now our projection for FY23 is the top line of about 170 crore and a bottom line margin of at least 20 crore, so that is our new projection for FY23.

Sir my question is that, in the last two to three years, the projections and the forecast that the management has provided the management have not been able to live up to those forecasts. The last year the projections, or the forecast for FY22 was 170 crores of top line and bottom- line margins of about 20%. It was also forecasted that 50 crore revenue will come from IVD division on which about 8 crores of CAPEX and some other amount of money would have gone into operational expenses and working capital that is not justified. Thirdly, there was a strong emphasis on US FDA approval, which now h

Management

Thanks for the opportunity. My question is, you have given that 40 to 50 crores projection for IVD sales but due to the delay in completion of project in Nasik, what will be the projection for this quarter in a diagnostic segment?

Om Garg

We would start the commercial production in April 2022 and we don’t have a precise estimate about the volume of business we would be doing. So we are constantly reviewing the business prospects and once we have some practical experience in first or second quarter, then only we would be able to make a more realistic forecast for FY 23 from the IVD business.

This is Jayesh here. I wanted to just know what capacities are we working on presently and with the 100 crores what will be the capacity utilization.

Om Garg

Okay now, because of the increase orders for male condoms, we are working at 98% capacity utilization during this October to December quarter and we expect to run almost at the same rate 98% to 100% capacity throughout next year.

Several of my questions have been answered, but few follow ups on the IVD business, in the beginning of the call you mentioned that you have called off your deal with your IVD partner. So is there any write out that you’ll have to take as part of this calling of the deal, was there any loss on the back of the say?

Om Garg

No, there is no write off , because besides the capital expenditure there is no expenses that we have incurred during construction and through the regulatory process. So no write off. Okay. Good to hear that sir. Secondly, you mentioned 8 crore is the CAPEX that we have done so far. And 2 more crore is what we expect is the remaining CAPEX so total 10 crore on the IVD business right? Yes. So, going forward what kind of order pipeline do you expect and what kind of working capital do you think will be needed for this business? Okay, so we don’t have a precise estimate for the kind of and amount

Sir, my first question is from raw material price and the margin that we were having for the past few quarters. So, this quarter is almost halfway through, what are the raw material price and the margin looking like as per this quarter, for the supplies that you are doing in this quarter?

Om Garg

Okay. Bulk of the 40 crore sale we are expecting in the fourth quarter will be mostly from male condoms, where the margins are 10% to 15% due to the impact of high input costs. The sale in the lubricant, which will be about 12 crore worth. So overall, Since there is no female condom, hardly any female condom dispatches during the quarter, the overall performance in the fourth quarter will be limited as I indicated earlier. Okay, make sense. Sir, what about the raw material price, like what I’ve been looking like for future are we going back on track or it has stabilized or what is the projecti

My question is regarding the sale of Seloi Healthcare. So what was the original strategy with this acquisition, because I believe this company has certain essential licenses related to be IVD business and what has changed now that you’ve sold it off within a year or so?

Om Garg

Yes, the original strategy was based on a very high demand for COVID related test kits. And we did some good business initially, but in last three or four months, like the earlier caller had mentioned, the business has been slowing down significantly and we did not see any bright spots going farther and instead, we decided to concentrate on our new production facilities in Nasik and get out of this Seloi partnership. So did we have to book any losses to this investment sir? Yes, in this quarter, we have booked about 13 L.

Sir, so next year you said that you are expecting 20 crore profit. And if I see current year also, it will be close to that and as compared to current year. Definitely female condom sales will be higher next year. So, it means that there will be a significant contraction in the gross margin due to higher input cost is it the case?

Om Garg

No, the projected profit for FY22 would be more like 16 crore. As of December 31st our net profit is 13 crore. And we are expecting it to increase it to 16 or 17 crore. In the following year, we have increased the projection to a minimum of 20 crore based on more shipments for female condoms. Yes, but given the sharp increment in the female condom sales next year, shouldn’t it be more than 20 crore? It is quite possible, we will try to maximize it and we will try to dispatch maximum female condom orders. Yes, it could be much improved than even 20 crore, but this is a conservative estimate bas

Sir, I just wanted to gauge that you mentioned that next year we are targeting a profit after tax of 20 crore versus a profit after tax of 40 crore in 2020. And sir, considering the inflation for three years, it is basically in real terms less than half of what we did in FY20, which we will do next year. So, things look really gloomy for the shareholder and also sir, this is not even considering the losses from IVD division, which you have no visibility of orders, not even approval, but still you are hoping that the division should break even which looks slightly optimistic to us. So, overall

Om Garg

No, like I mentioned in my earlier reply, the board is considering a buyback program. In fact, we want to engage an expert in this business to make us a recommendation. The other consideration I mentioned is the potential requirement of the working capital for the IVD business going forward. We don’t have any estimatie right now. What the requirements may be, as we progress with marketing of different products and the inventory cost and the marketing costs, that is one other consideration we have to take into account with the utilization of our cash. But in general, you are right that in IVD b

I just wanted to know that in the last two, three years, the projections of the management have not touched the expectations like in the last two years, the projections that were given by you, even in the next year, the projections seem to be down from the last concall. So, what are your thoughts on that sir?

Om Garg

No, like I mentioned earlier, the main reason the performance specially during this current year FY22 is the lack of order for female condoms, for which we had no idea that the budget will be cut by the national governments due to their other COVID related priorities. So this is completely unexpected. Nobody could have forecast it this year and a half ago. So that is where we did not meet especially the bottom line projections. Okay. Sir so do I get this correctly, now that the COVID if the situation is improving so the other governments will they budget for other health companies such as your

Sir thank you for taking my follow up question. Just wanted to understand, sir you mentioned that you would be getting Tanzania order in March, they would be announcing the tender results in April, what is the approximate size of those two tenders?

Om Garg

Okay, Tanzania order is about 75 crore and we have been shortlisted already and the final decision is expected early next month in March. We don’t know the total requirements for the budget for the Brazil next tender. There are national elections there in March, April. So, I don’t think the budget has been fixed yet. But we are hoping for a good quantity of order through the next tender. And sir what would be the split for Tanzania order if you can guide us? I’m sorry? What would be the split across male condoms and female condoms for Tanzania order? Tanzania is mostly male condoms only. The t

I wanted to just understand, actually most of the questions have been answered. But simply just wanted to understand about your new facility at Nasik, what is the stage that we are at currently and could you just guide us about at an annual total valuation of the number of units that you will have the total capacity for?

Om Garg

Okay, first of all the new facility have been completed. And now we are going through the regulatory processes with ICMR and with the drug controller of India, and we are expecting the manufacturing licenses by end of March, and we would have about 9 products we are planning to manufacture and the capacity for each of those items will depend on the demand for each individual product. So, it’s difficult to estimate the quantities right now. But we would definitely prioritize the items with high margin and in bigger quantities. So, the new facility will have just the condoms or it will have the

Thank you. On behalf of Cupid Limited, I would like to thank you all for attending this third quarter FY22 conference call today. Also, I would like to thank all our shareholders who have stood with the management of the company through thick and thin years. Further, I would like to thank all our customers who have shown confidence in Cupids product qualities through their repeat orders over the years. Some of these customers have been with us for more than 10 years. And last but not least, I would like to thank all the employees of Cupid Limited for their dedicated work throughout the year to

Management

Speaking time

Om Garg

Moderator

Naveen Jain

Vaibhav Badjatya

Keshav Garg

Yogesh Goswami

George John

Samrat Dheri

Aditya Choudhary

Binay Sarda

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Opening remarks

Binay Sarda

Thanks, Margreth. Good evening to all of you. And thanks for joining this Q3 FY 22 Earnings Call for Cupid Limited. We have mailed the results press release to you. I hope you have received the same. And we have also uploaded this on the website and the stock exchange. To discuss the results and address the queries of the investors we have with us Mr. Om Garg - Chairman and Managing Director of the company. Mr. Garg will give a brief overview of the quarter gone past and then we’ll open the floor over to Q&A session. I would like to remind you that everything said on this call that reflects any outlook for the future or which can be construed as a forward-looking statement, must be viewed in conjunction with the uncertainties and the risks that we face. These uncertainties and risks are included but not limited to what we have mentioned in the prospectus filed with SEBI and the subsequent annual report, which you can find on the website. With that said, let me hand over the call over t

Om Garg

Thank you Binay. Good evening ladies and gentlemen. On behalf of Cupid Limited, I would like to welcome you all for attending the earnings conference call for the third quarter FY22 today. I hope by now, you have seen the press release we had issued last night. I will just go over a couple of salient points. First of all the top and bottom line performance during the quarter were severely impacted by almost the negligible quantity of female condom orders during the quarter from both South Africa and Brazil. And as we have mentioned earlier, this female condom is a high margin item. Also impacting the results were high input costs including transportation costs and the increase in the sea freight costs due to shortages of containers. Now, I will go to a bit of good news. Earlier this month, Cupid has received an order worth about 100 crore per year for three years extending up to January 2025 to supply male and female condoms from the Government of South Africa. Out of this 100 crores w

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