Emkay Global Financial Services is bullish on and has recommended accumulate rating on the stock with a target of Rs 125 in its April 11, 2011 research report.
“Dishman Pharmaceuticals & Chemicals’ Indian CRAMS business to see some respite as supplies to European customer set to begin from Q1FY12 leading to higher operating leverage. Carbogen Amcis (CA) continues to bleed, commissioning of HIPO facility to get delayed. Chinese facility will take at least two years to start contributing meaningfully to the top-line. Commencement of European orders will lead to higher asset utilization in Indian CRAMS operations.”
“The much awaited contract with European customer is expected to kick-start in Q1 FY 12E. We found out during our plant visit that production of the intermediate has already commenced and was in the process of getting dispatched. Dishman’s CRAMS business was a laggard during the past 10 quarters. However, with India CRAMS set to execute orders, we believe this will provide some respite to the overall CRAMS business. Management has guided for revenues of USD 22-25mn in FY12E from this order. Moreover, the customer has also filed for the approval of same product in the US, approval expected during FY12E. This will likely generate USD 50 million in incremental sales for Dishman over the next 2 years.”
“Dishman is upgrading the China facility to high potency plant for category 2-3 level of drugs. Company is also expanding in generics space and has completed the production of 20 validation batches of generic APIs and out of these 8 DMFS has already been filed with the USFDA. These will be produced in its new Chinese facility. Global innovators including Astrazeneca and Merck have shown interest in sourcing API from this facility for their production. However, this is a distant opportunity as 7-8 DMFs filed will take at least 12-18months for approval.”
“We expect Dishman’s top-line to grow at ~12% growth in FY12E (3% decline during FY10- 11E). The India CRAMS business is expected to grow at 33% in FY12E (contributes ~40% to the top-line) on account of commencement of European order. The CA business will decline by 5% in FY12E due to lack of order flows. Vitamin D business will grow by 18.5% in FY12E on back of commissioning of new Vitamin D plant at Bavla. With commencement of new European order in Q1FY12E, we expect increase in asset utilization in the Indian CRAMS business to ease pressure on the overall CRAMS portfolio. Currently the stock is trading at 10.6xFY12E earnings against its 5-year average of 17.5x. The stock has largely underperformed the broader indices by during the last 1 year. We believe once the revival in India CRAMS business takes its course, partial value unlocking may happen in the stock. Accordingly, we revise our target price on the stock from Rs 118 to Rs 125. Upgrade the stock one-notch to Accumulate,” says Emkay Global Financial Services research report.
Courtesy- Moneycontrol
