Tuesday, May 26, 2009

Research View

Dishman Q4FY09 Result Update ; Strong Operating Performance ; BUY ; Target : Rs213

Amidst weak global outlook and inventory rationalization, Dishman's FY09 numbers are ahead of our expectations. Revenue grew by 32% to Rs10.6bn (est. of Rs10.4bn) on the back of a) 29% growth in CRAMS business and d) full year impact of Vitamin-D business. Despite lower off-take of Eposartan  by Solvay and drop in revenues from smaller biotech companies, 24% organic growth in sales demonstrate the underlying strength in Dishman's business model. EBIDTA for FY09 was up by 71% to Rs2615mn driven by a) 610 bps reduction in raw material cost (change in product mix), and b) 110 bps reduction in employee cost. Recurring PAT was up by 75% to Rs1462mn (est. of Rs1331mn). Despite strong performance in FY09, management has given 15-20% revenues and earnings growth for FY10E, which is line with our estimates.  We maintain our FY10E revenue and earning estimates and introduced FY11E numbers. We reiterate our Buy rating with a target price of Rs213.

Deepak Fertiliser Company Update ; Change in Reco from BUY to HOLD ; HOLD ; Target : Rs 103

We recently organized conference call with the management of Deepak Fertilizers and Petrochemicals (DFPCL) to discuss their Q4FY09 / FY09 results and their outlook on the industry. Company's Q4FY09 results were better than our estimates. For FY09, company reaped the benefit of strong commodity cycle in H1FY09 and posted PAT growth of 37%. In FY10, we expect volume growth from capacity expansion in nitric acid, increased production of complex fertiliser on account of improved gas availability and higher fertiliser trading. We have factored in these scenarios and have increased our FY10 revenue estimates by 20% to Rs 13.8 bn and PAT by 20% to Rs 1.2 bn from previous Rs 11.5bn and Rs 1 bn, respectively.

In FY10, we expect company to witness the impact of strong results in FY09 and expect drop in revenues, margins and PAT led by softening chemical prices. We expect CAGR (FY09-11E) in revenues and PAT of 3.4%. Next upside trigger can be increase in chemicals prices and possible JV with Yara international to manufacture specialty fertiliser. We value the stock at Rs 103 based on 1xFY10E book value and change our recommendation from BUY to HOLD on the stock. 

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