The Hindu Business Line : Dishman Pharma: Buy

Investments can be considered in the stock of Dishman Pharma, which currently trades at Rs 206. Since its initial public offer a couple of years ago, the stock has had a stellar run, rising almost six-fold since. Dishman's business profile is getting more diversified and the business mix is poised to get better.

Investors could buy the stock in small lots and look to step up exposures on any declines linked to the overall market movement. At the current price, the stock trades at a shade over 15 times its expected per-share earnings (on a diluted basis, assuming full conversion of FCCBs) for FY08, which, in our view, is not too demanding in the context of growth prospects.

From an almost negligible contribution a few years ago, the contract research and manufacturing services segment accounts for over half of Dishman's revenues. We expect this segment to be the principal growth driver over the next few years. Dishman's strategy of working with innovator companies to supply inputs for molecules on patent is its key differentiator; it also ensures better margins.

From catering to one client (Solvay), Dishman has expanded this roster to include the likes of Merck and GSK, to name a couple. Approval of its facility by the US Food and Drug Administration should trigger supplies into that geography, a lucrative market. Importantly, a widening customer base should also help allay investor apprehension about the risks associated with an excessive dependence on a single client.

Dishman's recent acquisitions are complementary in nature, as it plugs gaps in its portfolio of offerings. The key would be the integration of the Swiss-based Carbogen-Amcis, an outfit that is comparable with Dishman in revenues. Though this may result in margins trending marginally downwards, it should be more than compensated for by the significant addition to topline.

In the marketable molecules business, which is a mature category, we expect steady growth, with an improvement in operational metrics once the benefits of Dishman's foray into China for setting up a manufacturing unit kicks in.

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