We have rolled over our valuation and shift from EV/EBITDA based valuation methodology to P/E based. We have adjusted our EPS for IND AS 116 Impact and have lowered our growth estimates for CRAMs business. We assign a 10x PE multiple to September 2021 earnings to arrive at a target price of Rs185 (from Rs369 earlier).
We remain constructive on DCAL owing to strong visibility on its order book, 15+ late phase 3 molecules, expanded development capacity, ability to work on new molecules like ADCs, and favorable currency. Improvement in BS driven by reduced debt and working capital release would be one of the important parameters to drive re-rating of the stock. At CMP, the stock is trading at 10.1/7.8 FY19/20E, a ~60% discount to peers like Divi’s Labs. Maintain BUY with a TP of Rs 350 (15x FY21E EPS).
Despite a weak quarter, the company has maintained its full year guidance of 10% growth in revenue and EBITDA margin in the range of 26%-27%. Our forecasts assume revenue and EBITDA margin slightly above the guidance range. However, considering the market conditions, we lower our target valuation multiple on DCAL to 9x EV/EBITDA from 11x EV/EBITDA and arrive at a target price (TP) of Rs344.