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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