Dishman Pharma- Weak quarter marked by poor EBITDA margin: Kotak Sec

Visit http://indiaer.blogspot.com/ for complete details �� ��


Dishman Pharma & chemicals (DISH)
Pharmaceuticals
Weak quarter marked by poor EBITDA margin. PAT at Rs283 mn was 8% lower
than our est. due to (1) lower sales, 17% lower than our est. and (2) poor margin at
17%, lowest in last six quarters. We estimate sales growth of 7% in FY2011E, lower than
revised management guidance of 10% (was 15%). We lower our FY2011-12E est. by
10-12% due to (1) lack of evidence of a pick-up in base business and (2) conservative
estimates on new businesses like Unit 9, China. At 9X FY2012E earnings, we retain
rating at ADD with PT of Rs210 (10X FY2012E est. earnings).




Weak quarter with sales 17% lower than our estimate
Revenues increased 5% qoq to touch Rs2.1 bn this quarter, 17% lower than our estimate due to
miss in CRAMS and MM segment. CRAMS business underperformed due to (1) lower contract
research revenues which led to CRAMS from India at Rs657 mn, 12% lower than our est. and
(2) lower Carbogen revenues at Rs912 mn, 20% lower than our est.
PAT at Rs283 mn was 8% lower than our estimate
EBITDA was 40% lower than our estimate because of poor margin at 17%, lowest in last six
quarters due to (1) adverse product mix with diversion of high-margin contract research capacity
towards internal non-billing work, (2) manufacturing of trial batches which added to costs but
were not billed and (3) higher staff costs due to increments and hiring. However, gross margin
stayed constant qoq at 28% while other expenses increased 22% qoq. Although EBITDA was
40% lower, PAT was 8% lower due to (1) forex gain of Rs200 mn and (2) lower tax rate at 5%
versus our est. of 11%.


We lower our FY2011-12E est. by 10-12% for reasons related to base business and new ventures
We estimate sales growth of 7% in FY2011E, lower than revised management guidance of 10%
in FY2012E. While DISH has spoken of several new orders in the past, we remain conservative and
include (1) US$6-12 mn supplies from new CVS drug, (2) US$15 mn from high-potency plant In
FY2012E and (3) US$10 mn from China/Japan in FY2012E. The underlying base business growth
excluding new contracts is 4-10% in FY2011-12E.


We retain ADD rating with PT of Rs210 (10X FY2012E est. earnings)
We expect sales growth of 23% and EBITDA margin of 26% in FY2012E on the back of (1) a pickup
in growth of base business and (2) addition of new contracts. At 9X FY2012E earnings, we
retain ADD rating with PT of Rs210 (10X FY2012E est. earnings).