Dishman Pharma - Q3FY12 Result update/Earning revision - Centrum

Improved performance of CRAMS business

Dishman Pharma (DPCL) Q3FY12 numbers were above our expectation due to marked improvement in CRAMS business. The company's revenues grew by 12%YoY, EBIDTA margin by 990bps and net profit by 896%YoY on a smaller base. The management is confident of improved performance in FY13 and has revised sales guidance from 15% to 20%. DPCL's three manufacturing facilities for oncology, vitamin D and disinfectant formulations at Bavla went on stream during the quarter. These are likely to contribute significantly in FY13. We reiterate Buy for the scrip with a revised target price of Rs92 (based on 6x FY13 EPS).

- Lower sales growth of CRAMS business: During the quarter, DPCL's total revenues grew by 12%YoY from Rs2.38bn to Rs2.66bn. The company reported 7%YoY sales growth in CRAMS from Rs1.58bn toRs1.69bn due to the fall in domestic revenues and Synprotec, UK. However, Carbogen Amcis (CA) reported strong growth of 29%YoY from Rs795mn to Rs1,023mn. The marketable molecule (MM) segment reported 31%YoY sales growth from Rs736mn to Rs964mn. Vitamin D business grew by 36%YoY from Rs375mn to Rs509mn. Revenues of other MM grew by 26% from Rs361mn to Rs455mn.

- Sharp improvement in Margin by 990bps: DPCL's EBIDTA margin improved by 990bps from 13.2% to 23.1% due to overall reduction in costs. Material cost declined by 290bps from 35.2% to 32.3% of total revenues due to the change in product mix. Personnel expenses were lower by 350bps from 30.6% to 27.1% due to re-structuring at CA. Other expenses declined by 340bps from 20.9% to 17.5% due to lower marketing cost. There was a forex gain of Rs81mn against Rs57mn. The company's net profit improved by 896%YoY from Rs17mn to Rs167mn on a lower base.

- Commencement of production at three units: DPCL's three production units for vitamin D, Hipo facility and disinfectant formulations facilities went on stream during the quarter. These units are likely to contribute significantly from FY13 onwards. The company's vitamin D and analogue facility at net Netherlands has received approval from US FDA and hence can export to the US market. Moreover, CA has received an 18m euro pa order from Astellas for a new oncology product.

- China facility on block: The company is looking at a prospective buyer for its manufacturing facility at Shanghai SEZ as there is considerable cost increase in China. DPCL has commenced the manufacture of three anticancer products at this facility to cater to the overseas market.

- Abbott sales likely to improve: DPCL expects revenues from Abbott to improve by 1.5x in FY13 with a 150tpa contract for Eprosartan Mesylate (EM) and supply of two more APIs. Moreover, the company will supply anti-TB products to Johnson & Johnson.

- Revised guidance: With an improvement in CRAMS business during the quarter, the management has revised its sales guidance from 15% to 20% and predicted healthy EBIDTA for FY13.

- Reiterate Buy: We have revised our EPS estimates upwards for FY12 and for FY13 by 18% and 5% respectively. We expect the company to benefit from additional revenues from three new manufacturing facilities, benefit of re-structuring at CA and new CRAMS contracts. At the CMP of Rs60, the stock trades at 8.9x FY12E EPS of Rs6.7 and 3.9x FY13E EPS of Rs15.3. We reiterate Buy with a revised target price of Rs92 (based on 6x FY13E EPS).

Source : Equity Bulls

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