Dishman Carbogen Amcis' Q2FY20 results (Outperformer) - Broadly in-line; H2 likely to be stronger
Q2FY20 result highlights
- Net revenues stood at Rs4.7bn below our est of Rs5.4bn due to a decline in Carbogen revs in the CRAMS segment, owing to timing differences in revenue recognition. While CRAMS revenues stood at Rs3.5bn (5% yoy), the MM segment registered revs of Rs1bn. CRAMS India grew 53% yoy to Rs1.1bn with 60.5% margins
- GMs came at 86.6% vs est of 78%. Employee cost came at Rs1.7bn (+10% yoy) as guided by the management earlier. Other expenses declined 7% yoy to Rs839m vs est of Rs813m
- EBITDA came at Rs1.5bn (13.4% yoy) vs est of Rs1.4bn. EBIDTAM was 31.2% vs est 25.9% due to higher GMs.
- PAT stood at Rs412m (-6% yoy) vs our est of Rs489m. PAT has been impacted by implementation of Ind AS 116 norms which has led to higher deprecation / finance charges (Net impact of Rs120m) especially in Carbogen where facilities are on long term lease.
- Mgt has guided to stronger H2 with pickup in Carbogen commercialisation revenues
Impact on financials: We have reduced our FY20E/21E earnings by 13% / 10% for Ind AS 116 impact. EBITDA estimates are unchanged.
Valuations & view
After establishing a strong core profitability base, Dishman is now aiming to step up its CRAMS revenue growth momentum. The company has already commercialized atleast 3 NCEs over last 3 years. Dishman has strong relationships various large global players and has another 15-16 projects which are close to commercialization with additional 16-20 candidates in early Phase III across Carbogen and Indian facilities. This makes it one of the stronger pipelines amongst peers with the company hopeful of 2-3 new drugs getting commercialized every year. This high potential CRAMS pipeline coupled with low current profit base (FY19 CRAMS business EBITDA of ~$60m) can lead to sustained and meaningful profit growth over the medium term. Maintain Outperformer, with a target price of Rs267 (15x FY21PER / 7x EV/EBITDA FY21E).​
Dishman Carbogen Amicis Limited is an India-based contract research and manufacturing services (CRAMS) company. The Company is engaged in the process of research and development to late-stage clinical and commercial manufacturing. It operates through two segments: CRAMS and Others. The CRAMS segment is its contract research and manufacturing segment under the long-term supply agreements. The others segment is focused on bulk drugs, intermediates, quaternary ammonium compounds (Quats) and specialty chemicals and outsourced/traded goods. It manufactures phase transfer catalysts, intermediates, fine chemicals, and various products for pharmaceutical, cosmetic and related industries. It also manufactures and supplies a range of Vitamin D and Vitamin D analogues. It also manufactures cholesterol and lanolin related products for pharmaceutical, cosmetic and related markets. The Company operates through nine manufacturing sites in Europe, India, China and Saudi Arabia.
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