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Saturday, March 28, 2015

Dishman Pharmaceuticals - Good stock to invest in

CMP Rs160, Target Rs195
Time Span - Not meant for genuine investors :)

India CRAMS to benefit from wider customer base
Dishman has consciously changed strategy and widened its customer base for India CRAMS business which would account for ~23% of consolidated FY15E revenues. For instance, top 10 customers contribute 40% to revenues from 60-70% earlier due to new customer additions even as churn level remain low due to high switching costs in APIs. India order book stands at Rs2.8bn to be executed over the next five months and beyond that repeat orders and steady stream of new customers give us comfort on growth.
Another key driver of India CRAMS would be HIPO facility for oncology at Bavla, India where it currently has order book of US$25mn to be executed by August 2015; intermediaries for orders would be manufactured at its China facility (to derisk manufacturing at only one location) and final APIs to be exported from India. Current HIPO order book translates into 30-35% utilization rate and company plans to ramp up to US$200mn in next 12 months; HIPO facility APIs commands a lucrative 80% gross margin.  

Carbogen Amcis outlook remains robust
Carbogen Amcis, Dishman’s Switzerland based CRAMS business (~46% of FY15E revenues) saw EBIDTA margin decline in Q3 FY15 as the dispatch cycle got delayed due to seasonality in late December and customer preferences. Hence low margin development work related revenues were higher as compared to higher margin commercial sales. However, we expect the situation to normalize with recognition of high margin revenues in Q4. Carbogen has current order book of CHF110mn to be executed over next 1 year which augurs well for next year’s growth. 

Margin expansion, interest savings to drive ~29% EPS cagr
About 70% of Dishman portfolio is geared towards higher end API supplies with vitamin D3 and bulk drugs accounting for balance 30%. In vitamin D3, focus would be on quality rather than volumes which would protect EBIDTA margin. We expect interest cost savings (due to ~Rs1.2bn in FY16 debt repayment) and margin expansion of ~150bps to drive earnings cagr of ~29% over FY15-17; recommend BUY.

Financial summary
Y/e 31 Mar (Rs m)FY14FY15EFY16EFY17E
yoy growth (%)
Operating profit3,3213,3163,7224,175
OPM (%)24.022.623.424.0
Reported PAT1,0931,1381,4851,829
yoy growth (%)
EPS (Rs)13.514.118.422.7
P/E (x)
P/BV (x)
Debt/Equity (x)
ROE (%)
ROCE (%)12.111.312.613.7

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