Management Interaction and Estimates Revision for Dishman Pharma:: Centrum

Management Interaction and Estimates Revision

Dishman Pharma

Buy

Target Price: Rs168

CMP: Rs119         

Upside: 41%

Marked performance improvement

We interacted with the management of Dishman Pharmaceuticals & Chemicals (DPCL) and are impressed with the latest developments. The company recently entered into generic API business and filed 20DMFs with US FDA. Its vitamin D and Quats businesses are doing well. DPCL is in the final stage of negotiation for the sale of its SEZ land. The company is likely to reduce debt from the proceeds of this land sale.  We re-iterate a Buy rating and target price of Rs168 based on 8x FY14 earnings.

m  Generic API to stabilse revenues: DPCL recently entered into generic API business and filed 20 DMFs with US FDA. The company has identified 35 products and users for these products. We expect revenues of $10mn (Rs550mn) in FY14 and $13mn (Rs715mn) in FY15 from this business. In future, the generic business is expected to minimise the volatility of the company’s earnings.
m  Vitamin D3 and Quats to drive growth: DPCL generates ~20% of its revenues from vitamin D3 business. With the Bawla facility recently going on stream, we expect margin improvement due to integration of Indian and Netherland businesses. The company supplies high margin benzathonium chloride (Quats) to MNCs for their hospital disinfectant business. The Quats business is also likely to drive future growth.
m  Carbogen Amcis turns around: DPCL’s 100% subsidiary Carbogen Amcis (CA) reported 1,080bps improvement in margin in Q2FY13 from 7.2% to 18.0%. We expect CA margin to improve further due to the increase in CRAMS business and rationalisation of its orders.
m  SEZ land sale to reduce debt: DPCL is in the final round of negotiations with three parties for the sale of its SEZ land. The company is likely to receive Rs500mn in FY13 as part payment and Rs500mn plus profit of Rs100-150mn in FY14. The management has indicated that the amount will be used to reduce debt.
m  Re-iterate a Buy rating: At the CMP of Rs119, the stock trades at 9.2x FY13E EPS of Rs13.0 and 5.7x FY14E EPS of Rs21.0. We expect the company to maintain strong growth in CA, Vitamin D and Quats businesses. We have revised our EPS estimates for FY13 and FY14 upwards by 18% and 46%. We re-iterate a Buy rating for DPCL with the target price of Rs168 based on 8x FY14E earnings of Rs21.0 with an upside of 41% over CMP.

Thanks & Regards, 

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