May 27, 2011

PHARMA
Q4FY11 REVIEW
Institutional Equities

Dishman Pharma (Rs95)

Buy
Target Price: Rs145

India Research

Stock Data
Bloomberg Code Reuters Code Market Cap. (Rs bn / US$ mn) 52-week High/Low (Rs) Shares Outstanding (mn) Avg. daily volume ('000) Avg. daily value (Rs mn) Promoter holding (%) Free float (%) FII holding (%) DISH IN DISH.BO 7/170 230/85 81 120 12 61.2 38.8 8.1

QUATs outperform, margins higher

Dishman Pharma (Dishman) Q4FY11 net revenues increased 39.9% y-o-y to Rs 3.5 bn higher than our estimates of Rs.2.8 bn. The revenues were driven by QUATS business which grew by 100 % for the quarter to Rs 1.51 bn while CRAMS business grew by 12 % to Rs 1.93 bn. Dishman reported EBITDA margins of 16.7% higher than our estimates of 15.5% for Q4FY11. Net profit for Q4FY11 was reported at Rs.228 mn (our estimate Rs.102 mn) which included forex gain of Rs 0.8 mn. Profits for FY 2011 at Rs 800 mn includes forex gain of Rs 365 mn. We marginally upgrade our FY 12E EBDITA margins to 21.9 % while we maintain our FY 13E EBDITA margins. We marginally upgrade our EPS estimates for FY 2012E by 2.3 % to Rs 8.9 and for FY 2013E by 2.8% to Rs 14.5. We have factored higher tax outgo of 20 % as against 15 % earlier. We marginally upgrade our price target by 3.6 % to Rs 145 based on 10x FY 2013E. Execution remains a key to revenue scaling. We maintain our BUY rating on the stock. Revenues and margins outperform expectations : CRAMS business reported flat revenues at Rs.1.9 bn (our estimates Rs.2.0 bn) whereas revenues in the marketable molecule (MM) space were at Rs.1.5 bn significantly higher than our estimate of Rs.750 mn during Q4FY11 primarily due to strong sales of benzethroium chloride and one time sales of products which were outsourced (Rs.500 mn) and will be discontinued/outsourced owing to freeing up capacities for benzethorium chloride. Margin performance was higher than estimates due to improved margin profile in the MM segment.

Relative Performance
135 115 95 75 55 35 Jul-10 Sep-10 Jan-11 Aug-10 May-10 Nov-10 Dec-10 Feb-11 Jun-10 Oct-10 Apr-11 May-11 Mar-11

Quarterly Performance
Rs mn Q4FY10 Q3FY11 2,322 2,064 258 11.1 57 133 171 10 -7 (67.8) 17 1 0 17 Q4FY11 3,470 2,889 581 16.7 8 105 187 297 67 22.6 230 2 0 228 Q-oQ % 49.4 40.0 125.3 (85.9) (21.5) 9.7 2,753 (1,050) 1,216 1,259 Y-o-Y % 39.9 45.6 16.9 (73.9) 4.7 39.2 1.3 (9.4) 5.0 3.6 Net Sales 2,481 Cost 1,984 EBITDA 497 EBITDA Margin (%) 20.0 Other Income 31 Interest 100 Depreciation 135 Profit before Tax 293 Tax 74 Tax rate 25.3 Profit After Tax 219 Prior Period Expenses -12 Short provision of Income tax 11 Net Profit 220
Indian GAAP Consolidated.

Sensex

Dishman Pharma

Sensex Nifty

18,045 5,412

Rahul Sharma
rahul.sharma@karvy.com +91-22-22895021

Nishith Sanghvi
nishith.s@karvy.com +91-22-22895026

Karvy Institutional Equities 2nd Floor, Regent Chambers, Nariman Point - Mumbai 400 021 +91-22-2289 5000. For Private Circulation only. For important information about Karvys rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on: Bloomberg - KRVY <GO>, Thomson Publisher & Reuters.

May 27, 2011

Institutional Equities

Dishman Pharma

Rsmn
Net Sales EBITDA Net Profit Diluted EPS (Rs) Diluted EPS Growth (%) EBITDA margin (%) PER (x) P/BV (x) Price/sales (x) EV/EBITDA (x) Dividend Yield (%) ROCE (%) ROE (%)

FY2009
10,671 2,662 1,462 18.1 22.1 24.9 5.3 1.1 0.7 5.4 1.2 19.8 23.2

FY2010
9,176 2,052 1,007 12.5 -31.1 22.4 7.7 1.0 0.8 7.3 1.2 13.6 16.1

FY2011
9,948 1,662 633 7.8 -37.1 16.7 12.2 0.8 0.8 9.6 1.2 9.5 9.1

FY2012E
11,733 2,571 721 8.9 13.9 21.9 10.7 0.8 0.7 5.8 1.2 13.7 8.8

FY2013E
13,628 3,208 1,168 14.5 62.0 23.5 6.6 0.7 0.6 4.6 1.2 17.2 12.8

Source: Company and Karvy Institutional Research

(Indian GAAP Consolidated. )

Key highlights
Company has got an order from Sanofi Aventis for high value QUATs due to stoppage of plant by a Japanese firm. Sanofi Aventis has placed order for 120 tonnes for Benzothroium chloride. This company will migrate to these high value QUATS, discontinue the low value QUATs, outsource some of the existing QUATs. The EBITDA margin in the same is more than 50% and 300 metric tonnes of space at its Naroda plant has been freed for the production of the same. THE European MNC intermediate order will contribute USD 12 mn in the current year and has the potential to contribute USD 50 mn in a couple of years Dis-infectant commercial production will start in Q2 FY 12 and business will commence from Q3 FY12. Dis-infectant formulations will contribute Rs 250 mn in this year. The company is in the process of setting up a marketing network in the northern and western India in the first phase and central and southern India in the second phase. Company has now become a single source for Abbott for Eprosartan. Supplies would be 200 tonnes from current year. Restructuring of Carbogen Amics will yield savings of CHF 5 mn in FY 12 and CHF 12 mn in FY 13. THE company is expecting orders for final phase supplies of key intermediate supplies to a US MNC for the US and Japanese market. Company has given a guidance of 15 % topline and bottomline with an EBDITA margin of 21.5 %.

Institutional Equities

Stock Ratings Buy Hold Sell

: : :

Absolute Returns > 15% 5-15% < 5%

R. Murali Krishnan
(Head Institutional Equities) muralikrishnan@karvy.com

For further enquiries please contact:

research@karvy.com Tel: +91-22-22895000

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