Share Market Update on NMDC for 4QFY2011

NMDC reported strong performance in 4QFY2011. Net revenue at `3,770cr was ahead of our estimates of `2,914cr on account of higher-than-expected sales volume and iron ore realisation, while net profit at `2,099cr was in line with our estimate of `2,039cr. We recommend Reduce on the stock.

Strong performance despite higher costs: Net sales grew by 90.1% yoy to `3,770cr due to higher iron ore realisation and sales volume. Sales volume for the quarter grew by 23.3% yoy to 8.4mn tonnes and realisation increased by 54.2% yoy to `4,470/tonne. EBITDA increased by 98.6% yoy to `2,739cr as EBITDA margin expanded by 312bp yoy to 72.7% despite higher freight cost and export duty. There was a provision write-back of `64cr on account of wage revision included in other income, which increased by 80.5% yoy to `443cr. Consequently, net profit increased by 96.9% yoy to `2,099cr in 4QFY2011.

Outlook and valuation: Prices of iron ore have declined slightly in the domestic market in the last two months. During May 2011, NMDC had announced that it would cut prices of iron ore fines by 15%. Moreover, NMDC’s volume growth remains at risk on account of Naxal activity in some of its mines. We have lowered our margin estimates for FY2012 and FY2013 in light of higher-than-expected selling costs reported in 4QFY2011. The stock is currently trading at 8.8x FY2012E and 7.1x FY2013E EV/EBITDA. Valuing the stock at 6.5x FY2013E EV/EBITDA, we derive a target price of `241. Hence, we recommend a Reduce rating on the stock.

Share Market Update on Dishman Pharmaceuticals for 4QFY2011

Dishman Pharmaceuticals (Dishman) reported higher-than-expected results for 4QFY2011, majorly led by the income received by outsourcing of certain products in the marketable molecules (MM) business, which the company expects to be recurring at `50cr–70cr annually. The company is gradually working on the restructuring of Carbogen Amcis, with 25% reduction in employee strength that led to 5mn CHF saving for the company in FY2011. For Carbogen Amcis, management expects a muted performance in FY2012, with restructuring efforts to be visible in FY2013. We maintain Buy on the stock.

Positive surprise during the quarter: Dishman reported net sales of `344cr (`248cr), growth of 38.9% yoy and above our estimates of `266cr. The drop in gross margin to 54.9% (59.0%) led to OPM contraction, which came in at 16.1% (20.0%) for the quarter. Net profit reported growth of 9.7% yoy to `23cr (`21cr), higher than our estimate of `1.5cr. For the full year, the company reported sales growth of 8.2% yoy to `991cr. Net profit dropped by 30.8% yoy to `81.4cr (`117.6cr). Segment wise, the CRAMS business remained flat, whereas the MM business surprised with 33.2% yoy growth, which includes recurring outsourcing income of `50cr–70cr.

Outlook and valuation: For FY2012, management expects 15% growth on the top-line front, with OPM of ~21.5%. We expect net sales and net profit to come in at `1,115cr and `75.1cr, respectively, in FY2012. At current levels, Dishman is trading 10.2x and 8.5x FY2012E and FY2013E earnings, respectively. We have been conservative on the margin front and maintain Buy on the stock, with a target price of `133.
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