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Dishman Carbogen Amcis' Q2FY19 results (Outperformer) - Steady quarter

Q2FY19 result highlights

• Net revenues were down 7% qoq to Rs4.5bn, below our estimates of Rs4.7bn led by lower CRAMS revenues at Rs3.3bn (-3%/3% yoy/qoq) and others at 1.05bn (9%/5% yoy/qoq).
• Other operating income stood lower at Rs153mn vs Rs335mn in Q1 (Q2 included realised forex gains of Rs140mn vs Rs278.4mn in Q1). Mgt had earlier guided that based on their current hedge positions, they expect significant forex gains to sustain through FY19.
• GMs came in significantly higher at 84.6% vs 77.1% in Q1 and our est of 78%. Other exp stood higher at Rs903mn (+14% qoq) and included forex impact of Rs75mn. Reported EBITDA came at Rs1.28bn (28.7%) vs our est of Rs1.26bn (26% margins).
• Depreciation came in higher at Rs575mn (+5%/6% yoy/qoq) vs est of Rs525mn; other income was higher at Rs150mn vs Rs61mn in Q1 and our est of Rs50mn
• PBT of Rs708mn came higher vs our est of Rs650mn. Tax rate stood higher at 37.9% vs our est of 32%. Resultant reported PAT stood at Rs440mn (-9% yoy) inline with our est

Key positives: Higher GMs and higher other income

Key negatives: Lower revenues, higher depreciation and tax rate

Impact on financials: We have increased our FY19/20 EBITDA estimates by 1%/3%.

Valuations & view

After establishing a strong core profitability base (640bps EBITDA margin expansion over FY15-FY18), Dishman is now aiming to step up revenue growth momentum also in coming years. Dishman has 15-16 projects which are close to commercialization with another 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 (FY18 CRAMS business EBITDA of ~$50m) can lead to sustained and meaningful profit growth over the medium term. Maintain Outperformer, with a target price of Rs342 (11x FY20E EBITDA).