Dishman Pharma - Good revenue growth - Centrum

Dishman Pharma & Chemicals' (DPCL) revenues and EBIDTA for Q3FY13 were in line with our expectations but net profit was below due to high interest cost. The company reported 22%YoY growth in revenues, 130bps improvement in EBIDTA margin and 2% decline in net profit. Abbott has lowered requirements of Eprosartan Mesylate (EM) API and Astra Zeneca has also lowered requirements for Brilinta intermediate for FY14. DPCL has commenced generic API business to reduce quarterly fluctuation in revenues. We have revised our FY14 EPS estimates downwards by 26% due to lower guidance by the management. We have a Buy rating for the scrip with a revised target price of Rs125 (based on 8x FY14E EPS).

Good revenue growth: DPCL reported 22%YoY growth in revenues from Rs2.66bn to Rs3.25bn. The CRAMS segment (66% of revenues) grew by 24%YoY from Rs1.69bn to Rs2.09bn. The 'others' segment (34% of revenues) grew by 12%YoY from Rs965mn to Rs1,085mn. The PBIT margin of CRAMS declined from 16.4% to 12.2%YoY whereas for the 'others' segment it improved from 3.4% to 20.4%YoY.

Margin improves by 130bps: DPCL's EBIDTA margin improved by 130bpsYoY from 18.5% to 19.8% due to a decline in other expenses. Material cost grew by 30bps from 33.1% to 33.4% of revenues due to the change in product mix. Personnel expenses increased by 90bpsYoY from 27.1% to 28.0% due to the new recruitments for generic API business. Other expenses declined by 250bps from 21.3% to 18.8% due to higher sales growth.

Hipo facility to expand: The company's hipo facility for anticancer products at Bavla commenced production for an innovative product of Merck and Novartis. DPCL is likely to expand its capacity from two cells to four cells to cater to 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 33%YoY growth in revenues from Rs1.02bn to Rs1.35bn. Its EBIDTA margin improved by 1,700bps from 2.0% to 19.0%. CA is expected to report strong performance in future.

Leading player in vitamin D segment: DPCL has achieved 35%YoY growth in the vitamin D segment (13% of revenues) from Rs325mn to Rs438mn. The EBIDTA margin for this business improved from -11.2% to 9.2%. The margin improvement was due to better realization during the quarter.

Revised guidance: The management has lowered the guidance for FY14 as follows: Revenues of Rs14.0bn and net profit of Rs1.25bn in view of expected lower requirement of EM from Abbott and Brilinta (ticagretor), a CVS drug from Astra Zeneca.

Valuations: We expect DPCL to benefit from good growth in CRAMS, Vitamin D3 and anticancer products along with margin improvement. At the CMP of Rs93, the stock trades at 7.2x FY13E EPS of Rs13.0 and 5.9x FY14E EPS of Rs15.7. We have maintained our FY13 estimates and revised our FY14 estimates downwards by 26%. We have a Buy rating for the scrip with a revised target price of Rs125 (based on 8x FY14E EPS of Rs15.7) with an upside of 34.7% over CMP.

Source : Equity Bulls

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