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Strong overall performance…

Q4FY21 revenues grew 29.5% YoY to | 279 crore. EBITDA margins improved 575 bps YoY to 30.7% due to lower gross margins in the base year due to certain one-offs. Subsequently, EBITDA grew 59.3% YoY to | 86 crore. PAT grew 35.8% YoY to | 66 crore due to lower other income. On a full year basis, revenues, EBITDA and PAT grew 23%, 26% and 13%, respectively.

Robust growth in emerging markets likely to continue

Emerging markets (EM) account for 92% of revenues and consist of LatAm - 87% (both Central, South America) and Africa- 5%. Revenues grew at 29% CAGR over a decade mainly due to 1) early mover advantage in these untapped markets, 2) geographical expansion (starting with two countries to 12 currently), 3) ability to address market gaps, especially in generics space (via trading model) with a hold on end-to-end distribution channels. We expect growth momentum to persist mainly due to further expansion in front end, increasing product basket, change in product mix, launching of own brands. Also, entry into South American countries is likely to propel growth. We expect EM revenues to grow at ~18% CAGR in FY21-23E to | 1312 crore.

Foray into high risk-high return US injectable market

With a calculated approach to focus on injectables in the US, the company established an injectable plant in Tamil Nadu in 2014. Currently, the portfolio comprises 20 filed ANDAs, of which 15 have already been approved. At present, the company has 45+ products in the pipeline. In FY21, revenue contribution from the US increased to 8% from just 2% in FY19. We expect US revenues to grow at ~47% CAGR in FY21-23E to | 198 crore on the back of incremental product launches.

Valuation & Outlook

Caplin posted strong Q4FY21 and FY21 results. After scripting a unique story by growing in uncharted territories, it is looking at growth in known markets. These new markets of South America and the US are a big opportunity but fraught with new challenges. That said, we continue to believe in Caplin’s capability to replicate the success story in new markets. Secondly, despite likely dent in margins, return ratios due to investment phase in new markets, these prints continue to demonstrate earnings, balance sheet strength.

By thriving in lesser known CA markets and cracking the most difficult US generic pharma code of injectables, that too in different therapies, the company has created its own identity with long drawn plans on the back of significant capex lever. Caplin continues to present a compelling risk-reward scenario at current valuations. We maintain BUY rating and arrive at our target price of | 695 (| 605 earlier) based on 15x FY23E EPS of | 46.3.

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