Strong margin improvement Dishman Pharma :: Centrum

Strong margin improvement
Dishman Pharma & Chemicals (DPCL) results for Q2FY13 were lower than our
expectations. The company reported 12%YoY growth in revenues, 580bps
improvement in EBIDTA margin and strong growth in net profit. The
company’s EBIDTA margin improved due to the 830bps YoY reduction in
material cost. The company has resumed the supply of Eprosartan Mesylate
(EM) API to Abbott in Q2FY13. DPCL has commenced generic API business to
reduce quarterly fluctuation in revenues. We have revised our EPS estimates
upwards by 11% and 12% for FY13 and FY14 respectively. We have a Buy
rating for the scrip with a revised target price of Rs113 (based on 7x FY14E
EPS).
Moderate revenue growth: DPCL reported 12%YoY growth in revenues from Rs2.65bn
to Rs2.97bn. The CRAMS segment (65% of revenues) grew by 12%YoY from Rs1.69bn to
Rs1.88bn. The others segment (35% of revenues) was flat at Rs1.00bn. The PBIT margin
of CRAMS improved from 5.5% to 11.9%YoY whereas for the others segment it
improved from 15.3% to 24.2%YoY.
Excellent margin improvement: DPCL’s EBIDTA margin improved by 580bpsYoY from
16.4% to 22.2% due to the decline in material cost. Material cost declined by 830bps
from 37.5% to 29.2% of revenues due to higher growth of CRAMS. Personnel expenses
increased by 220bpsYoY from 26.3% to 28.5% due to the new recruitments for the
generic API business.

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Hipo facility to expand: The company’s hipo facility for anticancer products at Bavla
has 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)
(39% of revenues) achieved 6%YoY growth in revenues from Rs1,051mn to Rs1,114mn.
Its EBIDTA margin improved by 1,080bps from 7.2% to 18.0%. This has led to sharp
improvement in EBIDTA margin of the CRAMS segment.
Leading player in vitamin D segment: DPCL has achieved 55%YoY growth in vitamin
D segment (18% of revenues) from Rs336mn to Rs522mn. The EBIDTA margin for this
business improved by 1,620bps YoY from 15.9% to 32.1%. The margin improvement
was due to better realization during the quarter.
Valuations: We expect DPCL to benefit from good growth in CRAMS, Vitamin D3 and
anticancer products along with margin improvement. At the CMP of Rs96, the stock
trades at 7.8x FY13E EPS of Rs12.3 and 5.9x FY14E EPS of Rs16.1. We have revised our
estimates upwards by 11% and 12% for FY13 and FY14 respectively. We have a Buy
rating for the scrip with a revised target price of Rs113 (based on 7x FY14E EPS of Rs16.1)
with an upside of 17.7% over CMP.