Dishman Pharmaceuticals and Chemicals Below estimates ...maintain BUY - IndiaNivesh

Dishman reported revenue growth of 19.6% y-o-y (9.8% q-o-q) to Rs 3.18 billion in Q3FY13 (V/s INSPL est= Rs 3.23 billion). CA (Carbogen Amcis) business grew 32.3% y-o-y to Rs 1.35 billion, India CRAMS (including UK CRAMS) grew 10.3% y-o-y to Rs 737 million, while MM business grew 42.5% y-o-y to Rs 637 million. Overall growth was partially offset by 14% decline in Vit D business.

Gross margins declined ~104 bps y-o-y (down, 420 bps q-o-q) to 65.8% in Q3FY13 due to change in product mix mainly linked with Vit D business.

Company's adjusted EBITDA (adjusting for forex & other operating income) grew 16.7% y-o-y to Rs 567 million in Q3FY13 (V/s INSPL est=Rs 695 million). EBITDA margins declined 46 bps y-o-y (down 227 bps q-o-q) to 17.8% level mainly due to increase in material cost & employee cost partially offset by decline in other expenses. Due to decline in effective tax rate from 36% in Q3FY12 to 27% in Q3FY13, Company's adjusted PAT grew 99% to Rs 172 million in Q3FY13 (V/s INSPL est= Rs 234 million).

Despite healthy growth & healthy margins in CA business, consolidated margins declined sequentially due to lower margins in Vit D business. We expect company to report EBITDA margins of ~21.2% in FY13 and ~ 100 bps expansions in FY14E & FY15E on the back of healthy revenue from HiPO IX facility, CA business & India CRAMS business.

Valuations:

Company's performance was below expectations during the quarter, mainly due to volatile performance of Vit D business, which according to management, is likely to stabilize in FY14E. However, key positive to observe was healthy performance of CA business & sequential increase in EBITDA margins on the back of favorable product mix. Additionally, MM business contributed to the overall performance of the company. Owing to strong order book, increase in capacity utilization & foray into Generic APIs, company would maintain the growth momentum and margins in the near to medium term. However, owing to current quarter performance, we have adjusted company's EBITDA margins for FY13E & FY14E & maintained revenue estimates.

At CMP of Rs 94, the stock is trading at P/E multiple of 8x of FY13E & 6.4x of FY14E earnings estimates. In the last 2 years, stock has de-rated sharply due to its poor & inconsistency in performance, debt concerns & management's poor execution ability. Stock had traded at an average PE of between 6-7x. Anticipating, worst to be behind & better performance going forward. We maintain BUY rating on the stock with the target price of Rs 144. (Valuing at ~10x of FY14E earnings estimates).

Source : Equity Bulls

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