Cupid Ltd

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About the Company

Cupid is engaged in the business of dealing, marketing, and manufacture of rubber contraceptives and allied prophylactic products. It is the first company in the world to obtain Pre-qualification status from WHO/UNFPA for the supply of both Male & Female condoms. It currently exports to more than 65 countries worldwide.

Q4FY21Updates

Financial Results & Highlights

Detailed Results

1. The current quarter was dismal with revenue fall of 2% YoY and while PAT was down 40% YoY.
2. The company’s total order book as of 1^st April 2021 consists of Rs 113 Cr of confirmed orders.
3. The EBITDA margin for Q4 fell to 22.8% vs 35.8% a year ago.
4. Geographical sales breakup was 75% in exports and 25% domestic in Q4FY21.
5. Product-wise revenue breakup in Q4 is as follows:
   1. Male Condoms: 53%
   2. Female Condoms: 29%
   3. WBJ & Hand Sanitizers: 1%
   4. IVD: 17%
6. The company has started dispatching goods pertaining to the new tender order received from Brazil.
7. The company announced a final dividend of Rs 3.5 per share for FY21.

Investor Conference Call Highlights

1. The company has not gotten any approach for the buyout of Veru yet, but the management is optimistic that the sale will be good for Cupid and the industry.
2. The management is expecting full production in this post-corona period and is operating at 92% utilization currently.
3. There was an 18% increase in the last quarter for latex and a 25% increase in cost in silicon oil. The management expects these RM costs to have peaked and to come back to normal levels in the future.
4. The margin from male condoms is between 15% to 20%. From female condoms, it is anywhere from 45% to 55%. And in the lubricants, it is about 40%.
5. The management expects sales of Rs 40-50 Cr at minimum in the medical devices business,
6. The overall guidance for sales in FY22 is around Rs 170 Cr.
7. The South African government has floated a new tender, which is asking for a total procurement of 1 billion male condoms and 40 million female condoms each year for the next 3 years. Cupid expects sales of Rs 60-80 Cr from this tender each year which is 10-15% of the total tender requirement. This should start from Oct 2021 onwards.
8. The unit price is expected to be at INR 2 per unit for male condoms and about INR 30 per piece for female condoms.
9. The margin expectations from IVD are the same in both domestic and export markets.
10. The sales of medical devices are expected to reach Rs 100 Cr in FY23. It will include products like antigen COVID rapid test kits, test kits for malaria, dengue, HIV, and pregnancy test kits. Most of these sales are expected from exports. These expectations are from customers’ inquiries and some of the tenders which are in the planning stages.
11. The company is also on the lookout for possible acquisition opportunities as its investments and reserves have exceeded INR 65 crores which should be sufficient for any such investments.
12. On the USFDA front, clinical trials in South Africa have been delayed by 5 months due to COVID-19.
13. The management expects a growth rate of 10-15% in sales from FY23 onwards.
14. The management reiterates that Cupid’s priority is for the export business rather than for domestic sales of male condoms as domestic margins are a lot less than export margins.
15. The management admits that there is limited scope for increased sales of female condoms in the domestic market. It is selling only 1,000 female condoms per month currently, mostly through internet sales.
16. The total production capacity of Cupid is at 560 million condoms each year currently. The management believes that this size is best for an international condom manufacturer.
17. Cupid has lobbied the Health Ministry in Delhi and is hoping that they would come out with a tender to supply female condoms in India.
18. The company has been able to reduce the overall cost of production by aggressively negotiating with its suppliers.
19. The company is still on the lookout for a suitable candidate for the CEO job.
20. Around 35% of the order book of Rs 113 Cr is for female condoms. The order book is expected to give Rs 35 Cr of sales for the next 3 quarters.
21. The major reason for the delay in tender payments was that countries had diverted and relocated much of the discretionary funds to other corona-related facilities.
22. The sales from the South Africa tender will appear in P&L from Q3.
23. The average margin in male condoms in FY21 was near 18% vs 16% a year ago.
24. The Rs 40-50 Cr of sales from medical devices are expected to be distributed evenly throughout FY22 with a minimum of INR 10 Cr to INR 12 Cr per quarter.
25. The management believes that even if it is not able to locate a proper person for the CEO job, Cupid would train some people internally for the job.
26. The company is also looking to invest Rs 7 Cr in its Nashik facility to expand on the medical devices business. The company has set aside Rs 10-15 Cr for working capital needs in this business and anticipates a further Rs 5 Cr in additional R&D.
27. HIV and Malaria testing is also expected to be mostly driven by tenders in both domestic and export markets. The typical tender size for these devices is Rs 10-15 Cr. The big tenders for HIV from countries like South Africa can go up to Rs 40-50 Cr.
28. In the testing kit space, there are 7 to 8 manufacturers already working in India. But demand is outpacing industry capacity so there is enough scope for the business to expand. The company is expecting a min of 15-20% net profit margin from this business.
29. The company is expecting the testing kits business to be run 80% by tenders and 20% by distributors.
30. The biggest contract manufacturer of condoms in Malaysia is looking to launch its brand. The management believes that this will create an opportunity for Cupid to poach some of the international brands like Durex post this development. It is already doing contract manufacturing for Playboy USA.
31. Cupid has about 30 repeat customers worldwide from all categories from the institutional business to government tenders to NGOs and through private sales.

Analyst’s View

Cupid is a leading condom maker in India. It is also one of the only 3 WHO-approved female condom manufacturers in the world. It exports its products to over 80 countries around the world now. The company has had a down quarter with revenue fall of 2% YoY and PAT decline of 40% YoY. The company seems to be well placed with a strong order book ensuring revenues of more than Rs 113 Cr which doesn’t include the projected sales of Rs 40-50 Cr from medical devices. It is seeing renewed demand for male condoms and has also been able to improve the margin on this segment to 22%. The company is looking to expand in the medical testing space and is expecting sales of Rs 40-50 Cr in FY22 & Rs 100 Cr in FY23. It remains to be seen how the COVID-19 situation pans out for Cupid in South Africa, given it is a major market for both condom sales and HIV testing kits, and what challenges the company faces in its foray into the medical devices field in the domestic space where there are already 7-8 competitors. Nonetheless, given the company’s long history of expertise in this field and the consistent sales growth and expanding order book, Cupid is a good small-cap stock to watch for.

Q3FY21Updates

Financial Results & Highlights

Detailed Results

1. The current quarter was mixed with revenue growth of 9% YoY and while PAT was flat YoY.
2. The company’s total order book as of 1^st Jan 2021 consists of Rs 121 Cr of confirmed orders.
3. The EBITDA margin for Q3 fell to 28.5% vs 32.5% a year ago.
4. Geographical sales breakup was 79% in exports and 21% domestic in Q3FY21.
5. Product-wise revenue breakup in Q3 is as follows:
   1. Male Condoms: 53%
   2. Female Condoms: 34%
   3. WBJ & Hand Sanitizers: 7%
   4. IVD: 6%
6. The company has started dispatching goods pertaining to the new tender order received from Brazil.

Investor Conference Call Highlights

1. Male condom order book size is Rs 75 Cr out of the total of Rs 121 Cr.
2. Female condom order book is Rs 44 Cr while others account for Rs 2 Cr.
3. The current order from Brazil is Rs 45 CR which was being serviced at the end of Q3. The management expects Brazil to come back with another tender by end of FY21.
4. A tender for female condoms is expected from South Africa in June or July and dispatches for it can start from Oct 2021.
5. Although production costs are down 10% as compared to Q1, margins were down due to less sale of female condoms. This was due to the impact on South African Health Budget due to COVID-19 according to the management.
6. The production cost reduction was mainly due to an improvement in labor productivity according to the management.
7. The management is seeing a rise in demand for male condoms. In Q3, Cupid received its largest ever order from WHO/UNFPA. It also got an additional order of Rs 4 Cr of male condoms in Feb 2021.
8. The new tender for female condoms from Brazil is expected to be for 1 year while the South African one is expected to be for 3 years.
9. The clinical trials have been delayed by 4-5 months for the company and it plans to apply to the USFDA in April or May. The management is confident of receiving FDA approval in 2022.
10. The other expenses have risen from Rs 11.5 Cr to Rs 14.5 Cr due to an increase in marketing and the increased cost of registration of products.
11. In the medical kit venture, the company has gotten an order of Rs 8.3 Cr from UP Government. Of this, it has already supplied around Rs 6 Cr worth of kits by Dec end and the rest was delivered in Jan. The management expects this business to bring in sales of Rs 7.5 Cr in Q1FY22 and rise to Rs 15-20 Cr by Q4FY22.
12. The company is also getting in touch with world players in the medical test kits space to become outsourcing partners.
13. The company is targeting 15% net profit to Cupid from the medical business after deducting the share of Invex. It is also projecting sales of Rs 50 Cr from this business in FY22.
14. The management has stated that it expects the Brazil and South Africa tenders to be of at least Rs 45 Cr each.
15. The company is not expecting much competition in the female condom space in the near future as it takes at least 2 years to get the necessary prequalification from WHO and UNFPA.
16. The company has already supplied 1 lac female condoms to a domestic seller and is waiting on feedback on the market response.
17. The company can make around 50 million female condoms per year and the management doesn’t expect any capacity constraints to come up for the next 3-4 years.
18. The management is expecting sales of Rs 200 Cr in FY22.
19. The management expects a clear margin of 25-30% on the medical test kits.
20. The company is planning to register its products in 9 new countries including Turkey, Morocco, Guinea, Argentina, & Peru.
21. The management has stated that the ratio of male to female condoms in the order book will always be greater for male condoms as the demand for them is much higher than for female condoms.
22. The management aims to maintain margins for male condoms at 25-30%.
23. The company has zero debt and has surplus funds of Rs 54 Cr as of 1st Jan 2021.
24. The management has stated that it has no plans to raise additional funds from a stake sale or debt raise or equity issuance currently.
25. The surplus funds are parked in FDs or MFs.

Analyst’s View

Cupid is a leading condom maker in India. It is also one of the only 3 WHO-approved female condom manufacturers in the world. It exports its products to over 80 countries around the world now. The company has had a mixed quarter revenue growth of 9% YoY and flat PAT growth. The company seems to be well placed with a strong order book ensuring revenues of more than Rs 121 Cr. It is seeing renewed demand for male condoms and has also been able to improve the margin on this segment to 25%. The company is also looking to expand in the medical testing space and has already serviced Rs 8.3 Cr of orders. It also expects this business to bring in sales of Rs 50 Cr in FY22. It remains to be seen how the COVID-19 situation pans out for Cupid in South Africa and what challenges the company faces in its foray into the medical devices field. Nonetheless, given the company’s long history of expertise in this field and the consistent sales growth and expanding order book, Cupid is a good small-cap stock to watch for.

Q2FY21Updates

Financial Results & Highlights

Detailed Results

1. The current quarter was dismal with a revenue decline of 28% YoY and a profit decline of 36% YoY.
2. The company’s total order book as of 1^st Oct 2020 consists of Rs 120 Cr of confirmed orders.
3. The EBITDA margin for Q2 fell to 34.4% vs 35.6% a year ago.
4. Geographical sales breakup was 91% in exports and 9% domestic in Q2FY21.
5. Product-wise revenue breakup in Q2 is as follows:
   1. Male Condoms: 39%
   2. Female Condoms: 57%
   3. WBJ & Hand Sanitizers: 1%
6. The board has considered and approved the Service Provider and License Agreement between Cupid Limited and Invex Health Private Limited for manufacturing of Medical Devices including various testing kits / diagnosing kits by Cupid Limited.
7. The company has announced an interim dividend of Rs 1 in Q2.

Investor Conference Call Highlights

1. The company has around Rs 18 Cr of products in transit which were not included in performance due to the new accounting rules. These products should add around Rs 3-4 Cr in profit when recognized.
2. In Q2, Cupid completed the dispatch of the entire Rs 120Cr worth of female condom orders to the government of Brazil.
3. The new business vertical for medical devices shall include rapid testing kits and ELISA kits. These rapid testing kits are useful not only for Corona but also for dengue, HIV, and Malaria. ELISA tests are based on enzymes and it indicates the antibodies amongst the COVID infected people.
4. The global market potential for the medical devices business is expected to be Rs 860 billion. This business segment is expected to start commercial operations at the end of Q4FY21.
5. The company has reduced its receivables to Rs 25 Cr in Sep ‘20 from Rs 41 Cr in March ’20.
6. The payables have also come down from Rs 21 Cr in March ’20 to Rs 6 Cr in Sep ’20 and the cash and cash equivalents have increased to Rs 48 Cr.
7. The construction and installation of machinery for the medical devices segment should be done by Jan ’21. Revenues would start coming in during the first quarter of 2022.
8. The management expects rubber prices to be at least 10% higher in Q3 & Q4.
9. This price increase should have a minimal impact of at most 1-2% on the company’s margins.
10. The company is guiding for revenues of Rs 135-140 Cr and profits of Rs 30-35 Cr in FY21.
11. The business has been severely impacted as many govt have reduced or relocated their budgets due to COVID-19.
12. The management expects revenues of Rs 30 Cr from the medical devices business in FY22 and the profits will be split evenly with Invex.
13. The management expects the company to earn at least Rs 20 Cr of profits in H2 going forward.
14. The company is back at almost 100% utilization in Sep and all activities are back to normal.
15. The management has stated that the company would like to maintain a yearly dividend at Rs 4.
16. The order book of Rs 120 Cr has orders for female condoms of Rs 45 Cr.
17. The management is expecting to earn margins of 20% from medical devices even including current prices.
18. The long term outlook for govt and other tender orders remain stable. The short-term outlook has become volatile due to the reallocation of funding towards COVID-19 and other relief efforts.
19. The company is looking to add orders from Papua New Guinea and Bolivia and 2 small countries in Sub Sahara Africa.
20. The medical devices segment is expected to have a Capex of only Rs 6-8 Cr in total.
21. The company expects the verdict on the USFDA approval to be done by Dec ’21 at the earliest.
22. The management has stated that despite high competition in the medical devices space, the demand continues to outstrip the supply, and thus there shouldn’t be many struggles due to competition.
23. The big orders from South Africa and others which the company was expecting may have gotten postponed due to COVID-19 and may come in next year.

Analyst’s View

Cupid is a leading condom maker in India. It is also one of the only 3 WHO-approved female condom manufacturers in the world. It exports its products to over 80 countries around the world now. The company has had a dismal quarter due to the postponement of orders from govt and the slow revival of operations. The company seems to be well placed with a strong order book ensuring revenues of more than Rs 120 Cr. The company is also looking to expand into the medical devices field and start selling these by the end of this financial year. It remains to be seen how the COVID-19 situation pans out and what challenges the company faces in its foray into the medical devices field. Nonetheless, given the company’s long history of expertise in this field and the consistent sales growth and expanding order book, Cupid is a good small-cap stock to watch for.

Q1FY21Updates

Financial Results & Highlights

Detailed Results

1. 1. The current quarter was dismal with a revenue decline of 20% YoY and a profit decline of 25% YoY.
   2. The company’s total order book as of 1st July 2020 consists of Rs 117 Cr of confirmed orders.
   3. The EBITDA margin for Q1 fell to 31.1% vs 35.2% a year ago.
   4. Geographical sales breakup was 94% in exports and 6% domestic in Q1FY21.
   5. Product-wise revenue breakup in Q1 is as follows:
      1. Male Condoms: 56%
      2. Female Condoms: 43%
      3. WBJ & Hand Sanitizers: 1%
   6. The company is looking to enter into the manufacturing of Medical Devices for use in the treatment of COVID, Dengue, HIV, Malaria, and other diseases.

Investor Conference Call Highlights

1. The company was unable to open up till the 1^st week of May and even then it had to face labour shortage which further slowed down operations in Q1.
2. The company has been awarded a contract of Rs 45 Cr from Brazil to supply female condoms. This order is expected to be received in mid-September.
3. The company has gotten new orders worth Rs 6 Cr since July 1 and now the order book has confirmed orders of Rs 123 Cr. Around 31% of this order is for female condoms and 69% is for male condoms. This does not include the brazil order.
4. The company is also getting inquiries from the Philippines, Russia, Bolivia, and many countries in the Sub-Sahara African continent. Thus the management believes that it can easily get more orders than the confirmed amount above (Rs 123 Cr + Rs 45 Cr).
5. The management has stated that the company has enough capacity to handle Rs 55-57 Cr of quarterly sales.
6. The temporary working capital loan in Brazil was reduced to Rs 17 Cr as on 30^th June from Rs 31 Cr on 31^st The company’s investment plus the bank deposit have grown from Rs 25 Cr to Rs 44 Cr in the same period and receivables have been reduced from Rs 41 Cr on March 31^st down to Rs 24 Cr on 30^th June.
7. The management is looking to bring this WC loan down to 0 by the end of the year.
8. The company has registered four new brands of Cupid Male Condoms in the US during this quarter and has registered a trademark for Female Condoms under the Angel brand. Cupid expects to start marketing female condoms in the USA by the end of next year.
9. The company has no plans to expand capacity and it will outsource any extra orders above Rs 175 Cr.
10. The management has refused to comment on the topic of investments and subsequent write-offs into real estate companies done in recent years by the company.
11. The company is still on the hunt for a new CEO and is looking for a candidate which can help them win new orders and in expanding international marketing.
12. The management maintains that the key to the USA market will be female condoms as the male condom space is very competitive and it will be able to get much better margins on female condoms.
13. The management is reluctant to enter the B2C space in India as there isn’t much incentive to develop this space with low margins and high expenses especially promotions and marketing. It is much better to sell its products at better margins in the B2B space overseas.
14. The management has stated that the company will at least match last year’s total dividends of Rs 4.5 per share in FY21.
15. The company is planning to set up a facility within its existing factory premises for medical devices and start initial production from late November. This segment is expected to generate revenues of Rs 20-30 Cr by March 2021.
16. The management has clarified that the majority of RM for the medical devices is available in India and only a few others will be sourced through imports from South Korea.
17. The company only uses natural latex in its condoms. All of it is sourced from Kerala. Latex prices have gone down in the year so far but the management does not know how long this trend will continue.
18. The average revenue per female condom in the USA is expected to be around $1 which is almost double that form existing female condom sales for the company.
19. The company is targeting sales of $5 million in the first 2 years of selling female condoms in the USA.
20. Going forward, the management expects Female Condom orders from Brazil and an increasing amount of Female Condom order from the UN Population Fund for the prevention of HIV and prevention of unintended pregnancies, mostly in the Sub-Saharan countries.
21. The tender order from Brazil is for 1 year while the order from UNFPA is for 3 years.
22. The company has an initial budget of Rs 12 Cr to set up the medical devices business. It is expected to be generated through internal accruals.
23. The main reason the company is entering into the medical devices field is the import substitution opportunity in this field right now.
24. Margins in this business are expected to be between 20% and 30%.
25. The company has been selling female condoms in India through e-commerce sites like Amazon and Flipkart as well as wholesale dealers in major cities like Mumbai, Bangalore, Delhi, and Pune.
26. The management does not see any execution risks in fulfilling its existing order book at the current moment.
27. The company is looking at both B2C and govt tender channels in both India and abroad for the sales of its medical devices in the future.

Analyst’s View

Cupid is a leading condom maker in India. It is also one of the only 3 WHO-approved female condom manufacturers in the world. It exports its products to over 80 countries around the world now. The company has had a dismal quarter due to one month of production loss and labour issues slowing down the company’s operations revival. The company seems to be well placed with a strong order book ensuring revenues of more than Rs 123 Cr. The company is also looking to expand into the medical devices field and to register its female condom with the FDA to start sales by the end of next year. It remains to be seen how the COVID-19 situation pans out and what challenges the company faces in its foray into the medical devices field. Nonetheless, given the company’s long history of expertise in this field and the consistent sales growth and expanding order book, Cupid is a good small-cap stock to watch for.

Q4FY20Updates

Financial Results & Highlights

Detailed Results

1. 1. The current quarter was good with revenue growth of 14% YoY and profit growth of 1.36 times YoY.
   2. FY20 performance of the company was phenomenal with revenues and profits rising 87% and 161% YoY respectively.
   3. The company’s total order book as of 31st March 2020 consists of Rs 136 Cr which includes Rs 88 Cr of confirmed orders and Rs 72 Cr in the pipeline.
   4. The EBITDA margin for Q4 rose to 35.8% vs 18.6% a year ago. EBITDA margin for FY20 also improved to 34.6% from 27% a year ago.
   5. Geographical sales breakup was 91% in exports and 9% domestic in FY20. In Q4 the sales breakup was 86% -exports and 14% domestic.
   6. A final dividend of Rs 3.5 per share was declared and paid out in Q4.
   7. Product-wise revenue breakup in Q4 is as follows:
      1. Male Condoms: 31%
      2. Female Condoms: 68%
      3. WBJ & Hand Sanitizers: 1%
   8. Product-wise revenue breakup in FY20 is as follows:
      1. Male Condoms: 39%
      2. Female Condoms: 59%
      3. WBJ & Hand Sanitizers: 2%
   9. Capacity utilization during the year was 86% and 92% for the Male and Female Condom production respectively.
   10. In FY20, the company was successful to achieve the largest single order valued at ₹120 Cr from Brazil to supply Female Condoms. This was the company’s first entry into the expanding Brazil market.

Analyst’s View

Cupid is a leading condom maker in India. It is also one of the only 3 WHO-approved female condom manufacturers in the world. It exports its products to over 80 countries around the world now. The company has done well in the past one year to bag international orders and this trend has continued in the current quarter as well where it delivered FY20 revenue growth of 87% YoY and profit growth of 1.6 times. The company seems to be well placed with a strong order book ensuring revenues of more than Rs 40 Cr each quarter for the next 3 quarters. The company has yet to face any direct disruption from COVID-19 other than the disruption to shipping during the lockdown period. It remains to be seen how the COVID-19 situation pans out and whether it will have a direct impact on the condom industry or not. Nonetheless, given the company’s long history of innovation and expertise in this field and the consistently high sales growth, Cupid is a good small-cap stock to watch for.

Q3FY20Updates

Financial Results & Highlights

Detailed Results

1. 1. The current quarter was phenomenal with revenue growth of 2.9 times YoY and profit growth of 4 times YoY.
   2. 9M performance of the company was good with revenues and profits rising 141% and 171% YoY respectively.
   3. The company’s total order book as of 31^st December 2019 consists of Rs 160 Cr which includes Rs 88 Cr of confirmed orders and Rs 72 Cr in the pipeline.
   4. The EBITDA margin for Q3 rose 100 bps YoY to 32.5%.
   5. Geographical sales breakup was 88% in exports and 12% domestic.
   6. Product-wise revenue breakup is as follows:
      1. Male Condoms: 56%
      2. Female Condoms: 42%
      3. WBJ & Hand Sanitizers: 2%

Investor Conference Call Highlights

1. The management has stated that the reason for raw material costs to go up and margins to go down QoQ is the shift in product mix towards more of male condoms.
2. The management expects the product mix to improve in Q4 with higher ratio of female condom sales which should result in margin appreciation.
3. The reason for increase in finance costs is that it includes the interest payment done for financing working capital in Brazil where working capital days in over 90 days.
4. The company has 4 major types of international customers. They are:
   1. WHO & UNFPA (United Nations Population Fund)
   2. Large buyers floating tenders from countries like Brazil, South Africa, Tanzania & India.
   3. International NGOs.
   4. Private sector customers.
5. The company received new orders of Rs 30 Cr in the quarter. Half of this amount is for male condoms while the other half is for female condoms. Both these orders have originated from South Africa.
6. The company expects the floating of new orders from Brazil to be done in the upcoming April or May. The size of the last issued tender from Brazil was Rs 120 Cr.
7. The company is also expecting a 3-year South African tender to be announced by Early March. The delivery for this tender should start by July and continue for 12 months.
8. The volumes breakup of the expected new orders from South Africa is 1 billion male condoms/year and 40 million female condoms/year.
9. The revenue expectations from the above mentioned 1 billion MCs is about Rs 200 Cr while the income from the 40 million FCs is expected to be around Rs 80 Cr.
10. The management maintains its earlier guidance for top line growth of 15%+.
11. In the current order book of Rs 160 Cr, Rs 78 Cr is from male condoms while Rs 82 Cr is from female condoms.
12. The company has filed its application for female condoms with the USFDA and it expects a reply in Q1FY21. Sales to the US can start from H2FY21 at the earliest.
13. The management mentioned that the opportunity size for the company in Uganda, Kenya and Nigeria each is almost 50% of the level of South Africa.
14. The management has maintained that the company will pay off all of its working capital loans as soon as the receivables are gotten and the company should remain cash surplus by the end of Q4.
15. Based on the current order book, the company should be doing Rs 40 Cr + sales for each of the next 3 quarters at least.
16. The management has mentioned that the revenue generating potential for the company is heavily dependent on the demand for female condoms. This is because it is high margin product. The company can produce 200 million female condoms which can lead to sales of above Rs 400 Cr. But the management has stated that this situation is unlikely as demand for lower margin male condoms always outstrips demand for female condoms.
17. The management has also mentioned that all of its capacity is interchangeable between male and female condoms.
18. The realization per piece for male condoms is Rs 2 while for female condoms it is Rs 21.
19. The management has stated that South America and Africa should remain the primary sources of demand in the future.
20. The management has mentioned that the company provides condoms to few B2C sellers in India mainly due to lower margins as compared to exporting to B2C sellers in other countries.
21. The company is still in the hunt for a permanent CEO and has not shortlisted anyone yet.
22. The company was running at 99% capacity utilization in Q3.
23. The maximum manufacturing capacity in a year for the company is 400 million male condoms and 52 million female condoms.
24. The company does not aim to venture into the B2C space as the advertising and branding expenses are too prohibitive.
25. The management has mentioned that the reason that the South African Government has delayed new orders is that previous orders from other sellers has not be fulfilled yet.
26. The company has around Rs 47 Cr in cash and the board is considering issuing an interim dividend.
27. The EBITDA margin profile for male condoms is 10-15% rising to 20% in special situations. This is mainly because of high competition in the industry and excess capacity. On the other hand, the competition in the female condoms space is limited to Female Health Company only, all of which leads to far better margins as compared to male condoms.
28. The management has mentioned that the company is able to command much higher margins for its female condoms as compared to Female Health Company mainly due to inherent low cost advantages stemming from its unique design.
29. The management is not concerned about model replication as it takes at least 2.5 to 3 years to complete all the regulatory evaluations required to register a new product in this space.
30. The company does not have any plans to increase capacity as it had just completed a 40% capacity expansion in March ’19.
31. The 3 WHO approved female condom manufacturers in the world are Female Health Company in USA, Cupid in India and Hindustan Latex in India. The overall market size for female condoms is around 80 to 100 million units a year.
32. The female Health Company claims to have a capacity of 100 million FCs a year. Cupid has a capacity of 52 million FCs a year.
33. Last year, the company accounted for 75% of FCs in Brazil and 35% of FCs in South Africa. The company also accounted for 20% of the male condom business in South Africa.
34. The margin profile for male condoms is 10-15% while for female condoms it is 45-50%.
35. The total market size for male condoms in the world is 30-35 billion units a year.
36. The capacity in the Malaysian MC factory is around 4 billion units per year while the Chinese facility can do 2 billion units a year.
37. The company has yet to enter the male condom space in Brazil and all of the orders from this country are for female condoms currently.
38. The management has mentioned that the working capital days in Brazil was stretched in Q3 mainly due to the holiday period from 15^th Dec to 15^th Jan where the payment got delayed by a month.
39. The company does all of its export sales in USD only.
40. Although the company is not actively looking to enter the B2C space in India, it already has tie ups with Amazon and Flipkart to sell female condoms online.
41. The management has stressed that the major reason for the demand for female condoms in Africa is the spread of HIV in sub Saharan countries.
42. The company is looking get some feedback on its plans to set up a joint venture facility in South Africa to make female condoms with the Department of Health in South Africa. The response to this proposal is expected to be received by April 2020. The capex requirement for this JV should be around Rs 5 Cr.
43. The management expects sales of $2 million to $5 million I the first year of sales in the US. The annual sales of Female Health Company in the US is around $20-25 million.

Analyst’s View

Cupid is a leading condom maker in India. It is also one of the only 3 WHO-approved female condom manufacturers in the world. It exports its products to over 66 countries around the world. The company has done well in the past one year to bag international orders and this trend has continued in the current quarter as well where it delivered YoY revenue growth of 2.9 times and profit growth of 4 times. The company seems to be well placed with a strong order book ensuring revenues of more than Rs 40 Cr each quarter for the next 3 quarters. It has also made some inroads into the USA market and expects to start selling its products from H2FY21 onwards. The only major reason for concern for the company is the long working capital cycle which stems from long shipping times and long payment cycles for tenders and orders from non-profit organizations. Nonetheless, given the company’s long history of innovation and expertise in this field and the consistently high sales growth, Cupid is a good small-cap stock to watch for.

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