Dishman Pharmaceuticals & Chemicals Ltd.
Recommendation Maintain BUY
CMP Rs215
Target Price Rs270
Dishman Pharma’s (Dishman) non Solvay contracts are gaining increasing traction. The company has been working with big pharma like Astra Zeneca, GSK, Krka and Merck and has been able to secure contracts in the range of US$10-
15mn.
Dishman’s relationship with Solvay, which begun over 2002-03 through the supply of intermediate/ API for Eposartan Mesylate (EM) has gained critical mass. Dishman is confident of generating revenue of Rs1bn from EM for FY07.
Carbogen Amcis (CA) business is witnessing increasing traction and is on track to record sales of Rs5.3bn for FY08. Growth would be driven by increasing capacity utilization at Cabogen and volume growth at Amcis.
Dishman, through Dishman India and Synprotec has identified contract research as an area for development which would result in contract manufacturing opportunities.
Dishman’s MM segment is likely to deliver 20% annual growth over the next two years. Dishman is increasingly changing its product mix from low end QUATs to high end QUATs.
We expect Dishman to witness revenue CAGR of 77.4% to Rs8.73bn over FY06-08. We believe Carbogen Amcis would be the growth engine for the company over the next few years and is expected to account for 48% of sales by FY08.
While Solvay contracts are on track, contracts with other large pharma companies are gaining increasing
traction and Dishman is emerging as a preferred Asian partner for those companies. MM segment is witnessing strong volume growth driven by a shift in product mix for the company.
We believe Dishman is well placed amongst its peers to capitalize on the lucrative CRAMS opportunity. At Rs215, the stock is trading at 19.5x FY07E EPS of Rs11 and 13.5x FY08E EPS of Rs15.9. We maintain BUY with a target price of Rs270, an
upside of 25.5%.