We met Dishman Pharma’s management and came out positive on the growth prospects of contract manufacturing sector as a whole and the company in particular.
Global pharma companies are increasingly outsourcing manufacturing and chemical synthesis activities due to cost pressures and to focus on core capabilities like R&D and marketing.
Dishman is one of the early entrants in the game and holds significant advantage on the back of its strong client relationships and IPR respecting policies. Moreover, strategic acquisitions will benefit the company in getting specific technological expertise and a new client set.
The company has presence across CRAMS value chain and offers both contract research and manufacturing services. It has developed a large customer base, with its strong technology capabilities, IP-respecting & protection policy, strong chemistry skill-set, ’addingvalue-to-customer’ approach and low-cost manufacturing capabilities.
Currently, Dishman deals with companies like Solvay, Astrazeneca, GSK, Merck and few Japanese companies. It is among the few CRAMS players which supplies API and intermediates to the currently marketed drugs.
Its revenues have grown by 48% CAGR in past four years and expected to continue momentum going forward.
At the current price, the stock trades at 20x FY09E and 14x FY10E earnings. We expect revenues to grow at strong 22% through FY08-11E.
This combined with improving operating margins owing to increasing share of CRAMS business in total revenue, will lead to robust EPS growth of 42% CAGR through FY08-11E. Also, we believe strong growth momentum in CRAMS sector and earnings visibility will lead to re-rating of the sector. BUY.