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Dishman: The CRAMS dampener
Aug 20, 2010

Dishman Pharma has announced its 1QFY11 results. The company has reported 13% YoY and 31% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues decline by 13% YoY during 1QFY11 as the company’s CRAMS business takes a backseat.
  • EBDITA margins fall by 2.4% to 25.8% during the quarter due to a rise in raw material costs (as percentage of sales).
  • Decline in sales and operating profits has an impact on the bottomline as well which drops 31% YoY.


Financial performance: A snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 2,432 2,123 -12.7%
Expenditure 1,745 1,574 -9.8%
Operating profit (EBIDTA) 687 549 -20.1%
Operating profit margin (%) 28.2% 25.8%  
Interest 104 82 -20.8%
Depreciation 145 161 10.9%
Profit before tax 438 305 -30.3%
Tax 46 34 -26.0%
Profit after tax/ (loss) 392 271 -30.8%
Net profit margin (%) 16.1% 12.8%  
No. of shares (m) 79.7 80.7  
Diluted earnings per share (Rs)*   13.0  
P/E ratio (x)*   16.3  
(* on a trailing 12-month basis)

What has driven performance in 1QFY11?
  • Dishman’s topline during 1QFY11 declined by 13% YoY largely due to the 15% YoY decline in sales from its CRAMS business. The custom manufacturing business was largely impacted by the weak performance of Carbogen Amcis. The global economic slowdown has taken its toll on Carbogen as many small and medium sized pharma innovators and biotech firms chose to withdraw early research projects in an attempt to cut down costs. The MM business also suffered during the quarter as sales were flat.

    Revenue break-up
      1QFY10 1QFY11 Change
    CRAMS 1,684 1,427 -15.2%
    (% of total sales) 73.9% 70.7%  
    PBIT margins 23.3% 18.9%  
    Marketable molecules (MM) 594 592 -0.3%
    (% of total sales) 26.1% 29.3%  
    PBIT margins 25.3% 19.9%  
    Total 2,277 2,019 -11.3%

  • Dishman's operating margins reduced by 2.4% during the quarter due to the rise in raw material costs (as percentage of sales). Raw material costs increased from 23.1% of sales in 1QFY10 to 26.3% in 1QFY11. As far as the PBIT margins of the business segments are concerned, that of the CRAMS business fell from 23.3% in 1QFY10 to 18.9% in 1QFY11. Margins of the MM business also declined from 25.3% in 1QFY10 to 19.9% in 1QFY11.

  • With both sales and operating profits falling down substantially, net profits also declined by 31% YoY during the quarter. This came about despite reduction in interest costs and tax expenses.

What to expect?
At the current price of Rs 212, the stock is trading at a multiple of 8.8 times our estimated FY12 earnings. Going forward, Dishman's increasing focus on its CRAMS business is expected to play a significant role in boosting the company’s overall performance. The global economy slowing down is expected to strengthen the case for pharma outsourcing all the more as global innovators look to further prune costs, all of which will be beneficial to Dishman in the long term despite near term pressures. Besides increasing the scope of its contract with Solvay, other contracts entered into with some of the top global pharma innovators are also expected to add considerable value to Dishman’s business in terms of improving its product offerings and thereby bolstering its revenues. However, delay in the global recovery, exposure to significant currency fluctuations and a high debt equity ratio are the key risks to be kept in mind. Overall, we maintain our view on the stock from a long term perspective.

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