Dishman Pharma - On the recovery path - IDFC

We recently interacted with the management of Dishman Pharma (Dishman). Key takeaways of our meeting are:

- The management is fairly positive on the medium-term outlook, primarily driven by the turnaround in Carbogen Amcis, commissioning of High Potency facility (Unit 9) and growing visibility in CRAMS business in India.

- After a prolonged wait, Unit 9 has begun to contribute commercially. The management indicates that there is significant client interest in the facility and that it is looking to enhance the operational capacity in H2FY14. It expects revenues of US$15m-20m in FY14 with 35-40% EBITDA margins in the facility.

- Under the new leadership, that Carbogen-Amcis has turned the corner. The management expects revenues of Euro 90m-95m in FY14 with ~20% EBITDA margins. Dishman already has visibility of 65-70% of FY14 revenues.

- Dishman expects to receive ~Rs1bn cash from Dishman Infra's SEZ land sale in the next few months. It will be used to retire debt (~Rs8bn currently). We believe that Dishman is gradually getting back on track. A significant proportion of its hitherto unproductive assets (~25% of net block was nonoperational as of FY12 end) have begun to contribute. While patchy execution track record and strategic flip flops (e.g. future of Chinese facility) are concerns, we take comfort in signs of recovery at Carbogen as well as Dishman's ability to recently secure multiple large-ticket deals with majors like Abbott, Astellas, Celegene, Astra Zeneca, DSM, J&J, etc. Further, the decision to de-notify its SEZ as also limit capex should help cash flows/ return ratios. Given its significant operating leverage, pick-up in revenue growth and deleveraging can lead to significant earnings upsides and trigger a re-rating of the stock. Maintain Outperformer with a 12-month price target of Rs122 (9x FY14E earnings).

Source : Equity Bulls

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