Buy Dishman Pharma; target of Rs 198: Karvy

Revenues for the quarter declined by 8.5% at Rs 3658mn below our estimates of Rs 4181 mn. The margins were at 27.2% in Q1 FY17 as against our estimates of 25.9%. Higher margins were on account of better gross margins and lower other expenses. Profits for the quarter were higher by 11% YoY to Rs 455 mn but lower as against our estimates of Rs 470 mn. Revenue degrowth on account of High base, Focus on Profitable business : Company’s revenues de-grew by 8.5 % YoY for the quarter. The other operating income increased by 138% YoY due to duty drawback. Carbogen Amics increased by 14.3 % to Rs 2020 mn while CRAMs India declined by 37 % to Rs 556 mn on account of higher base of last year. Vitamin D Revenues declined 28.4% YoY due to discontinuing of low margin supplies.

We downgrade revenues by 4.1%/1.9% for FY17E/FY18E due to downgrade in CRAMs and MM segments. We upgrade our EBDITAM for FY17E/FY18E by 110bps/160bps to 27.9%/29.4% respectively due to better gross margins, lower staff and other expenses. We continue to amortise goodwill in our books. We upgrade our EPS by 1.1%/6.2% to Rs12.3/Rs 15.8 for FY17E/FY18E and revise our price target to Rs 198 based on 12.5x FY 2018E. We maintain our BUY rating on the stock.