Dishman Pharmaceuticals Ltd - Margins Disappoint; Result Update Q3FY15 :: Edelweiss

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Dishman Pharmaceuticals Ltd (DPCL) reported a topline of INR 389.7 cr for Q3FY15, up 24.0% YoY, mainly on the back of higher sales from Carbogen Amcis (CA). However, the margins in the margins continued to be adversely impacted by subdued margins in the Vitamin D and CA businesses. Further, the company continued to guide for a cash break-even in its China subsidiary by the current quarter end, which it expects to have a would have a favorable impact on the company’s overall operating margin FY16E, onwards. Along with EBITDA margin improvement, the management continues to guide for a revenue growth target of 10-15% for FY15E. Further, DPCL remains committed to the overall reduction in debt and negligible capex. We continue to believe that there are enough triggers in place to drive future growth in DPCL, but the current stock price discounts most of them.

Revenue growth led by CA

DPCL’s topline in the quarter jumped mainly on the back of higher-than-expected growth in Carbogen Amcis (56.6% YoY). The CRAMS business (India & CA) grew by 16.3% YoY but the MM business (ex-Vitamin D) reported 12.8% YoY drop in revenue. We believe that high-value contracts in the Hypo space from players like Novartis, Merck & AstraZeneca, ramp-ups in generic business and strong growth in the Vitamin D business (part of strategy to move up the value chain) will enable DPCL to drive its future revenue growth.

Margins remain volatile

DPCL’s margin in Q3FY15 contracted by 302bps QoQ to 18.7% from 21.9%. Margin was impacted by lower margin at CA (9.3% versus an average of 17-18%). However, the company has guided that margin at CA is expected to bounce back to normal levels. Overall margin was lower on account of a dip in gross margin. The company management expects margin for FY16 to improve from current levels on the back of higher margin in Vitamin D and break-even in the China facility. 

Capex guidance reaffirmed; Focus stays on debt reduction

DPCL has reiterated its guidance on capex. The capex would be only maintenance capex for the next few years. Further, the company has guided for a debt reduction of INR 75-100 cr each in FY16E. We continue to believe that the combined impact of improved margin and higher utilization of assets would help DPCL increase its return ratios going forward. The company also expects to grow its consolidated business at 10-15% while EBIDTA margin is expected to improve from the current levels by FY16-end.

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https://www.edelweiss.in/research/Dishman-Pharmaceuticals-Ltd--Margins-Disappoint;-Result-Update-Q3FY15/10005622.html