Tuesday, June 11, 2013

Stock Update : Dishman Pharmaceuticals - Turnaround on a slow but steady path.

Post our last update on Dishman, let’s revisit the turnaround story again. Most of the optimism has been turned into pessimism especially on following counts:
  • Continued high pledging from promoters ( rising consistently over the last 4 quarters as the stocks plummeted)
  • Management ineffectiveness in selling of the SEZ land and debt reduction from that front.
  • China facility continues to bleed. Dishman has strong intention to sell off the unit, though it continues to operate it till it finds a suitable buyer, and bear the losses.

Let us look at how the company fared on the number’s front.
Post FY12, we now have a full year’s numbers, let’s see how the company did


FY 08
FY 09
FY 10
FY 11
FY 12
FY13
Sales Turnover
100%
100%
100%
100%
100%
100%
Raw Materials
39%
30%
30%
38%
35%
30%
Other Expenses
10%
20%
18%
14%
18%
20%
Employee Cost
26%
25%
27%
27%
26%
28%
EBITDA
25%
25%
25%
21%
21%
23%
Interest & Financial Charges
4%
5%
4%
5%
6%
6%
EBDT
21%
21%
21%
15%
15%
18%
Depreciation
6%
6%
6%
7%
7%
7%
Profit Before Tax
15%
15%
15%
9%
8%
11%
Tax
0%
1%
2%
1%
3%
4%
Profit After Tax
15%
14%
13%
8%
5%
8%

So as we see the company has course corrected post FY12, point to note is the improved margins at EBITDA level, reduced finance costs and the improvements hitting the bottom line with NPM rising to FY11 levels of close to 8%.

One quick look at the SHP, it cautions us about the increasing pledge from the promoters, while at the same time, the turnaround is getting traction seen from increasing stake from FII ( up from 3.29% to 9.1% in a year)


Shareholding Group
Mar-13
Dec-12
Sep-12
Jun-12
Mar-12
Promoter and Promoter Group
61.37%
61.36%
61.36%
61.36%
61.36%
Pledged (as a %age of Promoter Holdings)
17.72%
9.65%
7.82%
6.00%
4.99%
FII
9.10%
8.40%
6.41%
3.17%
3.29%
DII
6.15%
6.05%
6.42%
7.11%
6.40%
Bodies Corporate
9.24%
10.21%
11.74%
13.85%
15.90%
Retail
14.14%
13.98%
14.07%
14.51%
13.05%


Looking at the results in details:
    
Year to March (INR Crs.)
FY12
FY13
YoY Growth
Net Revenues  
1124
1272
13%
( - ) Materials Cost
385
376
-2%
Gross Profit  
739
896
21%
( - ) Employee Expenses
294
351
19%
( - ) SG &A Expenses
221
255
15%
EBITDA   
224
290
29%
EBITDA margin  
19.93%
22.80%

( - ) D&A
77
84
9%
EBIT
148
206
39%
Other income  
13
18
38%
EBIT incl. other income
161
224
39%
( - ) Net finance expense 
73
79
8%
Profit before tax 
88
145
65%
( - ) Provision for taxes 
31
45
45%
Adjusted net profit 
57
100
75%
Basic shares outstanding  (Cr)
8.07
8.07
0%
EPS
7
12.4
77%

For the whole year the company has posted 13% sales growth which has reflected to a whopping 75% growth in net profits thanks to margin levels like CRAMs business from Carbogen Amcis ( Margins recovered to 16.4% from 7.7% earlier) and also the high margin Vitamin D business (registered 43% growth).

Revenue Split ( INR Cr)
FY13
FY12
YoY Growth
CRAMs (64%)
813.26
716.46
14%
Indian CRAMs
336.10
319.46
5%
Carbogen Amcis
477.20
397.00
20%
Marketable Molecules (36%)
454.31
405.60
12%
Vitamin D
243.40
170.59
43%
Others
210.90
235.01
-10%

Looking ahead the company can see improvements from the following points
  • Debt reduction : The company reduced debt by 100 Cr in FY13 to 818 Crs (Mar 2013) vs INR 916 crs (Mar 2012). The D/E reduced from 1.0x to 0.78x. There is only maintenance capex required for FY14 and FY15. Company plans to reduce 100 Cr of debt from cash flows, and another 100 Cr from SEZ land sale. Maintenance capex to the tune of 40 Cr is required for FY14.
  • Improvement in cash conversion: Company need to maintain higher inventory days ~300 days thereby blocking capital. Its debtor days reduced to 38 days while payable days increased to 288 days reducing the cash conversion cycle further.
  • Riding on Anti-Cancer drugs: Dishman has orders of $10-15mn for FY14 from Novartis, Merck and Astra Zeneca for anti-cancer products. Currently, the company operates two modules. Two more molecules are being added to contribute in FY14.
Looking at optimistic projections:

Year to March (INR Crs.)
FY13
FY14
YoY Growth
Net Revenues  
1272
1,386
9%
( - ) Materials Cost
376
395
5%
( - ) Employee Expenses
351
393
12%
( - ) SG &A Expenses
255
286
12%
EBITDA
290
313
8%
EBITDA margin  
22.80%
22.57%

( - ) D&A
84
94
12%
( - ) Net finance expense 
79
63.2
-20%
Other income  
18
18
0%
PBT incl. other income
145
174
20%
( - ) Provision for taxes 
45
52
16%
Adjusted net profit 
100
122
22%
Basic shares outstanding  (Cr)
8.07
8.07
0%
EPS
12.4
15.07
21%

The management expects an overall 9% sales growth with 10% growth from Carbogen Amcis. Here the main pointers are towards cost control and debt reduction. Looking at the robust operational cash flows + maintenance capex only + proceeds from SEZ land sale ( And/Or disposal of China facility) there can be savings in finance cost, and financial leverage to aid the bottom line.

At a FY14E EPS of 15.07 assuming a 8x multiple, one can look at a one year forward price of 120+ by June 2014, which corresponds to a upside of 85% in 1 year based on CMP of Rs 65 ( as on 11-Jun-2013)

Disclosure: Long positions.