Cupid Limited (CUPID) Q2 FY23 Earnings Concall Transcript

Cupid Limited (NSE:CUPID) Q2 FY23 Earnings Concall dated Nov. 15, 2022

Corporate Participants:

Binay Sarda — Investor Relations

Omprakash Chhangamal Garg — Chairman and Managing Director

Analysts:

Pushkar Jain — Sequent Investment — Analyst

Jyoti Basu — Individual Investor — Analyst

Yogansh Jeswani — Mittal Analytics — Analyst

Onkar Ghugardare — Shree Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Cupid Limited Q2 FY ’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Binay Sarda. Thank you, and over to you.

Binay Sarda — Investor Relations

Thank you, and thanks for joining the Q2 FY ’23 earnings call for Cupid Limited. We have mailed the results and press release to you. I hope you [technical issue] also uploaded this on our website and the stock exchange. To discuss the results and address the queries of investors, we have with us Mr. Om Garg, Chairman and Managing Director of the company. Along with him, we have Durgesh Garg, Chief Operating Officer. 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 subsequent annual reports, which you can find on the website. With that said, let me hand over the call over to Mr. Garg. Over to you, sir.

Omprakash Chhangamal Garg — Chairman and Managing Director

Thank you, Binay. Good afternoon, ladies and gentlemen. On the half of Cupid Limited, I would like to welcome you all to the second quarter FY ’23 earnings conference call for Cupid Limited today. And we have already forwarded the Board meeting minutes and the results last night to all of you. So we hope you had a chance to look at it. Let me briefly describe some of the salient features from the results. To start with, I’m very pleased to report that we had a very good second quarter and our top line, the revenue had increased by about 38% as compared to the second quarter a year ago and the net profit has also shown tremendous improvement, it’s up 84% as compared to the similar second quarter last year.

Also, the EBITDA margin has improved to 26% during this quarter as compared to a 16% EBITDA margin in the quarter a year ago. As a result of increased profitability, the Board of Directors has recommended and approved an income dividend of INR2 per share or 20% which is double the amount of INR1 per share, which was declared a year ago. In terms of the business, there is a stronger demand for our products mainly male condom, female condom, and lubricants and the demand is coming from all over the world especially from the lower and middle income countries, mostly they’ve been Africa.

Along with that the international donor funding for the procurement of condoms is also improving through the World Bank and through the global funds. Also in terms of the order book going forward, we have order worth INR169 crores as on October 2022, and we are expecting more repeat orders in the coming months. Now some of the other highlights are, number one, we have obtained our — attained our target of 97% of our sales in exports. Our target has been 95% of sales should be in export, and as you are aware, the margins are much better in the export sales as compared to the domestic sales.

And in addition, we get an export incentive from the government of India between 3% and 4% additional revenue for us. The other highlight is that we have been successful in obtaining the ISO 13485 certificate for our IVD product, this allows us to export our products to different countries. The third important observation is that the trend in the input cost and the logistic costs has been stabilized during the quarter, and this should help in improving our profitability of doing programs into the year. We expect that the demand and sales will continue to improve based on the — in strong order book as well as on the expected new orders and we are paying full attention in terms of how to grow the company both in terms of the top line as well as in terms of the profitability.

We are targeting at least a similar pattern for both top and bottom line in the first two quarter of, say, [indecipherable] in the revenue and the profit of [indecipherable] net profit after tax. So we plan to at least meet this standard in the next two quarters, so that we are looking at for full year FY ’23 at least INR150 crores[phonetic] in the top line and about INR25 crores, INR26 crores net profit. We are also looking at the potential order book in the FY ’24 and ’25. We see a similar trend in terms of both the topline growth as well as in the profit after-tax number. So with these remarks, now I would like to open the conference for Q&A session. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Pushkar Jain from Sequent Investments. Please go ahead.

Pushkar Jain — Sequent Investment — Analyst

Hi, sir. Congrats on a good quarter. My question was regarding the input cost. So how much percentage of input cost collection we have seen in Q2? And also, can you quantify the benefit that we have derived because of rupee depreciation?

Omprakash Chhangamal Garg — Chairman and Managing Director

Sorry, could you please repeat your question?

Operator

Mr. Jain, sorry to interrupt you. Please use the handset mode.

Pushkar Jain — Sequent Investment — Analyst

Yeah, am in handset. Hello. Can you hear me, sir?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes.

Pushkar Jain — Sequent Investment — Analyst

Yes. So Yes. I wanted to know about — first of all congrats on the good set of numbers and thank you for giving this opportunity. My question was in relation to — can you quantify what — how many — by how many percentage the raw material prices have corrected at least the main raw materials? And how much benefit we have derived because of rupee depreciation that is in sales, what is the benefit that we got in this quarter because of rupee depreciation?

Omprakash Chhangamal Garg — Chairman and Managing Director

Well, we got about 7% to 8% improvement in terms of the lower input costs and in the logistics costs. Worldwide trends seem to have stabilized. And in one particular commodity, for example, the silicone oil, we have noted a reduction of over 20% in our input costs. And so we are exiciting to benefit from these stable and lowering input cost going forward.

Pushkar Jain — Sequent Investment — Analyst

Okay. Thank you sir. And apart from that, how much again — did we gain because of rupee depreciation in our sales? Can quantify the gain that we got because of rupee depreciation? As all our sales are in dollars, what is the amount of gain that you got because the rupee depreciation from 79 to 83.

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes. We have certainly obtained more rupees as all our invoices — export invoices are in US dollars. So I don’t have the exact number, but it’s 5% to 6% additional revenue due to stronger dollar or depreciating rupee.

Pushkar Jain — Sequent Investment — Analyst

Is it 6%?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes, between 5% and 6% in total.

Pushkar Jain — Sequent Investment — Analyst

Okay, sir. And on the sustainable EBITDA margin going forward for the last three, four quarters, our margin has been in the range of 20% to 25%. So with the input cost stabilizing and dollar also peaked strong, what EBITDA margin do we think we can continue in the quarters ahead?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes. Yes, we expect the EBITDA margin to continue at least at 26%. And this is mainly because of higher sales of premium condoms and lubricant jelly, which have a higher margin of 40% to 45%. So depending on the sales of these two products, we expect to continue a higher EBITDA margin in the next two quarters as well.

Pushkar Jain — Sequent Investment — Analyst

Okay, sir. And any traction on the — congratulations for getting the ISO certificate on IVD products. How much revenue do you expect from these products in the coming few quarters?

Omprakash Chhangamal Garg — Chairman and Managing Director

Okay. In terms of the IVD product, as I had reported in the last conference call, we have obtained all the licenses from the drug controller of India. And during this quarter, we have contracted over 90 distributors from all over India for our products. And also, we have contracted 30 potential customers for exports of our product. We have 11 products already registered and additional five products are in the pipeline. So we have just started the initial marketing. We have sent our sample to a select group of distributors in India and in foreign countries, and we have started to get some positive feedback. However, we believe that it will take at least three, four months before we start to see some commercial sales most likely in the fourth quarter of FY ’23.

Pushkar Jain — Sequent Investment — Analyst

Okay, sir. And what will be the margins on these products, IVD product? Like will it be margin accretive?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes. Yes, it’s a 15% to 20% margin on an average within Indian domestic sales and the margin goes up between 30% to 50% on the export sales. So you see a much higher margin in the export sales and our initial target for the first year is about INR5 crores with a profit potential of INR1.5 crores from all the IVD sales.

Pushkar Jain — Sequent Investment — Analyst

Okay, sir. Okay. Thank you. Thank you so much for answering the question.

Operator

Thank you. [Operator Instructions] We have the next question from the line of Jyoti Basu, an Investor.

Jyoti Basu — Individual Investor — Analyst

Thank you all for the opportunity. In the last call, we have mentioned that we have a visit from a pharma company for IVD in the month of July and in August. Any such thing has happened or any development in this [indecipherable] that we want to know?

Omprakash Chhangamal Garg — Chairman and Managing Director

Sorry, could you please repeat your question?

Jyoti Basu — Individual Investor — Analyst

Yes, yes. Actually, in the last con call, you have mentioned that some Singapore-based pharma company is about to visit our facility regarding the IVD devices. Any such thing happened or any other development have happened?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes. The Singapore party representatives they visited our facilities in [indecipherable] and they liked these facilities very much. And they have indicated their interest to continue the collaboration. We are in the process of drafting an agreement. And we are quite hopeful that in the next three months, we should have some positive results from this collaboration.

Jyoti Basu — Individual Investor — Analyst

Yes. Okay. That’s great to hear[phonetic]. And just one more thing I want to add. In the investor presentation you have mentioned that we got an approval on US FDA. Is it a new one? Or we already got the certificate from US FDA[phonetic]?

Omprakash Chhangamal Garg — Chairman and Managing Director

Could you please repeat it again? It was not clear.

Jyoti Basu — Individual Investor — Analyst

Yeah. No issues on that. In the investor presentation, you have mentioned that the US FDA certification, you have mentioned in that — is it the new one we got in this quarter or already we had with us?

Omprakash Chhangamal Garg — Chairman and Managing Director

US FDA?

Jyoti Basu — Individual Investor — Analyst

Yes. In investor presentation you mentioned that US FDA certified that’s what I’m asking. Is it the new one we got or it’s already existing with us?

Omprakash Chhangamal Garg — Chairman and Managing Director

No, no. Are you asking about the Cupid female condoms in USA?

Jyoti Basu — Individual Investor — Analyst

No, no. You have mentioned several certification, we have drug control of India and some other things. I think 9 to 10 accredation[phonetic] you have mentioned, in that one of the certification is that US FDA. Is it the new one which we got in this quarter? Or already we are holding that one?

Omprakash Chhangamal Garg — Chairman and Managing Director

No. We had a marketing 510k certification for male condom, already with the US FDA. However, we are — for female condom registration in US FDA, we are in the process of submitting our final application next month and we expect to hear back from US FDA maybe next three to six months. Our [indecipherable] target from the — and sorry?

Jyoti Basu — Individual Investor — Analyst

Sorry, please go ahead. Go ahead.

Omprakash Chhangamal Garg — Chairman and Managing Director

No, I was just going to say we are taking some initial steps about marketing of this new product in US. Cupid would be the second manufacturer to supply this product and our initial target is to obtain a sale of about $0.5 million and a net profit of at least INR4 crores after taking care of all the marketing and distribution charges.

Jyoti Basu — Individual Investor — Analyst

Okay. And final thing is, what’s our medium-term view on IVD sales and profit? Are Medium-term means three to four years like that?

Omprakash Chhangamal Garg — Chairman and Managing Director

Okay. In the next two to four years, we are projecting a sale of between INR150 crores to INR200 crores, a margin of at least 20% from combined domestic and the export market. So we see it as a very promising area of growth for Cupid.

Jyoti Basu — Individual Investor — Analyst

Okay. Thanks a lot. Thanks a lot for answering all my questions. Thanks.

Omprakash Chhangamal Garg — Chairman and Managing Director

Thank you.

Operator

Thank you. We have the next question from the line of Yogansh Jeswani from Mittal Analytics. Please go ahead.

Yogansh Jeswani — Mittal Analytics — Analyst

Hi, Sir, am I audible?

Operator

Yes, we can hear you. However, there’s some sort of a background disturbance in your line, if you could go off the speaker phone?

Yogansh Jeswani — Mittal Analytics — Analyst

Sure. Is this better now?

Operator

Yes, this is.

Yogansh Jeswani — Mittal Analytics — Analyst

Thanks for the opportunity sir. Sir, you mentioned in your press release, the order book is INR169 crores. Can you also provide a breakup of that within the three segments, the male, female and the IVD segment?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes. It’s about 61% is for male condom, 36% is for female condom, and the balance 3% is from lubricants. [indecipherable] on INR169 crores worth of order book.

Yogansh Jeswani — Mittal Analytics — Analyst

Okay. And nothing so far for the IVD segment, right?

Omprakash Chhangamal Garg — Chairman and Managing Director

For IVD, we don’t have any confirmed orders as yet with us, like I mentioned earlier, we are still in the process of establishing our distributors and our export customers. So it will take us I would say, until end of December to start to get some confirmed orders for IVD products.

Yogansh Jeswani — Mittal Analytics — Analyst

Got it, sir. And sir, we were expecting large orders for our female segment, I think, from Brazil. So any update on that?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes. The update is that Brazil just had finished their presidential election two weeks ago. And now the latest update is that the government of Brazil is in the process of approving their new budget, and we are expecting a tender for female condom supply and Cupid would be actively participating in that.

Yogansh Jeswani — Mittal Analytics — Analyst

Okay. And sir, any expectations with regards to the size of this tender? How much are we expecting the value to be?

Omprakash Chhangamal Garg — Chairman and Managing Director

We are expecting about 50 million pieces at a rate of about $0.60 per piece. So it could be quite huge. All[phonetic], of course, depending on the new Brazilian budget.

Yogansh Jeswani — Mittal Analytics — Analyst

Okay. Understood. And sir, on your US approval, like you mentioned that you will be filing your reply to them by next month. So in terms of the whole process, at what stage are we now? And do you think post this filing we are confident enough to get the approval in next, say, six months and by FY ’24, we hope to start our US business?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes, really we have completed the three-year clinical study for the contraceptive efficacy study which is one of the major requirements of US FDA. And now we are collecting all the other information which US FDA requires. Now we are planning to submit all that before December end. And based on our general feedback, US FDA could take anywhere from three to six months to respond to that. And we may have to go through one more cycle of discussion with them. But we are hoping that by the end of June 2023, we should have the permission to market this product hopefully.

Yogansh Jeswani — Mittal Analytics — Analyst

Okay. Understood. And sir, is it possible for you to share the efficacy data that we have got so far versus a product that is already running in US, how did we perform in terms of efficacy versus established products there?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes, basically we share that. Right now, in the next couple of weeks, we are going to submit all the data to US FDA and they usually make this data available publicly. So we would be glad to share that. The performance of female condom is at least similar, if not a little better than the currently marketed product, which would be our main competition. So quality wise, we have been, I would say, quite successful.

Yogansh Jeswani — Mittal Analytics — Analyst

Got it sir. That is it from my side sir and wish you all the best.

Operator

Thank you. We have the next question from the line of Onkar Ghugardarefrom Shree Investments. Please go ahead.

Onkar Ghugardare — Shree Investments — Analyst

Hello?

Operator

We can hear you, go ahead.

Onkar Ghugardare — Shree Investments — Analyst

Hello, can you hear us?

Operator

Yes, we can hear you.

Onkar Ghugardare — Shree Investments — Analyst

Yes. My question was regarding IVD sales. You mentioned around INR150 to INR200 crores sales in next three to four years. But right now, you have no visibility seeing zero sales. So what gives you the visibility to achieve INR150 to INR200 crores of sales?. There must be some plan to achieve this?

Omprakash Chhangamal Garg — Chairman and Managing Director

Yes. The major expectation is that there are large vendors for five products, including dengue, malaria, HIV, syphilis, and COVID and some of these tenders are in millions of dollars. So the demand is nil[phonetic] and of course, there is a competition. And we — our prices are quite competitive. So once we start to get actually involved in submitting our bids for some of these tenders, we project that we could achieve its target of INR150 to INR200 crores sales in next three to two years, maybe even more.

Onkar Ghugardare — Shree Investments — Analyst

But right now, any people or like the companies which you intend to supply to are keeping in touch with you or contacting you for the future sales or something like that?

Omprakash Chhangamal Garg — Chairman and Managing Director

Of our foreign potential customers, they have contacted us, they have requested that we mail them samples of our products for quality, and they have asked for our price list actually, there were two medical exhibitions one in Chennai and one in Delhi. And we had a boost with a lot of information on this way. And that is where we got several of the potential customer contact. They visited our booth and that is how we started the [indecipherable] customers. But we have a very active list of overseas customers who have been buying male and female condom from us during the last 20 or so years. So they are also interested to participate in their respective [technical issue]. I think we should really [technical issue] terms of the — achieving the ability to submit bids for some of these large vendors.

Onkar Ghugardare — Shree Investments — Analyst

Okay. The next question is on the cash balance, which you have. I guess you have around INR65 crores to INR70 crores of cash balance. So apart from the dividends which you are giving how do you plan to utilize that? I mean do you have any capex plans in your mind? Or was some[technical issue] going on, but nothing has [technical issue]. For the last two, three years, you haven’t even increased the dividend payout also, but your cash balance is increasing.

Omprakash Chhangamal Garg — Chairman and Managing Director

First of all, we have about INR94 crores worth of total cash with us. And we have doubled the amount of dividend as I mentioned in the beginning of my presentation, so the dividend has already been doubled from INR1 per share to INR2 per share as income dividend. And our projection is that for the entire FY ’23, we would at least meet the last year’s target of INR4.5 per share dividend and maybe even up to INR5 per share. Now in terms of the capital expenditure plan, we are looking at property next to our [indecipherable] and where we could be looking at either expanding our condom manufacturing capacities further or even expanding our IVD business. So other than that, we are in the process of improving our return on our savings and on our investments.

And the important thing is that we are always looking for additional new opportunity to expand to Cupid. And as you recall, we had introduced female condom in 2012, we had then and introduced the lubricant jelly in 2016. And now the IVD in 2022. So we are always looking for more business opportunities and the savings we have achieved would come in quite handy. One area, for example, we are looking at the sexual — female sexual related new products. We have to do more research, but make new verticals for Cupid which will be [indecipherable] after male female condom, lubricants and IVD. So I hope that answers has your question.

Onkar Ghugardare — Shree Investments — Analyst

Yes. So another question was regarding — I actually joined the call a bit late. So any update again on the long pending issue of the CEO.

Omprakash Chhangamal Garg — Chairman and Managing Director

Okay. The — we have — internally, we have come up with a very aggressive three-year plan and things are going pretty good very well. And unless we get an exceptional candidate which could take Cupid to the next level of achievement we are going to concentrate to grow the company and improve our profitability with the existing management.

Onkar Ghugardare — Shree Investments — Analyst

The three-year plan, which you mentioned, can you just more elaborate more on that? I mean exactly what is the three-year plan?

Omprakash Chhangamal Garg — Chairman and Managing Director

Well, the three-year plan, which is FY ’23, FY ’24 and ’25 we are expecting a 10% to 15% increase in the — both the top line and bottom line. So like I mentioned, for FY ’23, as of March 31st ’23, we are expecting the top line between INR155 crores to INR160 crores as compared to last year, where we had only INR132 crores. And in terms of profit, last year’s profit was INR17 crores and now in the FY ’23, we are targeting a net profit of at least INR25 crores, INR26 crores. And then for the following three years, we are expecting at least a 10% improvement. And we have not fully included the impact of female condom sales in US will have plus the export sale in IVD. Now if you get much better orders on these two new segments, our profit, top line and bottom line would be 30% to 40% which started in FY ’24 and beyond.

Onkar Ghugardare — Shree Investments — Analyst

Okay. There was a rumor going on and participants in earlier calls have also asked that — is there any possibility of Cupid being acquired by some other companies? I mean, what’s your view on that? Is there any discussion going on regarding the same?

Omprakash Chhangamal Garg — Chairman and Managing Director

So some people have approached us that they are interested to look at Cupid and of course, will depend on the level of their interest and the valuation they put on Cupid, if everything turns out to be satisfactory for us, we would certainly consider some of these offers. If not, we are happy to run the business the way we are doing and improve on the growth and the possibility — profitability of the business. Like I mentioned earlier, we are looking at least next three years and then beyond.

Onkar Ghugardare — Shree Investments — Analyst

Okay. But about these discussions going on with some potential buyers. Where exactly this discussion stand right now? I mean, at what stages there?

Omprakash Chhangamal Garg — Chairman and Managing Director

There are two companies who are evaluating the data, listing data in our future plans and they have visited our facilities and they have met our people. So it may be about four to six weeks I think before they make up their mind and come up with their proposal.

Onkar Ghugardare — Shree Investments — Analyst

Okay. Thank you. Thanks a lot.

Operator

Thank you. [Operator Instructions] I would like to hand it over to the management for closing comments.

Omprakash Chhangamal Garg — Chairman and Managing Director

Hello, everyone, again. We would like to thank all the shareholders who have decided to participate in this earnings conference call and have given their valuable — have made valuable comments and contributions. Because some of you have been with Cupid over 20 years, we have always valued your projections[phonetic] and your commitment and your interest and your confidence in the management of the company through thick and thin [Phonetic] years. So we would also like to thank all of our vendors and our — most of all our customers who have been with us, many of them for over 15 years, we have been getting the repeat orders. We have now supplied our products to over 113 countries. So almost we are covering 80% of all the worldwide 190 countries. So — and most of all, I would like to thank our employees who have worked diligently and dedicatedly for the growth of Cupid and with that in mind, for the first time, the Board of Directors have approved an employee stock option plan for 27 [phonetic] of our employees. We have done this for the first time in the 25-year history of Cupid. We have decided to allocate shares, a total number of shares of 209,500 in [indecipherable] employees. So we appreciate their contribution very much. And we hope to actually — more growth and profitability going forward. So we’d like to thank you all again, and thank you.

Operator

[Operator Closing Remarks]