We met the Dishman management recently and understood that the disappointing 9MFY11 had been chiefly owing to adverse currency fluctuations, a setback in Carbogen Amcis and a delay in the CRAMS projects. We believe that the significant stock price correction factors in the negatives; yet we maintain our Buy due to the company's strong CRAMS pipeline. However, valuations in the short term may come under pressure.
n 3QFY11, an aberration. 3QFY11 was more of an aberration due to a disappointing performance at CA, unfavourable currency movements and a rise in input costs. Revenue grew 4.3% yoy, while EBITDA margin fell 1,210bps. This resulted in an adjusted net loss of `39m.
n Restructuring at CA. For the past two years the Carbogen Amcis business has been under pressure since the global recession due to a credit crunch with customers. This resulted in the loss of a few contract-research projects. Management is taking various re-structuring measures, however, to turn around CA, with expected cost savings of CHF8m-9m in FY12.
n Lowering estimates. We lower FY11-13 estimates for revenue by 11-15% and PAT by 37-52% to factor in lower-than-expected 9MFY11 figures, continuing pressure on margins, slow recovery at CA and higher interest costs on the rising interest-rate scenario.
n Valuation. Accordingly, we lower our target from `246 to `137, which factors in 8.4x FY12e EBITDA and 6.9x FY13e EBITDA, and maintain our Buy. Risk: Delay in commercialisation of contracts and currency fluctuation.
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
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