Caplin Point is engaged in the business of Pharmaceuticals – producing and marketing wide range of generic formulations and branded products in overseas markets.
The company primarily focuses on the emerging markets of Latin America, Caribbean, Francophone and Southern Africa and is today one of the leading suppliers of Pharmaceuticals in these regions.
Back in the day, i.e. around 6-7 years back, we used to like the numbers of the company and considered it worthy of investment; however, for some reason did not invest and missed out on a huge-huge 20-30 bagger.
Recently, the stock had corrected and we started looking at the numbers again to see if there’s any potential investment opportunity. The numbers didn’t disappoint on the growth front with both sales and profits growing at a fast clip; however, looking at the working capital data, we are not sure if the sales are actually true.
The cash flows are no where near the reported PAT and most of it is getting stuck in receivables. In fact, since Mar’16 the receivables have grown 20 times against around 3x growth in sales.
Below, we have produced screenshots of P/L, Cash flows and ratios for your reference:
So, if we look at the Profit/loss statement alone, there’s been huge growth in the sales and profits. The interest payments are also negligible, indicating debt free balance sheet. However, as with any fundamental research, P/L doesn’t tell much unless combined with analysis of B/S and Cash flows.
If we notice closely, the problem lies with cash flows from operations. While the company has been reporting PAT in excess of 100 crore, the cash flows from operations are much lower at less than 50%. This is primarily on account of cash flows getting stuck in receivables.
At the end of Mar’16, the company’s receivables were only around 8 crore; however the same have risen to 160 crore at the end of Mar’19 and 230 crore at the end of Sep’19. That’s a marked shift with almost 9-10 times increase in debtor days and leaves us with doubt about the sanctity of sales reported by the company.
Looking at the numbers, we believe one should analyze the reported growth in more detail before bottom fishing in the stock. In the past, there have been several cases where the sales turned out to be fictitious.
Disclosure: I don’t have any investment in the stock.
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