Cupid Q2FY18 Concall Summary


 Q2 Overview

Cupid Q2FY18 Financial Performance.png
  • The performance during the quarter was along anticipated lines
  • The company is encouraged that the business conditions going forward look very promising
  • n terms of the increasing demand worldwide for both male and female condoms, as compared to the limited new capacity that is in the works on the supply side, the overall situation looks quite optimistic.

Business Highlights

  • The company has an order of worth about Rs 24 crores from the Department of Health, Government of India
  • Cupid is going for expansion of facilities by 20% and these facilities should be producing additional revenue starting the first quarter of 2019
  • The company has an exciting opportunity in South Africa which has the largest number of HIV positives and STI cases in the entire world
  • The company had started brand promotion activity about six months ago and has made some significant improvements
  • It would require lot of investments and will take 3-5 years to establish a brand with some reasonable revenue
  • The company’s target is to achieve about 10 crores of sales in next 3 years
  • In order to promote the brands, the company has plans to use extensively digital marketing techniques
  • The company is doing quite well with respect to the social marketing channels-Facebook to spread the awareness and Google to get the online orders
  • The company has an order book of 73 crores as of October 1. Out of that, the company, the company would try to dispatch the maximum possible during the Q3 and Q4
  • The margins would depend on the mix now that the company has more male condoms’ orders from the24- crore order from Government of India
  • The company believes EBITDA would be lower than what it was in Q2-44%

New Products

  • The company has been doing some R&D in-house and it has developed some new products and starting in December, the company would start to commercialize three products initially
  • Three new products are- 
    • Company’s patented male condom, which is unique in design and offers extra sexual satisfaction;
    • Water-based lubricant jelly in form of sachet, tubes and bottles;
    • A spe cialized and innovative hand sanitizer which would also be sold in those three forms
  •  The company hopes that with time, these new products would add to company’s revenue streams
  • The expected marketing expenditure is about 7 Cr over the next 3 years
  • It is about 2 Cr in the 1st year; 2.5 in the 2nd year and the balance of 2.5 in the 3rd year

Company strategy

  • The company is keeping a close watch on what the competition is doing in terms of brand promotion
  •  The company’s strategy is to heavily promote female condoms which none of the big players offer
  •  Female condoms have a high margin and less competitive product
  •  Along with that, the company would also promote male condoms, realizing that because of competition,the bottom line would not be as attractive

Cash management

  • The company had cash reserves of 19 crores at the last report
  • Right now,the company has about 14 Crin investments in mutual fund and in corporate bonds
  • The company about 13 Cr in c ash reserves
  • 19 crores has moved up to about 27 crores as of September 30

Capacity expansion

  •  It is about Rs 5.5-6Cr in total-including the import of machinery as well as the required infrastructure in company’s current facilities

South Africa project

  • The opportunity is that in addition to continue to import female and male condoms and lubricants, the Government of South Africa has decided to offer some incentives for manufacturers like Cupid to set up a local manufacturing unit over there
  • Cupid is excited to participate in both the tenders, i.e., the domestic import tender as well as the domestic local manufacturing unit
  • There are two main advantages-
    • 1st one is that the Government of South Africa has indicated that over the next 5 years, they would like to procure maximum quantities from the local plant there;
    • The 2nd one is that the government will give a guarantee to take all the production from the new plant for a period of 5 years initially
  •  In addition, they are providing several other facilities including subsidized credit facilities sponsored by the government there
  • There are two phases as far as the local production unit there is concerned
  •  In the 1st phase, starting from July 1, 2018, they want most of the products to be imported from Cupid here in India. The company will do only final sealing and packing
  • The company would get its regular revenue from the export of female condoms to that unit
  • The 2nd advantage is that the government has indicated that they would be willing to pay a little higher per unit price for the locally manufactured goods as compared to the imported products
  • Another important element is that Cupid would get a royalty in exchange for its patented technology
  • The royalty number we are looking at is about 5% of the selling price
  • The next tender which is going to come out, they would require the quantities to be about 75 million pieces as compared to 54 million pieces in the last tender
  • The company is aiming to get at least 30 million out of that 75 million in the open competition. Last time, the company had 80% of 54 million, which was about 43 million
  • The secondary plant which will go into production on July 1, 2018, does not require any WHO permission
  • The project goes full blast which would be on July 1, 2020. During that time, we have to apply to WHO to get the pre-qualification status
  • The one in which the company will manufacture over there,it would be in South African Rand
  • They have assured the company that they would provide enough foreign exchange reserves to take care of the raw material which are not available there, for example, latex
  • The total cost for the entire project including the primary manufacturing to secondary manufacturing for all the three products, i.e., male condoms, female condoms,and lubricants is about US $8 million
  • Just for the secondary plant which is starting in July, it is about 676,000 USD
  • The profit-sharing will be 51% South Africa,and Cupid have 49%
  • The proposal is that out of 8 million, about 60% will be the debt to the local company there
  • Balance 3.2 million will be split between the two partners-Cupid share would be about $1.6 million which is about 10 crores
  • This will be at the end of the 3rd year and the company expects a 20% return on this investment

JV Partner

  • It is one of the company’s current agents which it has been working for last 5 years
  • They have good experience in terms of distribution of contraceptives and they have close working relation with the Ministry of Health there and Ministry of Treasury there

New projects

  • There are some tenders which are likely to come up including 1 from Brazil,1 from USAID, 1 from Government of India, and 1 from CIS countries
  • The company hopes that it would cash out on some of those tenders quantities as well

Orders from overseas markets

  •  The newly hired Chief Business Development Officer is in place- he is spearheading all our marketing activities mainly the brand promotion project
  • In terms of trying to get the orders from other countries, most of these orders are coming through international tenders
  • Cupid has registered with all the agencies and through those, it is getting information every time a tender is published anywhere in the world
  • In addition, the company has started to work with local partners to see if they can develop some new business not on the tender side, but also on the commercial market
  • The company finds that especially in sub-Sahara Africa,the affordability is quite limited for the individual consumers to buy male or female condoms at the market price
  • The management is capable enough to cater to the international business
  • However, the company is looking for an international marketing company with whom it could possibly tie-up for the new business

Market for Female condoms

  • In India, out of population of 1.3 billion, about half or 650 million are women
  • Out of that, about 280 million or 28 crores are between the reproductive age group of 14 and 49
  • Even if there are 10% or around 3 crores of those, the company hopes to convince them to use or at least try the condoms
  •  There are three target groups anywhere in the world including India
    • The 1st is the sex workers- there is a demand in India as the women have no alternates. They have to depend if the men have condoms when they come for sex or not Surveys have shown that the sex workers would be willing to use female condoms. Hopefully, they would expect a subsidized price through NGOs or through Ministry of Health
    • The 2nd target group is the teenagers who are indulging in casual sex at a younger age
    • The 3r d target group is the middle-aged, educated working women
  •  The company did a small survey in the Bank of Baroda building and the UTI building in Bombay.93% of the working women in the office, said they liked the idea of female condoms which gives them the control and protection against HIV and also protection against unintended pregnancies. They showed their inclination that they would be willing to try female condoms
  • Based on all these factors and based on some of the surveys, the company has talked to 10,000 women last year and did promotion during the Navaratri festivals
  • The company decided to take on this business challenge and some of its expectations are coming out quite nicely
  • One indication is from the sale of female condoms online, the companyis selling through Flipkart and Amazon
  • The company is spreading the awareness through Facebook and it has a direct channel on Google where people can put the orders for female condoms
  • Volumes are not very big, but the message is spreading
  • In the last quarter, the company sold about 1200 pieces- mostly one-piece orders where people are just trying to find out what it is and how useful it is
  • The company increased its spread to 50 new towns, so now the company has sold it to 350 towns in total all across the country
  • In India the cost is Rs. 50 per piece

USFDA Approvals

  • The company has completed all the modules for the pre-market application service for the USFDA registration
  • The company has now written to the FDA to guide itin terms of the protocol for the clinical trial to be done in US under US regulations
  • The company now suspects that it would be between 9-12 months from the time it receives the guidelines from USFDA
  • Another related development is that the USFDA is considering downgrading the classification of female condoms from Class III to Class II,which is just like male condom
  • If that happens,the company suspects that the clinical trial requirements may also be eased out

Wet wipes

  • The company is working on two wipes-1 is the alcohol-based wipe and the 2nd one is the Benzocaine wipes
  • These would be ready in about 3-4 months

Company outlook

  • The company would match at least the first half performance which would bring us to about 85 Cr
  • The company is looking at least 10-15% additional- the total could be about 93 to 95 Cr
  •  But all would depend on the scheduling of the orders
  •  Sometime, the company does not get the test results from the lab, so it is unable to dispatch it as scheduled, so there could be a shift or delay by month or two