4QFY2012 Result Update | Pharmaceutical

May 15, 2012

Dishman Pharmaceuticals
Performance Highlights
Y/E March (` cr) Net sales Other income Operating profit Interest Net profit 4QFY2012 350 10 82 22 31 3QFY2012 266 1 61 16 17 % chg qoq 31.9 35.6 32.7 86.9 4QFY2011 344 3 55 10 23 % chg yoy 1.7 177.0 48.6 107.5 36.3

BUY
CMP Target Price
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 351 0.6 103 / 33 59,512 2 16,328 4,843 DISH.BO DISH@IN

`43 `92
12 months

Source: Company, Angel Research

For 4QFY2012, Dishman Pharmaceuticals (Dishman) reported lower-thanexpected sales, while its net profit came in above our expectations. Sales and net profit came in at `350cr and `31cr vs. our expectation of net sales and profit of `383cr and `28cr, respectively. During the quarter, the companys OPM expanded significantly. We maintain our Buy rating on the stock. Better-than-expected operating performance during the quarter: Dishman reported net sales of `350cr during 4QFY2012, reporting 1.7% yoy growth and below our estimate of `383cr. Segment wise, the CRAMS business grew by 13.8% yoy, whereas the market molecules (MM) business declined by 13.8% yoy. Gross margin for the quarter expanded significantly to 65.4% from 54.9% in 4QFY2011. However, low top-line growth restricted the expansion in OPM to 23.5% (16.1% in 4QFY2011). Consequently, the company reported net profit of `31cr in 4QFY2012 as compared to `23cr in 4QFY2011. Outlook and valuation: We expect Dishmans net sales and net profit to come in at `1,538cr and `92.8cr, respectively, in FY2014. At current levels, Dishman is trading at 4.6x and 3.7x FY2013E and FY2014E earnings, respectively. Despite being conservative on the margin front, we believe current valuations are attractive. Hence, we maintain our Buy recommendation on the stock with a target price of `92.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 61.4 22.3 4.1 12.2

Abs. (%) Sensex Dishman

3m

1yr

3yr 34.1

(10.3) (11.9)

(27.5) (52.3) (63.2)

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

FY2011

FY2012E

FY2013E

FY2014E

991 8.2 80.0 (32.0) 9.9 16.4 4.3 9.6 5.5 0.4 1.2 7.2

1,122 13.2 56.9 (28.8) 7.1 19.8 6.1 6.3 8.1 0.4 1.1 5.3

1,280 14.1 73.9 29.8 9.2 17.8 4.7 7.7 7.8 0.4 0.9 5.2

1,536 20.0 91.3 23.5 11.3 17.8 3.8 8.8 8.7 0.3 0.8 4.3 Sarabjit Kour Nangra
+91 22 3935 7800 Ext: 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Dishman Pharmaceuticals | 4QFY2012 Result Update

Exhibit 1: 4QFY2012 performance (Consolidated)

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

4QFY2012 350 10 360 229 65.4 82 23.5 22 18 52 21 31 (0) 31 2.1

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

% chg qoq 31.9 35.1 27.5 35.6 32.7 (5.5) 100.4 124.7 86.9 86.9

4QFY2011 344 3 348 189 54.9 55 16.1 10 19 30 7 23 23 2.7

% chg yoy 1.7 177.0 3.4 21.1 48.6 107.5 (3.5) 75.4 36.2

FY2012 1,122 15 1,137 738 65.8 222 19.8 73 77 88 31 57 0

FY2011 991 40 1,031 636 64.2 162 16.4 42 69 92 11 81 1 80 9.9

% chg 13.2 (62.7) 10.3 16.0 37.1 75.4 11.3 (4.5) 189.5 (30.1)

36.3

57 7.0

(29.0)

Exhibit 2: 4QFY2012- Actual v/s. Angel estimates

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

Actual 350 10 82 22 21 31

Estimates 383 4 68 16 9 28

Variation (8.6) 20.9 37.7 119.4 10.0

Revenue boosted by the CRAMs business: Dishman reported net sales of `350cr during 4QFY2012, reporting 1.7% yoy growth, below our estimate of `383cr. Segment wise, the CRAMS business grew by 13.8% yoy, whereas the market molecules (MM) business declined by 13.8% yoy. Carbogen Amcis reported a good operating performance during the quarter, recording EBITDA of 17.5% (8.2%). However, on the top-line front, performance was subdued, registering a dip of 5.2% yoy.

May 15, 2012

Dishman Pharmaceuticals | 4QFY2012 Result Update

Exhibit 3: Sales trend

400 350 300 250 237 344 350 350

266

(` cr)

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

Source: Company, Angel Research

Higher-than-expected improvement in OPM: During the quarter, the companys gross margin expanded significantly to 65.4% from 54.9% in 4QFY2011. However, low top-line growth restricted the expansion in OPM to 23.5% in 4QFY2012 from 22.9% in 3QFY2012 and 16.1% in 4QFY2011.

Exhibit 4: OPM trend

26.0 24.0 22.0 20.0 18.4 16.1 22.9 23.5

(%)

18.0 16.0 14.0 12.0 10.0

10.5 4QFY2011 1QFY2012 2QFY2012 3QFY2012 4QFY2012

Source: Company, Angel Research

Better-than-expected net profit performance: The company reported net profit of `31cr in 4QFY2012 as compared to `23cr in 4QFY2011. However, net profit growth (up 36.3% yoy) was lower than operating profit growth (up 48.6% yoy), mainly on the back of higher interest and tax expenses, which grew by 107.5% yoy and 147.7% yoy, respectively, during the quarter.

May 15, 2012

Dishman Pharmaceuticals | 4QFY2012 Result Update

Exhibit 5: Net profit trend

40 31 30 23 20 15 17

(` cr)

10

0 4QFY2011 (10)
Source: Company, Angel Research

1QFY2012

2QFY2012 (6)

3QFY2012

4QFY2012

Concall highlights
Management has guided for 15% top-line growth, with EBITDA margin of 21% for FY2013. PAT is expected to be around `100cr in FY2013. Management has guided for revenue of ~Euro40mn and EBITDA margin of around ~20% from its Vitamin D segment for FY2013. Tax benefit for the Bavla facility ceased during the quarter, which led to higher tax burden during the quarter. Management has guided for tax rate of 2324% for FY2013. As per management, gross debt stands at ~`890cr for FY2013. Capex is expected to be `40cr-50cr in FY2013.

Investment arguments
Capex benefits to accrue from FY2012: Dishman is well placed to benefit from organic capex (`300cr-400cr) incurred over the last four years towards building facilities and expansion of other existing facilities. 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. CRAMS back on track: Abbott has been one of Dishmans key clients. As per a long-term contract, Dishman primarily supplies Eprosartan (Teveten) API to the company. Revenue from the contract has posted 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 various channels and acquisition by Abbott. With the global inventory rationalization nearing its end and the acquisition of Solvay by Abbott now completed, the contract is normalized. For FY2013, Abbott contract is expected to grow by 10-15%. Further, a healthy order book position in CRAMS would aid the segment to post 15% growth, mainly driven by CRAMS.
May 15, 2012

Dishman Pharmaceuticals | 4QFY2012 Result Update

Outlook and valuation

We expect Dishmans net sales and net profit to come in at `1,538cr and `92.8cr, respectively, in FY2014. At current levels, Dishman is trading at 4.6x and 3.7x FY2013E and FY2014E earnings, respectively. Despite being conservative on the margin front, we believe current valuations are attractive. Hence, we maintain our Buy recommendation on the stock with a target price of `92.

Exhibit 6: One-year forward PE

600 500 400 300 200 100 Feb-06 Oct-07 Sep-05 May-07 Nov-09 Sep-10 Feb-11 May-12 Dec-06 Jun-09 Mar-08 Aug-08 Dec-11 Jan-09 Jul-06 Apr-05 Apr-10 Jul-11

6x
Source: Company, Angel Research

12x

18x

24x

Exhibit 7: Recommendation summary

Company Alembic Pharmaceuticals 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 Reduce Buy Buy Accumulate Buy Neutral Buy Buy Buy Buy Neutral Accumulate CMP Tgt. price Upside (`) 51 103 2,104 803 324 1,656 43 2,030 461 361 538 129 493 595 (`) 91 175 1,937 953 379 1,859 92 665 443 646 270 635 78.4 69.9 (7.9) 18.7 16.9 12.2 113.5 44.3 20.1 20.0 109.3 6.7 5.6 5.9 20.2 16.8 16.8 17.3 3.8 24.6 6.9 8.9 16.6 3.4 16.5 20.9 FY2014E 0.7 0.5 2.6 2.1 2.9 3.0 0.8 5.1 0.9 1.4 2.1 0.9 1.6 5.9 4.7 3.6 16.8 10.9 13.5 11.9 4.4 16.4 6.0 6.4 10.8 4.2 10.4 13.0 FY12-14E 14.6 4.8 5.6 22.3 13.5 22.5 26.6 8.7 25.1 23.5 29.1 50.0 44.8 8.3 FY2014E 29.4 10.1 16.1 23.0 15.2 22.2 8.7 38.9 13.8 27.3 28.0 10.7 15.6 24.0 29.2 14.0 17.0 27.5 16.8 25.3 8.8 29.0 16.9 27.7 25.2 18.0 28.1 20.8 % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)

Source: Company, Angel Research; Note: *December year ending

May 15, 2012

Dishman Pharmaceuticals | 4QFY2012 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 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 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) 1,131 9 1,122 2 1,124 13.4 900 384 83 294 139 222 37.1 19.8 77 146 56.1 13.0 73 13 14.8 88 (4.5) 88 31.2 35.4 57 (0) 57 57 (28.8) 5.1 7.1 7.1 (28.8) 1,290 10 1,280 2 1,282 14.1 1,052 376 95 345 235 228 2.6 17.8 83 146 (0.1) 11.4 62 13 13.2 99 11.9 99 24.6 25.0 74 74 74 29.8 5.8 9.2 9.2 29.8 1,548 10 1,536 2 1,538 20.0 1,262 451 114 415 282 274 20.0 17.8 105 169 15.9 11.0 62 13 10.7 122 23.5 122 30.4 25.0 91 91 91 23.5 5.9 11.3 11.3 23.5

May 15, 2012

Dishman Pharmaceuticals | 4QFY2012 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 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 1,600 404 1,196 50 179 1 755 51 190 514 337 418 1,844 1,700 487 1,213 50 179 1 849 46 216 586 384 465 1,908 1,800 592 1,208 50 179 1 1,011 48 260 704 461 550 1,989 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 2 910 927 890 27 1,844 16 2 973 991 890 27 1,908 16 2 1,054 1,072 890 27 1,989 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

May 15, 2012

Dishman Pharmaceuticals | 4QFY2012 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 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 157 63 (65) 36 (14) 105 (174) 0 36 (139) 2 94 (9) (80) 6 (27) 37 45 133 59 69 27 (3) 231 (269) (0) 27 (242) 50 (11) (35) 4 (7) 45 45 92 69 30 40 (11) 139 (283) 0 40 (242) (6) 95 (9) 80 2 45 43 88 77 (54) 13 (31) 92 (78) 0 13 (65) 21 (9) (32) (20) 8 43 51 99 83 (65) 13 (25) 144 (100) 13 (87) (10) (52) (62) (5) 51 46 122 105 (65) 13 (30) 179 (100) 13 (87) (10) (80) (90) 2 46 48

May 15, 2012

Dishman Pharmaceuticals | 4QFY2012 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 Int. Coverage (EBIT / Int.) 0.9 2.5 4.6 0.9 3.6 3.7 0.9 5.1 2.2 0.9 3.8 2.0 0.9 3.7 2.3 0.8 3.1 2.7 1.5 105 56 51 130 1.1 109 52 56 150 0.9 94 53 29 121 0.8 96 53 17 110 0.8 98 46 43 112 0.9 98 46 35 109 15.9 22.5 22.7 9.5 14.1 15.7 5.5 8.6 9.6 8.1 10.8 6.3 7.8 9.1 7.7 8.7 10.1 8.8 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 13.0 64.6 0.6 5.3 5.4 0.9 5.3 11.4 75.0 0.7 6.0 5.3 0.9 6.6 11.0 75.0 0.8 6.7 5.3 0.8 7.8 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 7.1 7.1 16.5 0.9 114.9 9.2 9.2 19.4 1.1 122.8 11.3 11.3 24.3 1.1 132.8 2.4 1.7 0.5 2.8 1.0 3.7 0.7 2.9 2.0 0.4 2.7 1.2 5.3 0.7 4.3 2.3 0.4 2.1 1.2 7.2 0.7 6.1 2.6 0.4 2.1 1.1 5.3 0.6 4.7 2.2 0.4 2.5 0.9 5.2 0.6 3.8 1.8 0.3 2.5 0.8 4.3 0.6 FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E

May 15, 2012

Dishman Pharmaceuticals | 4QFY2012 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%)

May 15, 2012

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