Buy Dishman Carbogen Amcis, target Rs 380: HDFC Securities

HDFC Securities has a buy call on Dishman Carbogen Amcis with a target price of Rs 380.

The current market price of Dishman Carbogen Amcis is Rs 217.55.

Time period given by the brokerage is one year when Dishman Carbogen Amcis price can reach the defined target.


Investment rationale by the brokerage-
While Dishman’s (DCAL) Q3 performance was ahead of our estimates, revenue growth was muted as a large chunk of orders was shifted over to Q4.

Despite revenue growth being limited to 4/7 per cent YoY/QoQ, a shift in business mix towards high-margin segments (CRAMS India and Vit. D) led to a 750bps YoY expansion in gross margin (up to 85 per cent in Q3) and a 10 per cent YoY growth in EBITDA (despite higher opex), with margin at 27.7 per cent (+136bps YoY).

Lower tax rate at 31 per cent further boosted PAT, which stood at Rs 514mn, up 22/17 per cent YoY/QoQ. Having achieved Rs 14.1bn revenues and 27.1 per cent EBITDA margin (+800bps YoY) in 9MFY19, we expect DCAL to deliver 13 per cent plus revenue growth and 27.5 per cent plus margin for FY19 post a bumper Q4.

Till date, DCAL’s partners have filed 5-6 products with the regulatory authorities, which makes it likely to receive at least 2 approvals each year over FY20-22. Additionally, the commissioning of the new development building in Switzerland and Vit. D Softgel capacity in India, expansion in the Hi-Po facility, ramp-up in the China API plant and potential blockbusters like Crenolanib/Nuzyra, will enable double digit revenue growth and drive margin expansion.

We model 13/26 per cent rev./earnings CAGR over FY18-21E. The stock is very attractive at CMP, trading at 10.6/8.3x FY20/21E EPS, a nearly 60 per cent discount to Divi’s Labs.

The key near-term triggers include the successful launch of Nuzyra in the US in Feb-19, positive phase 3 data for Crenolanib in 1HCY19 and 1L maintenance indication for Niraparib in ovarian cancer. Maintain BUY with a target price of Rs 380 (15x Dec-20E EPS).