Dishman Pharma - Better traction expected from CRAMS and disinfectants; Buy with a target price of Rs 226
For a better understanding of the business and the outlook for the next 2-3 years, we met the Dishman management recently. In addition to margin improvement, which has been the case for FY16 (and expected in FY17), revenue growth would be driven by growth in its CRAMS base business, additional business on the commercialization of potential molecules and the further business in disinfectants from FY18. We introduce FY19 estimates, maintaining our Rs. 226 target and Buy rating due to 33% potential.
Phase-III molecules: In its CRAMS business, Dishman has about 13 molecules in phase-III of clinical trials. Of these, about 6-7 are in oncology. The commercialization of 2-3 molecules can be expected in 18-24 months, and would be revenue drivers in CRAMS.
More outsourcing by J&J in disinfectants: There is shift of manufacturing of ~20 products by J&J from its own base to Dishman's facility. This is expected to raise the revenue base of Rs. 100m to Rs. 1bn over next 2-3 years. This outsourcing would start from FY18.
More Eprosartan business through higher volumes: Dishman guided to more outsourcing of Eprosartan by Solvay from Dishman's facility, which would begin from FY18. This would result in ~20% yoy growth in this business for Dishman.
Introducing FY19e. Our FY19 estimates are: sales Rs. 20.5bn, PAT Rs. 3.2bn, factoring in respectively 12% and 24% yoy growth, based on more business from CRAMS and disinfectants.
Valuation. At the CMP of Rs. 175, the stock trades at 13x FY17e EPS of Rs. 13.5 and 10.8x FY18e EPS of Rs. 16.1. We maintain a Buy, with a target of Rs. 226 based on 14x FY18e earnings. Risks. Currency fluctuations and delay in approvals.
Shares of DISHMAN PHARMACEUTICALS & CHEMICALS LTD. was last trading in BSE at Rs.210.05 as compared to the previous close of Rs. 217.8. The total number of shares traded during the day was 565833 in over 8274 trades.
The stock hit an intraday high of Rs. 227.9 and intraday low of 208.2. The net turnover during the day was Rs. 123652429.