Cupid Limited (Cupid) Research Report

Date of report May 30, 2017
Target Price (Rs) 390
Gain (%) 35

Cupid Limited (Cupid)

Cyclical weak quarter; Maintain BUY

Cupid Limited has reported its Q4FY17 results with a marginal revenue growth. The company has posted a net sales of Rs.178.8 mn, a growth of ~0.9%/-35.4% YoY/QoQ due to the cyclical nature of business.

FY17 was, historically, the best year for Cupid with a revenue/earnings growth of ~35.6%/29% as compared to FY16. The Company’s revenue stood at ~Rs.828 mn vs. 611 mn in FY16, due to a robust order book with ~52% of the revenue contribution from female condom. During the year, Cupid also witnessed 5% revenue contribution from its new lubricant jelly. Further, the Company continued to maintain a high EBITDA margin which stood at 39% due to increasing contribution high margin female condom and lubricant jelly. However, this is a ~242 bps contraction as compared to FY16 (~41.4% EBITDA margin), primarily due to domestic sales promotion activities and increase in input cost.

Marginal revenue growth:

Cupid has posted a revenue of ~Rs.178.8 mn vs. Rs.177.2mn/276.7mn, a growth of ~0.9%/-35.4% YoY/QoQ, respectively. The product mix was led by female condoms with 59% contribution (vs. 42% in Q4FY16). The male condom and lubricant jelly segment contributed 38%/3%, respectively. The company has seen a marginal revenue growth YoY due to the cyclical nature of business, wherein, Q4&Q1 are usually subdued due to exhaustion of budget of organizations in Q4 which is fixed post Q1. As on 31st March, 2017, Cupid has confirmed orders worth ~Rs.580 mn and ~Rs.310 mn expected. We expect, the company will grow at a CAGR of ~16% over FY17p-19e, backed by growth in the female condom segment through aggressive domestic promotion, and the initiation of lubricant jelly sales.

EBITDA de-growth by ~9%:

The EBITDA of the company stood at ~Rs.75.6 mn vs ~Rs.83.2mn/102mn, showing a ~9.1%/25.9% de-growth YoY/QoQ, respectively. YoY the EBITDA margin contracted to ~42% by ~466bps, a result of increase in the expense towards sales promotions and staff cost. We believe, Cupid Limited will maintain a healthy margin (EBITDA growth by ~15.7% CAGR over FY17p-FY19e) due to its product mix favoring the high margin female condom and water based lubricant jelly. However, a marginal strain would be witnessed due to its sales promotion expenses (~Rs.2-3cr in FY18e, as per Management).

Expanding beyond condoms:

Apart from adding value-added variants to its male and female condoms, the company plans on increasing its product basket beyond condoms, with: 1) hand sanitizers of various colors and flavors that retain hand moister, 2) vaginal cream for enhancing sexual pleasure, with no side effects, 3) wipes that will slow down premature ejaculation.


We believe that Cupid has high potential to outperform over longer tenure on back of increasing focus on domestic marketing of male and female condoms and shift in product mix favoring female condoms. We maintain our ‘BUY’ rating for the stock, with a price target of Rs. 390 (35% upside), assigning 16x PE to FY19e EPS. The stock currently trades at 15.6x/13.9x/11.8x of FY17p/FY18e/FY19e.

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