Saturday, August 4, 2012


Back on track

Dishman Pharma & Chemicals’ (DPCL) results for Q1FY13 exceeded our expectations. The company reported 30%YoY growth in revenues, 650bps improvement in EBIDTA margin and 156%YoY growth in net profit. The company’s EBIDTA margin improved due to the reduction in the material cost and personnel expenses. There was no supply of Eprosartan mesylate (EM) API to Abbott due to inventory rationalisation. We have a Buy rating for the scrip with a revised target price of Rs101 (based on 7x FY14E EPS).  Strong revenue growth: DPCL reported 30%YoY growth in revenues from Rs2.43bn to Rs3.16bn. The CRAMS segment (62% of revenues) grew by 24%YoY from Rs1.59bn to Rs1.97bn. The others segment (38% of revenues) grew by 51%YoY from Rs785mn to Rs1183mn.

Excellent margin improvement: DPCL’s EBIDTA margin improved by 650bpsYoY from 20.3% to 26.8% due to the decline in the material cost and personnel expenses. Material cost declined by 460bps from 31.2% to 26.6% of revenues due to $5mn (Rs275mn) revenues from high margin contract research business at Bavla. Personnel expenses declined by 250bpsYoY from 29.7% to 27.2% due to the re-structuring at Carbogen Amcis (CA).

Hipo facility to expand: The company’s hipo facility for anticancer products at Bavla has commenced production for an innovative product of Merck. DPCL is likely to expand its capacity from two cells to four cells to cater the additional demand. Astellas, Cephalon and Lexicon have shown interest in using this facility.

Carbogen Amcis has turned around: DPCL’s 100% subsidiary Carbogen Amcis (CA) (42% of revenues) achieved 75%YoY growth in revenues from Rs760mn to Rs1330mn. Its EBIDTA margin improved from -3.7% to 16.0%. This has led to sharp improvement in EBIDTA margin of CRAMS segment. Leading player in vitamin D segment: DPCL has achieved 60%YoY growth in vitamin D segment from Rs398mn to Rs637mn. The EBIDTA margin for this business declined by 360bps YoY from 24.6% to 21.0%. The company’s new manufacturing facility at Bavla went on stream in Q4FY12 and is expected to
contribute significantly in FY13.

Valuations: We expect DPCL to benefit from good growth in CRAMS, Vitamin D3 and anticancer products. At the CMP of Rs79, the stock trades at 7.2x FY13E EPS of Rs11.0 and 5.5x FY14E EPS of Rs14.4. We have a Buy rating for the scrip with a revised target price of Rs101 (based on 7x FY14E EPS of Rs14.4) with an upside of 27.6% over CMP (earlier target of Rs72 based on 5x FY14E EPS).