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3QFY2012 Result Update | Pharmaceutical

March 5, 2012

Dishman Pharmaceuticals
Performance Highlights
Y/E March (` cr) Net sales Other income Operating profit Interest Net profit
Source: Company, Angel Research

BUY
CMP Target Price `53 `81
12 months Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Pharmaceutical 427 0.8 110/33 64029.29 2 17,363 5,280 DISH.BO DISH@IN

3QFY2012 2QFY2012 266 1 61 16 17 269 0 28 15 (6)

% chg qoq 3QFY2011 % chg yoy (1.4) 57.9 115.1 9.1 232 6 25 13 2 14.6 (88.1) 139.9 23.0 857.7

For 3QFY2012, Dishman Pharmaceuticals (Dishman) reported a lower-thanexpected net profit performance. The sales and net profit came in at `266cr and `17cr, which was lower than the expected net sales and profits of `305cr and `20cr respectively. On the positive side, the company posted good expansion in the operating margins. We maintain our Buy rating on the stock. Lower-than-expected performance during the quarter: Dishman reported net sales of `269cr during 3QFY2012, reporting growth of 14.6% yoy and above our estimate of `305cr. Segment wise, the CRAMS business grew by 7.0% yoy, whereas the market molecules (MM) business surprised with 31.1% yoy growth. Gross margin for the quarter expanded significantly to 67.6%. Which along with the significant low growth in other and staff expenses aided the operating margins to expand significantly from 10.9% to 22.9% in 3QFY2012. This has lead to the company reporting a net profit of `16.8cr as compared to the `2cr during the last corresponding period. Outlook and valuation: We expect Dishmans net sales and net profit to come in at `1,282cr and `81.3cr, respectively, in FY2013. At current levels, Dishman is trading at 7.8x and 5.3x FY2012E and FY2013E earnings, respectively. Despite being conservative on the margin front, we believe the current valuations are attractive. Hence, we maintain our Buy recommendation on the stock with a target price of `81.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 61.4 7.4 4.1 27.2

Abs. (%) Sensex Dishman

3m 4.7 22.5

1yr (45.0)

3yr (42.0)

(4.6) 111.8

Key financials (Consolidated)


Y/E March (` cr) Net sales % chg Net profit % chg EPS (`) EBITDA margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 915 (13.8) 117.7 (19.5) 14.6 22.3 3.6 15.7 9.5 0.6 1.3 6.0

FY2011 991 8.2 80.0 (32.0) 9.9 16.4 5.3 9.6 5.5 0.6 1.3 8.1

FY2012E 1,115 12.5 54.7 -31.6 6.8 17.5 7.8 6.1 6.0 0.5 1.2 6.8

FY2013E 1,282 15.0 81.3 48.7 10.1 17.9 5.3 8.5 7.3 0.5 1.0 5.7

Sarabjit Kour Nangra


+91 22 3935 7800 Ext: 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Dishman | 3QFY2012 Result Update

Exhibit 1: 3QFY2012 performance (Consolidated)


Y/E March (` cr) Net sales Other income Total income Gross profit Gross margins Operating profit OPM (%) Interest Dep & amortisation PBT Provision for taxation Reported net profit Less : Exceptional items Minority interest PAT after exceptional items EPS (`)
Source: Company, Angel Research

3QFY2012 266 1 266 180 67.6 61 22.9 16 19 26 9 17 17 2.1

2QFY2012 269 0 270 172 63.7 28 10.5 15 21 (7) (1) (6) (6)

% chg qoq (1.4) 57.9 (1.3) 4.7 115.1 9.1 (7.7) -

3QFY2011 232 6 238 148 63.9 25 10.9 13 17 1 (1) 2 2 0.2

% chg yoy 14.6 (88.1) 11.9 21.4 139.9 23.0 11.8 2402.9 857.7

9MFY2012 772 2 774 515 66.7 137 17.8 45 58 36 10 26 -

9MFY2011 646 37 683 447 69.2 106 16.3 31 50 61 4 57 (1) 58 7.2

% chg 19.4 (94.2) 13.3 15.2 30.2 45.3 16.9 (41.4) 155.1 (55.3)

857.7

26 3.2

(56.2)

Exhibit 2: 3QFY2012- Actual v/s. Angel estimates


(` cr) Net sales Other income Operating profit Interest Tax Net profit
Source: Company, Angel Research

Actual

Estimates

Variation

266 1 61 16 9 17

305 6 55 15 5 20

(12.8) 11.6 9.4 (15.5)

Revenue boosted by the MM business: Dishman reported net sales of `269cr during 3QFY2012, reporting growth of 14.6% yoy and above our estimate of `305cr. Segment wise, the CRAMS business grew by 7.0% yoy, whereas the market molecules (MM) business surprised with 31.1% yoy growth. Carbogen Amcis reported a good performance, with 23% yoy growth during 3QFY2012.

March 5, 2012

Dishman | 3QFY2012 Result Update

Exhibit 3: Sales trend


400 350 300 250 232 237

344 266 266

(`cr)

200 150 100 50 0 3QFY2011 4QFY2011 1QFY2012 2QFY2012 3QFY2012

Source: Company, Angel Research

Higher-than-expected improvement in OPM: During the quarter, the companys Gross margin for the quarter expanded significantly to 67.6%. Which along with the significant low growth in other and staff expenses aided the operating margins to expand significantly from 10.9% to 22.9% in 3QFY2012. The improvement in the operating margins was also significant on the qoq basis.

Exhibit 4: OPM trend

24.0 22.0 20.0 22.9

(%)

18.0 16.0 14.0 12.0 10.0 3QFY2011 10.9

16.1

18.4

10.5 4QFY2011 1QFY2012 2QFY2012 3QFY2012

Source: Company, Angel Research

Net profit lower than expectation: During the quarter, company reported a net profit of `16.8cr as compared to the `2cr during the last corresponding period. However, the same was below expectations of `19.8cr,inspite an significant improvement on the operating front, as the net sales came in below expectations.

March 5, 2012

Dishman | 3QFY2012 Result Update

Exhibit 5: net profit trend


30 23 20 15 17

(`cr)

10 2 0 3QFY2011 -10 4QFY2011 1QFY2012 2QFY2012 (6) 3QFY2012

Source: Company, Angel Research

Concall Highlights:
Company has guided for 20% growth on the top-line for FY2013. Tax rate guided at ~22% for FY2013. Gross debt is at ` 990cr and ~70% of that is foreign debt.

Investment arguments
Capex benefits to accrue from FY2012: Dishman is well placed to benefit from the organic capex of `300cr incurred over the last three years towards building its China and Hipo facilities and expansion of other existing facilities at its Bavla unit targeting the European and Asian markets. Post the new facilities getting operational, Dishman is likely to enter into long-term API supply contracts with these players, thereby resulting in stable revenue flow going ahead. The companys ties with global innovators would also strengthen apart from reducing its dependence on Abbott. Abbott contract back on track: Abbott has been one of Dishmans key clients (13% sales and 17% of operating profit in FY2010). As per a long-term contract, Dishman primarily supplies Eprosartan (Teveten) API to the company. Revenue from the contract has risen at a CAGR of 36.1% to `174.0cr over FY2007-09, driven by increasing offtake of Eprosartan, resulting in higher margins. However, during FY2010, key products of Solvay, viz. Tricor and Teveten, declined on account of inventory rationalization in the channels and acquisition by Abbott, leading to revenue of `120cr. With the global inventory rationalization nearing its end and the acquisition of Solvay by Abbott now completed, the contract normalized in FY2011.

March 5, 2012

Dishman | 3QFY2012 Result Update

Outlook and valuation


We expect Dishmans net sales and net profit to come in at `1,282cr and `81.3cr, respectively, in FY2013. At current levels, Dishman is trading at 7.8x and 5.3x FY2012E and FY2013E earnings, respectively. Despite being conservative on the margin front, we believe the current valuations are attractive. Hence, we maintain our Buy recommendation on the stock with a target price of `82.

Exhibit 6: One-year forward PE


500 400 300 200 100 -

Source: Company, Angel Research

Exhibit 7: Recommendation Summary


Company Alembic Pharma. Aurobindo Pharma Aventis* Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma*# Indoco Remedies Ipca labs Lupin Orchid Chemicals Ranbaxy*# Sun Pharma Reco Buy Buy Neutral Buy Accumulate Buy Neutral Buy Buy Buy Buy Neutral Neutral CMP Tgt. price Upside (`) 46 122 2,220 702 312 53 2,072 415 333 493 186 426 568 (`) 82 166 866 341 1,920 81 555 393 593 255 77.3 36.5 28.2 9.2 14.0 52.2 33.7 18.0 20.0 37.1 5.6 8.9 20.1 15.6 18.3 17.5 5.3 23.8 7.5 10.2 16.6 6.6 8.1 21.3 FY2013E 0.7 0.9 2.8 2.5 3.3 3.1 1.0 5.4 0.9 1.6 2.7 1.3 1.4 6.1 4.6 6.5 18.4 13.3 15.4 12.0 5.4 15.3 6.1 7.3 13.8 6.3 5.7 16.8 FY11-13E 34.8 9.9 13.6 11.7 16.9 22.7 0.6 14.6 15.6 25.4 23.9 13.7 21.8 23.5 FY2013E RoE (%) 38.80 15.0 20.4 29.5 17.0 24.9 8.5 30.7 16.9 27.8 28.6 15.8 30.0 22.5 26.6 10.2 17.7 17.2 15.5 21.8 7.3 41.0 14.2 25.9 24.8 8.9 27.7 22.6 % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%)

Accumulate 1,684

Source: Company, Angel Research; Note: *December year ending;#Based on CY2012 estimates

March 5, 2012

Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12
6x 12x 18x 24x

Dishman | 3QFY2012 Result Update

Profit & Loss Statement (Consolidated)


Y/E March (` cr) Gross sales Less: Excise duty Net sales Other operating income Total operating income % chg Total expenditure Net raw materials Other mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & amortisation EBIT % chg (% of Net Sales) Interest & other charges Other Income (% of PBT) Recurring PBT % chg PBT (reported) Tax (% of PBT) PAT (reported) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 807 4 803 803 38.8 650 302 49 215 84 153 32.8 19.0 47 106 19.0 13.2 30 48 38.8 123 28.2 123 1.3 1.1 122 2 120 120 30.7 14.9 15.0 15.0 18.3 1,070 8 1,062 1,062 32.3 786 330 73 273 110 276 80.5 26.0 63 213 101.6 20.1 46 (10) 157 28.2 157 10.7 6.8 147 1 146 146 22.1 13.8 18.1 18.1 20.6 928 7 915 915 (13.8) 712 277 66 254 181 204 (26.2) 22.3 59 144 (32.2) 15.8 39 27 20.3 133 (15.8) 133 14.9 11.2 118 118 118 (19.5) 12.9 14.6 14.6 (19.5) 998 8 991 991 8.2 829 355 77 280 194 162 (20.4) 16.4 69 93 (35.3) 9.4 42 40 43.7 92 (30.5) 92 10.8 11.7 81 1 80 80 (32.0) 8.1 9.9 9.9 (32.0) 1,124 9 1,115 1,115 12.5 920 330 83 308 199 195 20.0 17.5 86 108 15.8 9.7 61 28 37.0 75 (18.3) 75 20.6 27.3 55 55 55 (31.6) 4.9 6.8 6.8 (31.6) 1,292 10 1,282 1,282 15.0 1,052 376 95 345 235 230 18.2 17.9 94 136 26.0 10.6 61 32 29.8 108 42.9 108 25.3 23.5 82 81 81 48.7 6.3 10.1 10.1 48.7

March 5, 2012

Dishman | 3QFY2012 Result Update

Balance Sheet (Consolidated)


Y/E March (` cr) SOURCES OF FUNDS Equity share capital Share application money Reserves & surplus Shareholders funds Minority interest Total loans Deferred tax liability Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net block Capital work-in-progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 645 112 533 148 152 1 631 37.1 113 481 247 384 1,218 798 195 603 223 175 1 685 45 187 453 228 457 1,459 932 248 684 357 159 1 588 45 187 355 200 388 1,590 1,161 328 833 412 179 1 654 43 168 444 299 355 1,780 1,600 414 1,186 50 179 1 739 40 188 511 335 405 1,821 1,698 508 1,190 50 179 1 858 54 217 587 385 473 1,894 16 23 534 573 630 15 1,218 16 2 696 714 724 21 1,459 16 8 761 785 774 32 1,590 16 2 861 879 869 32 1,780 16 2 907 925 869 27 1,821 16 2 978 996 869 29 1,894 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

March 5, 2012

Dishman | 3QFY2012 Result Update

Cash Flow Statement (Consolidated)


Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E 123 47 (104) 35 (11) 55 (269) 13 35 (221) 20 228 (9) (71) 168 2 35 37 157 63 (65) 36 (14) 141 (174) 36 (139) 2 94 (9) (80) 6 8 37 45 133 59 69 27 (3) 257 (288) (0) 27 (262) 50 (11) (35) 4 0 45 45 92 69 30 40 (11) 180 (257) 40 (216) (6) 95 (9) 80 2 45 43 75 86 (52) 28 (26) 56 (117) 28 (89) (9) 40 31 (2) 43 40 108 94 (65) 32 (23) 136 (150) 32 (118) (11) 7 (4) 14 40 54

March 5, 2012

Dishman | 3QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 1.0 3.9 3.5 0.9 2.5 4.6 0.9 3.6 3.7 0.9 5.1 2.2 0.9 4.3 1.8 0.8 3.5 2.2 1.4 137 68 81 134 1.5 105 56 51 130 1.1 109 52 56 150 0.9 94 53 29 121 0.8 97 53 17 111 0.8 99 47 43 112 10.0 13.7 26.9 15.9 22.5 22.7 9.5 14.1 15.7 5.5 8.6 9.6 6.0 8.0 6.1 7.3 8.6 8.5 13.2 98.9 0.8 10.2 5.1 1.3 17.2 20.1 93.2 0.8 15.3 6.3 1.0 24.2 15.8 88.8 0.6 8.7 4.6 0.9 12.5 9.4 88.3 0.6 5.0 4.5 0.9 5.6 9.7 72.7 0.6 4.5 5.1 0.9 3.9 10.6 76.5 0.7 5.8 5.4 0.9 6.1 15.0 15.0 20.9 1.0 72.0 18.1 18.1 25.9 1.2 88.5 14.6 14.6 21.9 1.2 97.2 9.9 9.9 18.4 0.9 108.9 6.8 6.8 17.5 0.9 114.6 10.1 10.1 21.7 1.1 123.4 3.5 2.5 0.7 1.9 1.3 6.6 0.8 2.9 2.0 0.6 2.3 1.0 4.0 0.8 3.6 2.4 0.5 2.2 1.3 5.7 0.7 5.3 2.9 0.5 1.7 1.3 7.7 0.7 7.8 3.0 0.5 1.8 1.1 6.5 0.7 5.3 2.4 0.4 2.1 1.0 5.4 0.7 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

March 5, 2012

Dishman | 3QFY2012 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Dishman Pharmaceutical No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

March 5, 2012

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