Reduce Dishman Pharma; target of Rs 61: KRChoksey

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Reduce Dishman Pharma; target of Rs 61: KRChoksey

KRChoksey is bearish on Dishman Pharma and has recommended reduce rating on the stock with a target of Rs 61 in its February 13, 2012 research report.

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KRChoksey is bearish on Dishman Pharma and has recommended reduce rating on the stock with a target of Rs 61 in its February 13, 2012 research report.

"Dishman Pharma posted a top-line growth of 11.9% y-o-y in Q3FY12 mainly led by one time research income under the CRAMS segment. CRAMS segment grew by 6.9% y-o-y & it was flat on a sequential basis. Carbogen Amcis was flat in CHF terms but rupee depreciation enhanced the growth in rupee terms on a yearly basis. Vitamin D business clocked in growth of 34% y-o-y & 50% q-o-q & stood at Rs 51cr. The company commenced its operations at Unit 13 whose full effect would be realized in the coming quarters. The company reported EBIDTA adjusted for forex gain of Rs 53cr, a growth of 12.9% q-o-q & 107% y-o-y. Operating margins enhanced by 922bps y-o-y & 252bps q-o-q & stood at 20.1% mainly due to lower staff & other expenses & contribution from high margin CRAMS segment. However adjusted PAT for Q3FY12 stood at Rs 9cr, a degrowth of 29.5% q-o-q. PAT margins stood at 3.2%, a decline of 130bps q-o-q mainly on the back of higher interest & tax expense."

"Dishman reported revenue growth of 11.9% y-o-y & degrew by 1.3% q-o-q in Q3FY12. The revenues posted were Rs 266cr mainly aided through rupee depreciation & vitamin-D segment. The company commenced Unit-13 Vitamin D facility whose full effect would be seen in coming quarters. Dishman's wholly owned subsidiary Carbogen amcis experienced a flattish growth in CHF terms but the y-o-y growth of 28% was mainly on the back of rupee depreciation. Dishman's CRAMS business grew by 24% q-o-q due to the research income which is non-recurring. The company reported adjusted EBITDA of Rs 53 cr, a growth of 13% q-o-q & 107% y-o-y. Operating margins improved by 922bps y-o-y & 252bps q-o-q & stood at 20.1%. The substantial improvement was led by lower personnel & other expenses. Also the CRAMS segment improvement succored the margins. Although the company's reported PAT grew robustly, adjusted PAT (ex forex gain of Rs 8.1cr) stood at Rs 9cr which degrew by 29.5% q-o-q. The degrowth was mainly due to higher interest expense & depreciation. NPM declined by 130bps on a q-o-q basis & stood at 3.2%."

"The company is gradually improving but lack of visibility on the order execution remains our main concern. On the above, huge debt levels & pressure on return ratios improvement is worrisome. We value the company at 7x its FY13 EPS of Rs 8.6 to arrive at a target price of Rs 61 & would recommend 'Reduce' on the stock at these levels. We would like to assess the company on the execution front in the coming quarters," says KRChoksey research report. 

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