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AnandRathi
Dishman Carbogen (Buy)
CMP: ₹220
Target: ₹390
During FY19 Diman Carbogen’s CRAMS (contract research and manufacturing services) revenue grew 17.5 per cent y-o-y to ₹1,470 crore. We believe its CRAMS business would be Dishman’s key revenue growth driver. Oncology as a therapeutic segment is its key focus area, generating about 50 per cent of its CRAMS revenue. FY19 revenue from commercial quantities of the ovarian cancer drug was about $9.5 million and, we believe, this would increase. Also, one of the molecules for a partner was approved by the US FDA in October 2018 for bacterial pneumonia. Commercial orders will soon begin and about $4-6 million revenue is expected by FY21.
The strategy to shift from supplying vitamin-D3 500 to only high-margin vitamin-D analogues has boosted its vitamin-D operating margin, which swelled to 41 per cent in FY19, from 38 per cent the previous year. The company’s focus on its high-margin vitamin-D analogue business has started gaining traction, with about 38.5 per cent y-o-y revenue growth during FY19. We expect a 20 per cent revenue CAGR over FY19-21, driven by new products introduced and an entry into newer markets.
Valuation: We expect revenue and PAT CAGRs over FY19-21 of respectively about 12 per cent and about 19 per cent. We maintain a Buy, with a higher target of ₹390 based on FY21e EPS.
Risks: Currency fluctuations, regulatory hurdles, deferred orders.
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