Cloud shifting

Dishman Pharma & Chemicals, a medium-sized company that has been witnessing revenue decline over the last few quarters, stands to benefit from a strong deal pipeline and new facilities getting operational, which will lead to better revenues next fiscal.

The company has recently reached commercialisation stage for a $50 million deal it had signed with EU multinational to manufacture cardiovascular intermediates. This deal comes under the CRAMS segment, which contributes three-fourths of its consolidated revenues but has not been doing well of late due to a slowdown in order inflows. It also has a strong potential deal pipeline but hasn’t reached commercial execution stage.

Further, the company has signed an agreement for another CVS product with a US-based MNC and has entered into master supply agreement with another US customer. It is in advanced talks with other MNCS as well.

Dishman’s operating margins had fallen drastically by over 500 bps last quarter to 17.4% on account of lower contribution from the higher-margin CRAMS segment. However, analysts believe the worst is over and the company would slowly show recovery from the fourth quarter.

“The margins are expected to improve, driven by the strong growth and the commercialisation of the high-margin HIPO facility. However, the contract research business would remain under pressure as research activity has not picked up in regulated markets (the US and EU), post-recession,” Sriram Rathi and Sanjeev Chiniwar, analysts at Anand Rathi Financial Services, wrote in a company update dated December 6.

The company is also expected to benefit from commercialisation of its new plants at Bawla and China. Its new high-potency (HIPO) plant (unit 9) at Bawla for the manufacturing anticancer products is expected to become operational by next month and its another plant (unit 10) for manufacturing disinfectants would also commence operations by early FY12. The company has converted its SEZ facility in China for CRAMS manufacturing also. These facilities are likely to aid revenues in FY12.

The stock of Dishman Pharma & Chemicals, which had hit a yearly low of Rs128 on December 9, gained 3.25% on Tuesday to close at Rs154.10. The stock has been on an uptrend over the last few days on improving revenue visibility and most analysts remain positive on it from a long-term perspective.