Dishman Carbogen Amcis' Q3FY18 results (Outperformer) - Carbogen revenue surprise
Q3FY18 result highlights
- Net revenues grew 27% yoy to Rs4.6bn, ahead of our estimates of Rs4bn driven by 34% growth in CRAMS business at Rs3.3bn. +52% growth in Carbogen drove CRAMS surprise. Other operating income of Rs289mn included realised forex gains of Rs175mn.
- Reported EBITDA came in at Rs1.2bn (+27% yoy / down 9% qoq) vs our est of Rs1.15bn. EBITDA margins stood lower at 26.4% (vs 30% in Q2) vs est of 28.8%. GMs came in lower at 77.5% (vs est of 84% / 82% in Q2FY18) due to higher contribution of lower margin development business in Carbogen. SG&A remained steady sequentially
- Other income stood higher at Rs146mn vs est Rs50mn
- Tax rate came higher than expectation at 38% vs est of 25% on account of one-time deferred tax writeback of Rs75mn. Resultant PAT of Rs420mn (-13% qoq) stood higher vs est of Rs394mn.
Key positives: Higher revenues; higher other income
Key negatives: Lower gross margins and higher tax rate
Impact on financials: We have reduced our FY18/19 EBITDA / earnings by 5% / 2% and 12% / 11% to account for weaker non-Carbogen revenues and introduce FY20 earnings estimate.
Valuations & view
After establishing a strong core profitability base, Dishman is now aiming to step up revenue growth momentum 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 a fairly formidable pipeline with commercialization of two NCEs in last few months adding comfort on the potential of this pipeline. Given its significant operating leverage, a pick-up in revenue growth can deliver significant earning upsides and trigger further re-rating. Maintain Outperformer, with a target price of Rs420 (12x FY20E EBITDA).
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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