Dishman Pharma - Dark Horse

Introduction:

Established in 1983, Dishman Pharmaceuticals and Chemicals Limited (DPCL) provides a wide range of products to the global market, including an extensive range of reagents, specialty chemicals, active pharma ingredients (APIs), and intermediaries. The company operates in two segments: contract research and manufacturing services (CRAMS) and specialty chemicals. The co came with an IPO in 2004 at a price of 175 Rs/share which was spilt into 5:1. Effectively price of offering was 35 Rs/share. Shares of Co were listed at a price of 60 Rs/share which incidentally is the lowest price so far.

Product Offering

Dishman provides a wide range of products to the global market, including an extensive range of reagents, specialty chemicals, APIs and their intermediates.

Dishman Vitamins & Chemicals

Vitamin D2, Vitamin D3, Vitamin D analogues, cholesterol and lanolin related products for pharmaceutical, cosmetic and related markets. The Plant based in Veenendaal (the Netherlands) manufacture and supply a range of Vitamin D, Vitamin D analogues, cholesterol and lanolin related products for pharmaceutical, cosmetic and related markets. The manufacturing facilities include continuous saponification technology, large scale chromatography, crystallisation and filtration equipment, and high containment pilot plant facilities for toxic materials.

Dishman Specialty Chemicals

·         Manufacture and supply of quaternary compounds (Quats)

·         Manufacture and supply of phosphoranes and wittig reagents

·         Manufacture and supply of bulk APIs and intermediates

·         Worldwide material sourcing, outsourced products

Quats: Dishman Specialty Chemicals had a long association with manufacture and supply of Quaternary ammonium compounds (Quats) for use as phase transfer catalysts. Our expertise in solids handling technology has enabled us to expand our offer to include ammonium and phosphonium high purity solid Quats, Phosphoranes and Wittig reagents. These products find applications as phase transfer catalysts, personal care ingredients, fine chemicals, pharma intermediates and disinfectants. A number of our products are made under GMP manufacturing conditions at our Naroda facility in India

Dishman Disinfectants

Dishman Care, through its Disinfectant Division, offers a range of Antiseptics and Disinfectants for application in healthcare and related industries:

·         disinfectants for surgical instrumentation

·         hand and body wash sanitisers and antiseptics

·         pre and post-operative surgical scrubs

·         antimicrobial washes

Custom Services

Dishman Custom Services, comprising both the CARBOGEN AMCIS and CRAMS businesses, offer the pharmaceutical industry a global partnership solution to all of their intermediate and active pharmaceutical ingredient requirements. We operate seamlessly across the entire lifecycle of a product, having an ability to manage projects manufacture. In the domain of highly potent API development and manufacture we have expertise and capabilities that are unmatched in the CRAMS sector.

Highly Potent API Services

The Dishman Group offers unparalleled capability in scale-up, development and commercial manufacture of highly potent compounds. These highly potent API services are offered under the CARBOGEN AMCIS business. The Dishman Group provides state-of-the-art containment services. All of our facilities operate to current Good Manufacturing Practice (cGMP) and can produce material for preclinical testing, clinical trials and commercial use. Our highly-potent API services are located at two different sites: for process research and development up to medium scale production for clinical trials and market supply Bubendorf in Switzerland is the site of choice. Scaling up to larger scale for market supply your project will be handled in reactors up to 1600L out of Bavla,

Various Facilities

 Bavla

·         Located in India, 30km from Ahmadabad , State of the art R&D centre , 64 fume hoods , 200 scientists focused on process development and industrialisation, working in continuous 3 shift, 6 day R&D operations , Multiple kilo lab and cGMP pilot plant facilities, each with reactors at 50L to 3000L scale

·         Dedicated highly potent (including cytotoxic) API manufacturing facility. 4 segregated reactor trains.

Naroda

·         Located in India, 15 km from Ahmadabad , R&D laboratory , Pilot plant facility with 8 reactors from 50L to 500L scale , 10000m² site of which 4000m² currently developed , Plant cGMP approved and ISO 9001 certified

·         Manufacturing facilities:

o    Installed capacity of 5000 MT

o    Manufacture and supply of quaternary ammonium compounds (Quats), phosphonium high purity quats, phosphoranes, wittig reagents, fine chemicals and pharmaceutical intermediates

o    cGMP manufacture of disinfectant APIs

China

·         Located on Shanghai Chemical Industrial Park, Shanghai, China , Fully integrated cGMP manufacturing site focused on production and supply of pharmaceutical intermediates and APIs , Modern design, inherent flexibility to address most API challenges , Analytical, QC capability for API release and sourced RM release , 10 reactors from 2500L to 8000L scale

Switzerland (CARBOGEN AMCIS)

CARBOGEN AMCIS was acquired by Dishman in August 2006. The company is a leading service provider, offering a portfolio of drug development and commercialisation services to the pharmaceutical and biopharmaceutical industries at all stages of drug development. CARBOGEN AMCIS has sites in Switzerland in:  Aarau, Hunzenschwil, Bubendorf

Ne therlands (Vitamins and Chemicals)

Dishman Vitamins and Chemicals, based in Veenendaal (the Netherlands) manufacture and supply a range of Vitamin D, Vitamin D analogues, cholesterol and lanolin related products for pharmaceutical, cosmetic and related markets.

United Kingdom (CARBOGEN AMCIS)

The CARBOGEN AMCIS, Manchester site specializes in process development and custom synthesis of pharmaceutical intermediates. The larger production capacity (up to 4,500 L) allows the efficient production of early-phase APIs and large-scale intermediates.

Latest Concall Highlights:

• Unit 9 at Bavla plant is completely ready which would start the first trial & validation procedures next month. In addition, the company is expecting the European MNC to validate the same unit in June.

• China facility has commenced which has a total undertaking of production of 3 APIs. One of the APIs has completed the production phase.

• Dishman Pharma becomes the sole & preferred manufacturer & supplier to a Japanese company for one of the intermediates of a molecule which is in advance stages of Phase III trials.

• Marketable molecule segment is expected to contribute significantly in FY12 & FY13 as the company has received huge orders for production Benzethonium chloride which is a high margin product.

• The work at Unit 13 of vitamin D facility is nearing its completion which is expected to commercialize in July.

• Disinfectant facility is being validated which is expected to start the commercial production by mid of June

• Dishman pharma would be sole supplier for Eprosartan Mesylate to abbot.

• The company has guided a top-line & bottom-line growth of 15%. It is also confident of maintaining its margins around 20-21& the tax rate guidance for FY12 is ~ 20%

• The company under Vitamin D3 business has guided a top-line & bottom-line growth of 30% & 20% respectively.

Promoter Stake:

Promoter has increased its already high stake from 60.9 % to 61.2 % in this quarter. As per exchange information, this stake has been bought at more or less in range of 90-110 Rs/share.

Financials:

After listing, co net sales rose smartly for two years from 585 Cr to 1070 Cr but in last two years sales have declined to 999 Cr.  During this period net profit declined from 146 Cr to 80 Cr. There are many reasons for the decline of the profitability. First of all, there was decline in outsourcing activity which mainly happened due to slowdown and rationalization of inventory by Pharma majors due to mergers between them. This resulted in decline in Sales of the co. Due to prolonged slowdown; it affected the margins of the co which have seen a decline from 23-24 % to present level of 16-17 %. It affected the bottom line of the co. Besides, co was in major capital expenditure phase in this period which not only resulted in increased interest expenses from 19 Cr in 2007 to 44 Cr this fiscal but also resulted in high depreciation from 26 Cr to 68 Cr in this period. With all these worse combinations, co took a major hit in profitability. However, co has started making efforts in making a turnaround. Co’s management had undertaken a massive restructuring exercise, wherein the focus would be on improving profitability rather than growing the top line. This showed positive results in 4QFY2011, with a 25% reduction in the employee strength that led to 5mn CHF saving for the company in FY2011. For Carbogen Amcis, the company expects a muted performance in FY2012, with the restructuring efforts to be visible in FY2013.Besides, Capex is likely to be muted going forward and interest and depreciation as a proportion to sales will come down. There is also a chance of pick up in out sourcing activity which is a long term upward trend. It looks like 2012 may be the year of consolidation for Dishman Pharma and from 2013 onwards Co may be back to business as usual.

Technical Analysis:

Share price of Co was listed at a price of 60 Rs while it was allotted at a price of 35 Rs/share. This price of 60 Rs is the lowest price ever for the Co. After listing along with general momentum of the market and good performance of the Co, Share price zoomed to a high of 427 in Jan’08. After hitting all time high along with overall market decline scrip plummeted to a low of 87 in mar 2009. From this low, scrip was in corrective rally to 275 which was hit on Jan 2010. From this price onwards, Co Is in long downward trend and took support again on 87 Rs which was its previous bottom. Present structure of share price is not very good even now and there is a good chance that it will break down sooner than later. Once 87 is broken down convincingly, share price can seek support at Rs 73 and later on to Rs 60 per share.  It looks like this band will be very strong band and should be used as an opportunity to invest in the co for long term investment. Momentum indicators are not favoring bottoming out scenario as there is hardly any positive divergence on these indicators so in all probability scrip will touch 73 on downside.

Dishman Pharma Weekly

Dishman Pharma Weekly MACD

Dishman Pharma Weekly RSI

Investment Theme:

Co business is showing signs of bottoming out and it looks like the Co will bottom out in this fiscal but how strong will be the recovery and how quickly co will be able to regain sales growth and margin growth is yet to be seen. Having said that, Present price of Co looks like that it captures all the possible negative in the Co. Co EPS have halved but co share price has corrected around 80 % from top which looks a bit exaggerated. Promoter is increasing his stake from open market which in my view is a very big positive. I have invested 50,000 Rs in or around these prices and I am willing to invest 25,000-35,000 more in the Co on decline and after seeing signs that co is taking support in this band of 60-73 Rs.