Dishman Pharmaceuticals and Chem. | Q1FY14 Result Update
IndiaNivesh Securities Pvt Ltd
01 Aug 2013
Available for Immediate Download
Dishman Pharmaceuticals and Chemicals Ltd. | Q1FY14 Result Update Mixed bag of performance, unexplainable volatility in margins, advise EXIT | Dishman missed revenue estimates on account of muted performance across the segments, except Carbogen Amcis (CA). However, adjusted EBITDA & net profit was above estimates. During the quarter, company’s revenue declined 2.9% y-o-y (11.4% q-o-q) to Rs 3,062 mn in Q1FY14 (V/s INSPL est= Rs 3,496 mn). CA (Carbogen Amcis) business grew 13.3% y-o-y to Rs 1,507mn partially benefiting from currency movement, while all other segments reported decline in revenue. India CRAMS (including UK CRAMS) declined 1.2% y-o-y to Rs 633 mn, MM business declined ~18% y-o-y to Rs 449mn & Vit D business declined 26% y-o-y to Rs 473 mn linked with restructuring going on in the plant. Valuations: Company reported mixed bag of performance during the quarter, mainly due to volatile performance of almost all the businesses. Company’s India CRAMS business has order book of Rs 3,600 mn against full year revenue of Rs 3,361mn in FY13. Company’s higher EBITDA margins during the quarter were surprise to our rating. According to management guidance, MM business has EBITDA margins of ~15% on an average. Adjusting to that, Dishman India’s EBITDA margins has stood above 60% level in the last two quarters. While in some of the quarters, these margins have been in the range of 25% to 30% range. We failed to understand too high volatility in margins & business. At CMP of Rs 43, the stock is trading at P/E multiple of 3.3x of FY14E & 2.7x of FY15E earnings estimates. In the last 2 years, stock has de-rated sharply due to its inconsistency in performance, debt concerns & management’s poor execution ability. Stock had traded at an average P/E of between 5-7x. Given muted guidance going forward, decline in profitability in FY14E on higher base, muted performance of VitD business, saturation (almost no growth) in Abbott (Eposartan) business, high variance in India CRAMS business profitability, we advise investor to EXIT from the stock and we drop the coverage on the stock.