A turnaround in its business, suggested by the strong financial performance over the last two quarters, has helped the Dishman Pharma stock run up strongly over the last three months. But at the current market price of Rs 94, the stock trades at just 4.5 times its estimated 2013-14 earnings. Considering the improved growth visibility for the next few quarters, the stock looks attractive from a medium-term perspective.

Dishman is mainly engaged in contract manufacturing of active pharma ingredients and formulations for innovative and generic products. It also provides process development and optimisation services to customers. Contract research and manufacturing (CRAMS) business brings in two thirds of the company’s revenue.

The other businesses — intermediates, active ingredients, specialty chemicals, vitamins and chemicals, and traded goods — account for the balance.

The CRAMS segment revenue grew 24 per cent in the June 2012 quarter to Rs 197 crore. Margins before interest and tax (including forex loss/gain) for the segment improved 2.7 percentage points to 24.2 per cent.

The segment’s growth is expected to gain momentum with contribution from Eprosartan mesylate (EM) active ingredient supplies to Solvay beginning next quarter.

This has the potential to add Rs 36 crore to Dishman’s revenue; margins are in excess of 30 per cent.

Swiss based Carbogen Amcis, which was acquired by Dishman in 2006-07, posted revenues of 22million swiss franc (Rs 127 crore) in the June quarter.

The company’s effort to contain costs by shifting manufacturing to India is beginning to pay off.

The operating margins improved 2.5 percentage points to 14 per cent.

Revenues from Dishman’s High Potent (HiPo) active ingredient segment are expected to pick up in the current fiscal. The management expects a revenue contribution of $5 million (Rs 28 crore) from this facility in 2012-13. With margins in excess of 40 per cent, ramp up in revenues from this facility should help boost Dishman’s profits. Dishman’s total sales grew 33 per cent to Rs 315 crore in the June quarter. Operating margins improved 6 percentage points to 26.8 per cent.

Net profit jumped to Rs 39 crore, up 156 per cent over the same quarter previous year. The company has total debt of Rs 302 crore outstanding at the end of March 2012.

Dishman intends to retire Rs 100 crore of debt by the end of this fiscal through proceeds from the proposed sale of its 163 hectares SEZ land at Bavla near Ahmedabad.

With commencement of EM supplies to Solvay and ramp-up in Benzethonium chloride, the company is well placed to sustain its growth momentum over the next few quarters.

(This article was published on August 25, 2012)
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