1QFY2012 Result Update | Pharmaceutical

August 1, 2011

Dishman Pharmaceuticals
Performance Highlights
Y/E March (` cr) Net sales Other income Operating profit Interest Adj. net profit
Source: Company, Angel Research

BUY
CMP Target Price `87 `133
12 months
1QFY2011 202 10 44 8 27 % chg yoy 17.5 (46.4) (1.7) 67.6 (44.5)
Stock Info Sector Market Cap (`cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Pharmaceutical 703 0.6 223 / 85 44908 2 18,314 5,517 DISH.BO DISH@IN

1QFY2012 237 6 44 14 15

4QFY2011 344 3 55 10 25

% chg qoq (31.1) 61.8 (21.2) 31.0 (39.4)

Investment Period

For 1QFY2012, Dishman Pharmaceuticals (Dishman) results were broadly in-line with our estimates. Growth was majorly led by income received by outsourcing certain products in the marketable molecules business, which the company expects to be recurring at `50cr70cr annually. Dishman is gradually working on the restructuring of Carbogen Amcis, with 25% reduction in its employee strength, which led to 5mn CHF saving for the company in FY2011. On the guidance front, management expects top-line growth of 15% for FY2012, with OPM of ~21.5%. For Carbogen Amcis, the company expects a muted performance in FY2012, with restructuring efforts to be visible in FY2013. We maintain our Buy recommendation on the stock. In-line performance during the quarter: Dishman reported net sales of `237.2cr (`202cr), registering 17.5% yoy growth and above our estimates of `227.1cr. Gross margin during the quarter declined to 69.0% (72.3%), leading to OPM contracting to 18.4% (22.0%). Net profit declined by 44.5% yoy to `15cr (`27.3cr), in-line with our estimates. Segment wise, CRAMS grew by 11.2% yoy, whereas the market molecules business surprised with 32.5% yoy growth. Outlook and valuation: For FY2012, management expects 15% growth on the top-line front, with OPM of ~21.5%. We expect net sales and net profit to come in at `1,115cr and `75.1cr, respectively, in FY2012. At current levels, Dishman is trading at 9.4x and 7.8x FY2012E and FY2013E earnings, respectively. We have been conservative on the margin front and maintain our Buy recommendation on the stock with target price of `133.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 61.2 23.2 8.3 7.3

Abs. (%) Sensex Dishman

3m (4.3) (9.1)

1yr 2.5 (60.4)

3yr 25.0 (70.8)

Key Financials (Consolidated)

Y/E March (` cr) Net sales % chg Net profit % chg EPS (`) EBITDA margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2010 915 (13.8) 117.7 (19.5) 14.6 22.3 6.0 15.7 9.5 0.9 1.6 7.0

FY2011 991 8.2 80.0 (32.0) 9.9 16.4 8.8 9.6 5.6 0.8 1.5 9.4

FY2012E 1,115 12.5 75.1 (6.2) 9.3 17.5 9.4 8.1 6.5 0.7 1.4 7.9

FY2013E 1,282 15.0 88.8 18.2 11.1 17.9 7.8 8.8 7.1 0.7 1.2 6.6

Sarabjit Kour Nangra

+91 22 3935 7800 Ext: 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Dishman | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 performance (Consolidated)

Y/E March (`cr) Net sales Other income Total income Gross profit Gross margins Operating profit OPM (%) Interest Dep & amortisation PBT Provision for taxation Reported net profit Less : Exceptional items Minority interest PAT after exceptional items EPS (`)
Source: Company, Angel Research

1QFY2012 237 6 243 164 69.0 44 18.4 14 19 17 2 15 15 1.9

4QFY2011 344 3 348 189 54.9 55 16.1 10 19 30 5 25 25 2.7

% chg qoq (31.1) 61.8 (30.2) (13.5) (21.2) 31.0 (0.3) (43.3) (63.4) (39.4) (39.4)

1QFY2011 202 10 212 146 72.3 44 22.0 8 16 31 3 27 (0.1) 27 3.4

% chg yoy 17.5 (46.4) 14.4 12.1 (1.7) 67.6 15.8 (44.8) (44.3)

FY2011 991 40 1,031 636 64.2 162 16.4 42 69 92 11 81 1

FY2010 915 28 943 639 69.8 203 22.2 39 59 133 15 118 0 117 14.5

% chg 8.2 44.6 9.3 (0.4) (20.0) 7.2 15.7 (30.5) (28.0) (30.8)

(44.5)

80 9.9

(31.8)

Exhibit 2: 1QFY2012 Actual vs. Angel estimates

(` cr) Net sales Other income Operating profit Interest Tax Net profit
Source: Company, Angel Research

Actual

Estimates

Variation (%)

237 6 44 14 2 15

227 10 40 10 4 15

4.4 (46.4) 9.9 37.4 (55.3) 2.8

Revenue boosted by the market molecules segment: Dishman reported net sales of `237.2cr (`201.9cr), registering growth of 17.5% yoy and above our estimates of `227.1cr. This was lead by the market molecules business, which grew by 32.5% yoy, driven by the vitamin business. On the CRAMS business front, the company reported moderate growth of 11.2% yoy to `158.7cr, mainly led by Indian CRAMS. Carbogen Amcis reported a drop of 16% in revenue. For Carbogen Amcis, the company expects a muted performance in FY2012, with restructuring efforts to be visible in FY2013. On the overall guidance front, management expects top-line growth of 15% for FY2012 with OPM of ~21.5%.

July 29, 2011

Dishman | 1QFY2012 Result Update

Exhibit 3: Sales trend

400 350 300 250 248 202 213 344

232

237

(`cr)

200 150 100 50 0 4QFY2010

1QFY2011

2QFY2011

3QFY2011

4QFY2011 1QFY2012

Source: Company, Angel Research

Higher-than-expected sequential improvement in OPM: Dishman reported gross margin of 69% (72.3%) yoy, which led to OPM of 18.4% (22.0% in 1QFY2011) for the quarter. During the quarter, employee costs increased by 14.1% yoy and other expenditure rose by 25.0%. The key highlight on operating front was the sequential improvement in OPM, which was at 16.1% in 4QFY2011 this improvement in OPM can be attributed to gross margin improvement.

Exhibit 4: OPM trend

24.0 22.0 20.0 20.0 18.4 17.4 16.1 22.0

(%)

18.0 16.0 14.0 12.0 10.0 10.9

4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011 1QFY2012

Source: Company, Angel Research

Net profit in-line with expectations: Dishman reported net profit of `15cr (`27.3cr), a decline of 44.5% yoy, in-line with our estimates of `14.7cr. The decline in net profit was more than the dip in operating profit on account of the increase in interest expenses during the quarter.

July 29, 2011

Dishman | 1QFY2012 Result Update

Exhibit 5: Adjusted net profit trend

30 27 21 20 28

22 15

(` cr)
10 2 0 4QFY2010 1QFY2011 2QFY2011 3QFY2011 4QFY2011

1QFY2012

Source: Company, Angel Research

Recommendation rationale
Capex benefits to accrue from FY2012: Dishman is well placed to benefit from the organic capex of `300cr incurred over the last three years towards building its China and Hipo facilities and expansion of other existing facilities at its Bavla unit targeting the European and Asian markets. Post the new facilities getting operational, Dishman is likely to enter into long-term API supply contracts with these players, resulting in stable revenue flow going ahead. The companys ties with global innovators would also strengthen apart from reducing its dependence on Abbott. Abbott contract back on track: Abbott has been one of Dishmans key clients (13% sales and 17% of operating profit in FY2010). As per a long-term contract, Dishman primarily supplies Eprosartan (Teveten) API to the company. Revenue from the contract has risen at a CAGR of 36.1% to `174.0cr over FY200709, driven by increasing offtake of Eprosartan resulting in higher margin. However, during FY2010, key products of Solvay, viz. Tricor and Teveten, declined on account of inventory rationalisation in the channels and acquisition by Abbott leading to revenue of `120cr. With the global inventory rationalisation nearing its end and the acquisition of Solvay by Abbott now completed, the contract has normalised in FY2011.

Outlook and valuation

For FY2012, management expects 15% growth on the top-line front with OPM at around 21.5%. We expect net sales and net profit to come in at `1,115cr and `75.1cr, respectively, in FY2012. At current levels, Dishman is trading at 9.4x and 7.8x FY2012E and FY2013E earnings, respectively. We have been conservative on our estimates on the margin front in spite of the higher guidance given by the management. We maintain our Buy recommendation on the stock with a revised target price of `133.

July 29, 2011

Dishman | 1QFY2012 Result Update

Exhibit 6: One-year forward PE

500 450 400 350 300 250 200 150 100 50 0

Source: Company, Angel Research

Exhibit 7: Recommendation summary

Company Aurobindo Pharma Aventis* Cadila Healthcare Cipla Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca labs Lupin Orchid Chemicals Ranbaxy* Sun Pharma Reco. Buy Reduce Buy Buy Buy Buy Neutral Buy Accumulate Buy Buy Neutral Neutral CMP Tgt. price (`) 168 2,087 878 309 1,595 87 2,305 418 330 457 203 565 530 (`) 278 1,937 1,053 377 1,920 133 658 358 593 373 Upside % PE (x) 65.1 (7.2) 19.9 21.8 20.4 52.6 56.2 8.6 29.6 84.1 8.8 23.2 17.1 16.4 16.6 7.5 26.5 6.4 12.0 15.4 5.4 12.6 22.5 FY2013E EV/Sales (x) 1.2 2.9 2.7 3.0 2.9 1.3 6.1 0.8 1.8 2.5 1.3 1.8 5.6 EV/EBITDA (x) 6.7 18.8 13.5 14.1 11.4 7.3 17.3 4.9 8.3 12.8 5.8 7.8 18.0 FY11-13E CAGR in EPS (%) 29.5 15.6 21.6 25.2 22.7 8.6 14.6 25.8 14.8 24.0 29.6 31.8 15.8 FY2013E RoCE (%) 13.8 15.8 28.3 17.0 22.0 7.4 41.0 17.6 23.3 23.9 11.7 26.8 20.2 RoE (%) 19.0 17.1 35.2 18.5 25.2 9.2 30.7 19.3 24.9 30.8 23.4 25.9 20.4

Source: Company, Angel Research; Note: * December year ending;#Recurring EPS considered for calculations

July 29, 2011

Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11
6x 12x 18x 24x

Dishman | 1QFY2012 Result Update

Profit & Loss Statement (Consolidated)

Y/E March (`cr) Gross sales Less: Excise duty Net sales Other operating income Total operating income % chg Total expenditure Net raw materials Other mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & amortisation EBIT % chg (% of Net Sales) Interest & other charges Other Income (% of PBT) Recurring PBT % chg PBT (reported) Tax (% of PBT) PAT (reported) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY2008 807 4 803 803 38.8 650 302 49 215 84 153 32.8 19.0 47 106 19.0 13.2 30 48 38.8 123 28.2 123 1.3 1.1 122 2 120 120 30.7 14.9 15.0 15.0 18.3 FY2009 1,070 8 1,062 1,062 32.3 786 330 73 273 110 276 80.5 26.0 63 213 101.6 20.1 46 (10) 157 28.2 157 10.7 6.8 147 1 146 146 22.1 13.8 18.1 18.1 20.6 FY2010 928 7 915 915 (13.8) 712 277 66 254 181 204 (26.2) 22.3 59 144 (32.2) 15.8 39 27 20.3 133 (15.8) 133 14.9 11.2 118 118 118 (19.5) 12.9 14.6 14.6 (19.5) FY2011 FY2012E FY2013E 998 8 991 991 8.2 829 355 77 280 194 162 (20.4) 16.4 69 93 (35.3) 9.4 42 40 43.7 92 (30.5) 92 10.8 11.7 81 1 80 80 (32.0) 8.1 9.9 9.9 (32.0) 1,124 9 1,115 1,115 12.5 920 330 83 308 199 195 20.0 17.5 86 108 15.8 9.7 40 28 29.1 96 3.8 96 20.6 21.5 75 75 75 (6.2) 6.7 9.3 9.3 (6.2) 1,292 10 1,282 1,282 15.0 1,052 376 95 345 235 230 18.2 17.9 94 136 26.0 10.6 53 32 27.9 115 20.3 115 25.3 22.0 90 89 89 18.2 6.9 11.1 11.1 19.6

July 29, 2011

Dishman | 1QFY2012 Result Update

Balance Sheet (Consolidated)

Y/E March (`cr) SOURCES OF FUNDS Equity share capital Share application money Reserves & surplus Shareholders funds Minority interest Total loans Deferred tax liability Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net block Capital work-in-progress Goodwill Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Mis. Exp. not written off Total Assets 645 112 533 148 152 1 631 37.1 113 481 247 384 1,218 798 195 603 223 175 1 685 45 187 453 228 457 1,459 952 248 704 357 175 1 548 45 187 315 200 348 1,586 1,407 317 1,090 83 251 1 657 43 170 444 301 355 1,780 1,600 462 1,138 50 251 1 690 36 181 474 263 427 1,867 1,698 583 1,115 50 251 1 817 65 207 545 285 532 1,949 16 23 534 573 630 15 1,218 16 2 696 714 724 21 1,459 16 8 757 780 774 32 1,586 16 2 861 879 869 32 1,780 16 2 954 972 869 27 1,867 16 2 1,033 1,051 869 29 1,949 FY2008 FY2009 FY2010 FY2011 FY2012E FY2013E

July 29, 2011

Dishman | 1QFY2012 Result Update

Cash Flow Statement (Consolidated)

Y/E March Profit before tax Depreciation (Inc)/Dec in WC Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2008 123 47 (139) 35 (11) (15) (269) 13 35 (221) 20 228 (9) (2) 237 2 35 37 FY2009 157 63 (11) 36 (14) 160 (174) 0 36 (139) 2 107 (9) (112) (13) 8 37 45 FY2010 133 59 69 27 (3) 231 (288) (0) 27 (262) 63 (11) (21) 31 (0) 45 45 FY2011 FY2012E FY2013E 92 69 30 40 (11) 139 (257) 0 40 (216) (6) 95 (9) (6) 74 (3) 45 42 96 86 129 28 (26) 257 (117) 0 28 (89) (9) 85 76 244 42 286 115 94 25 32 (23) 179 (150) 32 (118) (11) (21) (32) 29 286 315

July 29, 2011

Dishman | 1QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage 1.0 3.9 3.5 0.9 2.5 4.6 0.9 3.6 3.7 0.9 5.1 2.2 0.9 4.3 2.7 0.8 3.5 2.6 1.4 137 68 81 134 1.5 105 56 51 130 1.0 109 52 56 142 0.8 94 53 29 113 0.7 97 53 21 115 0.8 99 47 33 122 10.0 13.7 26.9 15.9 22.5 22.7 9.5 14.3 15.7 5.6 7.8 9.6 5.9 7.4 8.1 7.1 8.8 8.8 13.2 98.9 0.8 10.2 5.1 1.3 17.2 20.1 93.2 0.8 15.3 6.3 1.0 24.2 15.8 88.8 0.6 8.7 4.6 0.9 12.5 9.4 88.3 0.6 5.0 4.5 0.9 5.6 9.7 78.5 0.6 4.8 3.7 0.9 5.8 10.6 78.0 0.7 5.7 4.8 0.8 6.5 15.0 15.0 20.9 1.0 72.0 18.1 18.1 25.9 1.2 88.5 14.6 14.6 21.9 1.2 96.7 9.9 9.9 18.4 0.9 108.9 9.3 9.3 20.0 0.9 120.4 11.1 11.1 22.6 1.1 130.2 5.8 4.2 1.2 1.2 1.6 8.4 1.1 4.8 3.4 1.0 1.4 1.3 5.0 0.9 6.0 4.0 0.9 1.3 1.6 7.0 0.9 8.8 4.7 0.8 1.0 1.5 9.4 0.9 9.4 4.4 0.7 1.1 1.4 7.9 0.8 7.8 3.9 0.7 1.3 1.2 6.6 0.8 FY2008 FY2009 FY2010 FY2011E FY2012E FY2013E

July 29, 2011

Dishman | 1QFY2012 Result Update

Research Team Tel: 022 - 3935 7800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement Dishman Pharmaceutical 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

July 29, 2011

10