Stock Market Result Update on Dishman Pharmaceuticals for 2QFY2012

Stock Market Result Update on Dishman Pharmaceuticals for 2QFY2012 with a Buy recommendation and a Target Price of `68 (12 months).

For 2QFY2012, Dishman Pharmaceuticals (Dishman) reported a lower-than-expected net profit performance. The decline in net profit was majorly on the back of high interest expenses and non-cash forex expenses. However, after adjusting for the same, the company’s net profit stood at `10.0cr (although it was lower than our estimate of `16cr). On the positive side, the company’s top line posted good growth and its margin came just in-line with our expectation. We maintain our Buy rating on the stock.

Lower-than-expected performance during the quarter: Dishman reported net sales of `269cr during 2QFY2012, reporting growth of 26.5% yoy and above our estimate of `240cr. Segment wise, the CRAMS business grew by 5.0% yoy, whereas the market molecules (MM) business surprised with 93.1% yoy growth. Gross margin for the quarter dropped significantly to 63.7%. However, the company’s operating margin witnessed a significant yoy improvement of 9.4%, ending the period at 17.5%, marginally lower than our estimate of 18.6%. However, the company reported net loss of `6.3cr on the back of `18.8cr loss on non-cash forex expenses during the quarter.

Outlook and valuation: We expect Dishman’s net sales and net profit to come in at `1,115cr and `75cr, respectively, in FY2012. At current levels, Dishman is trading at 4.6x and 3.9x FY2012E and FY2013E earnings, respectively. Despite being conservative on the margin front, we believe the current valuations are attractive. Hence, we maintain our Buy recommendation on the stock with a target price of `68.