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Anand Rathi
Dishman Carbogen (Buy)
CMP: ₹85.5
Target: ₹227
Key takeaways: a) Policy for amortisation of goodwill is unlikely to be altered as the company remains confident of complying with the norms. It is likely to continue to take an annual amortisation charge of ₹88 crore and might accelerate the pace at which goodwill is being amortised in future. It is also in process of migrating to the new tax regime and expects substantial decline in cash tax payments upon migration.
b) Currently it has over 500 molecules in various stages of development of which 18 molecules are in late phase 3 trials. It anticipates at least 3-4 molecules to get commercialised in the next couple of years post which the molecules will be transferred to India. The company has maintained its steady state sales guidance of 8-10 per cent (1HFY20 sales growth at 6 per cent) and expects EBITDA margins to expand 300bps in next 3-5 years.
Valuation: Dishman remains fully committed to scaling up its business and primary growth drivers such as commercialisation of molecules in late phase 3 (18 molecules) and global dominance in Vitamin D are likely to help Dishman report revenue and PAT CAGR of 11 per cent and 15 per cent respectively over FY19-21. We maintain ‘buy’.
Risks: Currency fluctuations, regulatory hurdles, deferred orders.
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