Thread by @Vims9886

#naturalcapsule
#Natcap
Betting on successful transition and change toward capsule to API , 🧵👇

1/n
✨Est in banglore in 1993 with 3 capsule mfg lines 1 BCPA(=BILLION CAP PER ANNUM)

✨BY 2003 PONDICHERRY expansion via debt recovery tribunal auction added 770 mcpa.

✨Frm 2003-13,it raised production to 7.1 bcpa,
expanded to overseas mkt & added marque client portfolio

2/n
✨2015-2018;
Was the period of big chill - falling oil threw public finance of commodity driven African market into tizzy and NCL growth froze ,margin collapse, demonetization / GST prevent India switch

3/n
👉India 2 largest capsules mfg with dominance in vegan capsule
👉 De risking it's operation by ramping up scale , technology upgradation and enhanced portfolio
👉 Moving aways from competitive capsule to near monopoly on target steroidal API molecule.

4/n
😇Marquee clients
✨Abbott
✨ Glenmark
✨Micro labs
✨Pfizer
✨Macleads
✨Ajanta Pharma
✨Akums ( best 3 Rd party mfg in unlisted space )
✨Msn
✨Aurobindo
✨Laborate
✨Kopran
✨Strides
✨Vivimed
✨Hetero
✨Alkem

5/n
👉Mgmnt is constantly try to mov up & onward in quality of earning or opportunities .

✨not just capex
1. Investing a sizeable portion of its revenue in R&D every year since2018
2.joint development of new capsule faster,cleaner,better.
3.Four patent unders various stage.

6/n
Pink water to blue oceans 🌊
Capsule fragmented,low differentiation, capacity is the only differentiator - oligopolistic structure.
2 API ENTRY in to monopolistic niche

7/n
(A)👉What's the context ?
1.The capsule mfg has 2 main cost: RM & ENERGY
2. INDUSTRY STRUCTURE
ACG at te very top,traders cum mfg in the middle and straight China export in the bottom.
3.Most capsule mfg have the following cost structure.
a. RM-50%COST
b. Energy-25 % cost.

👇
(B)
4.export, cheap RM import is the only way to expand margin.
Export doing with B2G,
Domestic doing with B2B.
5 .Search for virgin market , not served by global major,but lucrative enough: middle East , sub saharian Africa and Cis country

8/n
👉PRODUCER-FY22 SALES
✨ ACG - 500 CR .
✨HEALTHCAPS -257 CR
✨NATURAL - 135 CR
✨MEDICAPS 70 CR
✨CHINA 65 CR

9/n
Brief discussion aby industry structure
1.Mfg biz hence economy of scale is also important
2.Higher capacity also improve revenue quality attract to marquee clients as clients realise company can reliably meet thier demand,it's all about quantity

10/n
👉Some more color on the business
1. Product lines - empty shell gelatin + empty shell cellulose capsule.
2. Revenue split ( export: domestic) ( 20%: 80%).
3. Client retention ( 18% of customer had relationship with NAT CAP for the last 10 years , 30 % for last 5 years)

11/n
4.a.Acquiring of new marque client
b.Taking relations overseas,new factory in offshore sites
5.Steroidal API
1.Three molecule all imported completly frm China 100%
2.Dexa,Beta,Predni
3.Total India demand is 19MT, 20MT&39MT-CAPACITY FOR 52%,60%&40% of demand

12/n
1.ACG is 50% mkt share driven by higher capacity machines,more efficient production & high cash flow (real gorilla 🦍)
2.NatCap production line 2020 was fuel guzzling,slow & manpower intensive (low degree of automation)
3.Natcap needed was new degree faster,cheaper, modern

13/n
4 joint collaboration with DRDS ROBOTIC PRIVATE LTD( some MOAT) to ramp up it's production line,today it's production line are 3x faster than before & fatser than ACG 🫡👌.
5. Nat cap started installing 5 million capsule per day machine (as against ACG is 4 mcpd machine).

14/n
electricity ⚡ cost come down by 40% ,
Manpower instensity dipped by 36% .
7 .modern machine implied the rejection rate dipped from 8% to 3% ( 75% reduction)

15/n
👉
1st installation of high-speed mfg line started at March 20, natcap more efficient incremental fixed capital investment rate,one needed 78 paisa to generate 1 Rs of extra sales in fy19.
In fy22bit came down to 43 paisa to😋 generate 1 Rs of extra sales.

16/n
Incremental investment in working capital is coming down to 0.18 while incremental sales is accerating implying the cash flow is improving
👉Fulltilt to api dream
1. The AR as well as its investor presentation both out NATCAP foray into steroidal API dream project.

17/n
2.Fully owned subsidiary- natural biogenex Pvt Ltd in 2020.
3.Steroidal API will be mfg - 100% 🇮🇳 demanded met by imports
Dexa
Beta
Predni
4.greenfield in tumkur (5acres) & 1st integrated facility in 🇮🇳 for mfg of steroidal API USING FERMENTATION+ SYNTHESIS CHAIN REACTION

18/n
5. Set up compliance with WHO - GMP, USFDA , EU GMP.
6. a bit history tried to acquire plant from strides in summer of 21, but didn't work out ,😬 came investor attention for the first time
👉Estimates .
1. Company will monetize each molecule every years for next 3 years

19/n
2. fair to assume, for conservative purpose, that it will take years to Ramp up the 3 molecule given its completely.
3.dexamethasone & prednisolone cost about 36k/kg.
Betamethasone cost about 66k/kg
4 total production capacity
Dexa ( 10 MT)
BETA ( 12 MT)
PREDNI ( 15 MT)

20/n
Nat cap will become an API company with capsule division by 2030, as the API division is projected to contribute 75% of the revenue by 2027.
✨Owning to its contribution to the overall revenue of the business, the margin of this business will also dominate.

21/n
✨Mgmnt has signaled down stream production of derivatives of this steroidal api which are costlier than base API (Already taken approval for 27 downstream product).
✨One of first biz in pharma sector to qualify PLI scheme, next 5 yrs biz receive 67cr(60% of total capex)

22/n
💰Fundraising
Internal accural 40 cr.
Right issue 28cr.
Equity infusion 18 CR.
Bank borrowings 66 CR.
🪙Total fund raise 152CR .
✨API division 114 CR
Capsule division 38 cr
✨Capsule division require abt 12 cr/machine,thus Q4FY23 will see abt 36cr of fixed asset addition

23/n
🧐Risk
⚡Trade receivables going up.
⚡China suppliers become more strong.
⚡Nutraceutical growth not longevity .
⚡Humidity high unusable

Mkt cap 367 Cr
Promoter 56.6%
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