Dishman Pharma Buy on declines

Dishman is expected to report strong growth FY12 onwards.

Contract research and manufacturing services (CRAMS) major Dishman Pharma has seen its stock slide from Rs 219.55 in January to Rs 132.15 in November, on the back of declining revenues and profits. The sluggish business prospects dented the company's performance despite a strong CRAMS product pipeline.

As the slowdown in outsourcing continued, there was a suspension of Eposartan supplies to Solvay due to the restructuring of manufacturing and the merger of Solvay with Abbott. A strengthening rupee against the euro and a delay in the completion of new high potency (HIPO) plant (unit-IX) added to the woes.

However, things are set to improve with better revenue visibility. Solvay's supplies have resumed and could go up to 150 tonnes per annum, analysts said. The HIPO plant is expected to be operational in the March 2011 quarter and commercial supplies to three-four new contracts will commence in the next one year. The commercial supplies for cardio-vascular intermediates will also start in the fourth quarter, and are expected to add $6.5 million (Rs 29.3 crore) to the Q4 revenues.

"While the current year performance was not encouraging, I expect things to improve from the March 2011 quarter onwards," said Ambareesh Baliga, vice-president, Karvy Stock Broking.

In recovery mode for the remaining part of the current financial year, Dishman is expected to report a strong growth FY12 onwards. The company is investing Rs 30 crore to expand Vitamin D2 and D3 capacities, which presently face shortage globally. The plant is expected to be ready by Q1FY12 and peak revenues from this are pegged at Rs 75 crore, reports suggest.

Analysts at Anand Rathi expect the FY11 revenues to grow 11.3 per cent year-on-year to Rs 1,019.3 crore and 19 per cent in FY12. The net profit is expected to grow 16 per cent in FY11 and 35 per cent in FY12. The stock surged 3.25 per cent up on Tuesday with reports of a $50-million order from a European multinational. At Rs 154.15, it trades at 8.3 times the FY12 earnings estimates.

Source : BS

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