Dishman Pharma
Not Rated
Price: Rs215

Solvay miss hits hard, cuts guidance

* Adjusted net profit down 43% YoY: Dishman reported adjusted net
profit of Rs193mn down 43% YoY. Sales declined 14% YoY at Rs2.17bn
on account of lower contribution from Solvay coupled with de-growth in
Carbogen Amcis. In addition, marketable molecules business declined
25% YoY. EBITDA excluding forex gains was down 11% YoY with
EBITDA margins improving by c.60bps YoY to 20.3% supported by
declines in raw materials and other expenses.

* Sales growth disappointing: CRAMS business was down 9% YoY
largely due to significant decline in contribution from Solvay post its
acquisition by Abbott and 12% YoY decline in Carbogen. In addition,
there was some destocking at customer level as Solvay was running
high inventories for eprosartan. Previously, management had indicated
that supplies will resume from June but this was delayed to September
due to Abbott’s acquisition. With the company having received orders
from Solvay till June, it expects regular supplies in remaining quarters.
Carbogen contribution was low at c. Rs960mn (CHF 20.2mn) as against
Rs1.1bn (CHF 25.1mn) in 2Q09 due to lower demand in preclinical and
early phase trials. Company indicated this is due to shift to off-shore
location like India. The margins in this segment excluding forex impact
increased by 100bps to 16.4%. Company reported contract research
revenue of c.Rs150m from India out of total Rs658mn CRAMS business
in India. The marketable molecules segment also disappointed with
large declines in quats due to lower pricing. Vitamin D business within
this segment grew 44% YoY and was the only positive growth driver in
the sales.

* 15% YoY growth guidance removed: Dishman cut its earlier
guidance of 15% YoY sales growth to no growth. This is largely due to
decline in sales guidance from Rs1.75bn to Rs1.25bn from Solvay. The
company has received additional orders involving three new products –
mebeverine, fenofibrate and fluvoxamine and expects Solvay to touch
c. Rs1.75-2bn in FY11. In addition, it maintained its guidance of Rs0.8-
1bn of India contract research business in FY10. The company
maintains optimistic outlook for FY11 with aim to increase number of
clientele, foreseeing 20% YoY growth.

* Currently top 5 clients contribute 36.2% to total sales (down from
44.3% in 2Q09). The capex guidance stands at Rs1.2bn in FY10 which
will be utilized for high potency unit (Unit 9B at Bavla), and China plant
(Rs700mn done so far). The company has c. Rs2.1bn debtors, 2.6bn
inventories with gross debt of c. Rs8bn which increased due to
incremental working capital loan. Of this foreign currency debt is c.
Rs5.5bn.

* At CMP of 215, stock is trading at 11.3x FY10 and 9x FY11 consensus
EPS.

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