Cupid Ltd

India's Cupid Is A Rare Company Making Female Condom

Cupid Ltd which debuts on Forbes Asia’s Best Under a Billion list this year — is among  a handful of global companies making female condoms.

The Nashik-based company — in the western state of Maharashtra — primarily supplies condoms to governments and NGOs for their AIDS prevention and family planning programs. It counts Africa as its top market and has a long-term agreement with the WHO/United Nations’ Population Fund (UNFPA).

Sales rose 30% last year to hit $9.5 million while profits doubled to $2.4 million due to increased sales of its high-margin female condoms. Female condoms are ten times more expensive than male condoms. Cupid makes about 20 million female condoms a year and is looking to double that soon. (The Female Health Company in Chicago is a key competitor for female condoms. It makes and sells the FC2 Female Condom — which is FDA approved.)

“Globally there is a huge demand for female condoms and it is expected to grow three times in the next five years,” says Omprakash Garg Cupid’s 73-year-old chairman. “We are only the second company in the world to get pre-qualification from WHO for the female condom.”

India’s Cupid Limited is one of a handful of global players that make female condoms. Source: Cupid Limited

Cupid with its tag line “To Help the world play safe” gets about a fifth of its revenues from contract manufacturing for development agencies like Population Services International. The 23-year-old company is tapping into a growing market in Africa where there’s a shortage of 445 million condoms a year. This shortage comes mainly from six countries including South Africa. Cupid counts South Africa, Cameroon and Democratic Republic of Congo as its top markets. Africa has one of the lowest global condom prevalence rates at 4% — compared to 7.4% for the Asia Pacific region and 18.4% for developed markets.

Global condom sales are projected to hit 38.2 billion pieces by 2019 — notching a 5-year compounded growth rate of 9%. Cupid is hoping to catch a small part of that growth.

Garg, who’s spent a good part of his life in Canada and the United States as a mining company manager, veered to gold jewelry distribution in the U.S. He took a stake in Cupid when it was founded by friends in 1993. But Garg now owns 49% of the company. He moved back to India in 2008 to run it full-time.

Cupid Ltd. manufactures condoms, both male & female from its manufacturing facility in Nashik. I first wrote about it on Vivek Gautam’s thread on September 14, 2014, that I reproduce below:

“Cupid to me seems quite an interesting bet as the focus has clearly shifted from low margin Govt. supplies to exports, where the margins are much better. The last 2 quarters already reflect this change. The products are approved by bodies like USFDA & WHO, so quality is not an issue. The Co. has recently introduced female condoms. It is only the second Co. worldwide to manufacture this & could be a potential game changer. This near debt free Co. is sitting on large export orders for both female & male condoms. Based on the last 2 qtrs, the Co. could do Sales, EBIT & PAT of about 40Crs, 8Crs. & 6Crs. for 2014-15, giving an EPS of about 5.3 for the full year. This would result in more than acceptable return ratios. Have recently invested in the Co. after Q1 results.”

The results for 2014-15 have beaten estimates: Sales, EBIT & PAT have come in at 45.14Crs, 11.7Crs, & 7.71Crs. That’s after taxes amounting to 3.72Crs have been accounted for @ 32.6%. A total dividend of 15% for the year has been paid / announced. The ROCE is a healthy 49.66% if one considers the average capital employed for the year.

Even though there are more than 200 Condom manufacturers in the country, Cupid continues to be the only one approved by bodies like USFDA & WHO.

I first spoke with the mgt. sometime around the end of September 2014. Had prepared a brief note then that I reproduce below:

“Had a pretty extensive discussion with the CMD. He seems pretty confident. Sees a 20-25% growth for the next 3 years going forward. I asked him about the possibility of orders drying up going forward. He said on the contrary, he sees the order flow increasing from exports. In addition, the Govt. is planning to float a huge tender shortly & he hopes to get a sizable quantity. The Govt. supplies have an even higher margin, contrary to my earlier impression. Maiden dividend was on his mind. He did not rule out an interim dividend as well. The pledged shares is a bit of a legacy issue, was originally against the term loan, since repaid. Now, it is against working capital limits. Plans to get them released before the end of the current FY. On the possibility of selling out, said that is always a possibility if the offer was good enough, but the minority share holders would only benefit if it were to happen. The focus was not on local branding, but on exports & Govt. supplies as & when the opportunity came. India was in a sweet spot. Chinese quality was suspect. Labour costs in Malaysia were now higher. Competition if at all was coming from Thailand. He is open to meeting us any time at the plant or in Mumbai.”

I finally met up with the mgt sometime around the end of December 2014 & prepared the following note:

“Met up with the CMD of Cupid earlier this week. The key takeaways were:

1. The Co. should do about 40 Crs this year. The current margins are sustainable.
2. The Co. hopes to double turnover in 2-3 years to 80 Crs, as the international market is huge.
3. No plans of creating a mega brand for the next 2-3 years for the Indian market, as it is a very expensive proposition & margins are slim. Will reconsider once the Co. reaches 80-100 Crs.
4. Dividend is on his mind this year, but was non committal.

It was a pretty humbling experience on the whole. The guy himself is somewhat blind & sees the world through the eyes of his wife who is constantly by his side. I asked him that despite living comfortably in USA / Canada for the last 30 years, what could possibly be the reason for him for running around the world working like this. He himself seemed pretty cool about his handicap. Said Cupid was his baby n wanted to see it grow.”

The stock may have gone up 3 times since September 2014, but I think the story has just begun. Besides Condoms, the Co. is also into Gels & looking to add other accessories where the opportunity is large. Here’s a link to a recent article that appeared in Outlook Business which throws some light on the size of the opportunity. Cupid already has a Webstore.

Happy Investing

Source:ACEINVESTORTRADER
(https://aceinvestortrader.wordpress.com/2014/09/08/cupid-ltd-innovating-its-way-to-turnaround-success-and-b)