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Wednesday, September 30, 2009

Dishman Pharmaceuticals & Chemicals Ltd:Future growth propsects and outlook

Scripscan:Dishman Pharmaceuticals & Chemicals Ltd

Story:Dishman Pharmaceuticals and Chemicals (Dishman), is a research driven companyengaged in the business of synthetic chemistry research and manufactures variousintermediates, APIs, QUATS and Speciality chemicals (“MM Segment”). The
company currently focuses on contract research and contract manufacturingbusiness and is core of the company’s business model. The recent acquisition ofCarbogen Amcis (CA) business, setting up of a QUATs facility in China, diversecustomer base and strengthening of international presence will boost the company'sperformance with greater revenue and earnings momentum.The net sales increased marginally by 3% to Rs 243.2 crore for the quarter ended June'09. This is on the back of one time sales of 6 tones of particular ingredient supplied to Solvay in Q1 FY'09 as the Solvay hasexclusivity launch.CRAMS business declined by 8% to Rs 168.35 crore for the quarter ended June'09.During the quarter under review, revenues from Marketable molecules business increased by 11% to Rs 59.36 crore.Good contribution from Carbogen Amcis: During the Q1 FY10 the Carbogen Amcis numbers witnessed a growth of 23%. The revenue contribution from Carbogen Amcis was Rs 114.9 cr as against Rs 93.7 Cr during the same period last year. Thus we expect that the impressive scale up of Carbogen Amcis would continue going forward providing the company a strong revenue visibility.Vitamin D business posted revenue of Rs 27 crore for the quarter ended June'09.Going Forward, we expect business outlook to improve with the enhanced capacity utilization in the new units in Bavla, commercialization of the Chinese plant and thenew HiPo facility. Carbogen-Amcis acquisition is a big positive and it has considerably strengthened Dishman’s competitiveness in the CRAMS space. Also the company has a number of robust products in its pipeline which is expected to touch the market in 2010/2011 thereby increasing visibility to its revenue. Thus we remain positive about the stock.At CMP of Rs. 211, we maintain our ‘Hold’ recommendation on the stock with atarget price of Rs. 235, which gives it an upside potential of 11.4%. At the CMP, the stock is trading at 9.3x FY10E earnings of Rs. 22.8.

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