The story so far ………..
After its IPO in 2004, Dishman Pharmaceuticals took a leap into CRAMS with its $75mn acquisition of the Swiss CMO- Carbogen Amcis in 2006. It consolidated its position by taking over the Vitamin and Chemical business of Solvay in Netherlands and in 2010 set up one of the World's largest High Potency API facility at Bavla in Ahmedabad.
FY'12 performance was impacted due to its aggressive debt raising for huge capex which pushed gearing levels to 0.9x and Dishman reported a net profit of 57crs on revenues of 1125crs. CRAMS form 65% of revenues with Carbogen and Abbott business accounting for over 50% and 15% respectively. The balance 35% share comes from Marketable Molecules and Vitamin D ( Dishman is one of the world's largest producer of Vitamin D3)
The story ahead ………..
We envisage a turnaround in Carbogen Amcis this fiscal buoyed by big ticket contract wins from Novartis and Astellas besides Eprosartan supplies to Abbott, Oncology supplies to Merck and CVS contract with AstraZeneca. Resumption of Vitamin D business would also bring growth to the flat revenues of Marketable Molecules like quats, catalysts, speciality chemicals like Benzethonium Chloride and Cholesterol related products.
The strategic move towards generic API would in our view reduce lumpiness in quarterly CRAMS business and lend stability to revenues despite lower margins and EBIDTA is unlikely to drop below 20%.
Although we do not like the poor capital efficiency of Dishman, increased traction from its HiPo facility at Bavla would generate operating leverage and with a clear roadmap for debt repayment(Rs1bn to be repaid this fiscal) we believe that balance sheet deleveraging is underway with no major capex for next 2 years.
We expect Dishman to post a net profit of 95crs this fiscal on revenues of 1300crs. Buy Dishman trading at 8xFY'13E and 6.5xFY'14E earnings with a one-year price target of Rs160.
Thanks and Regards
LKP Advisory
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