Dishman Carbogen: Buyback Plan to Stop Price Slide

Dishman Carbogen: Buyback plan to stop price slide

Dishman Carbogen Amcis (DCAL) share price slumped to a historic low in recent past while correcting 40% amid reports of IT-raids on its key premises.

However, on Monday DACL shares were locked at 5% upper circuit over a share buyback proposal.

The company has informed exchanges that a meeting will be held on January 16 to consider and review the proposal of a share buyback and setting up a share-based employee benefits scheme.

The outcome of the meeting will be out on the same day as the board meeting

There have been rumors surrounding the company that the income tax (I-T) department found unaccounted cash during a search-and-survey operation last month.

According to the reports, the state income tax (I-T) department claimed to have found a trail of unaccounted cash of more than Rs 160 crore.

The total cash trail in the case was Rs.327 crore.

While findings by IT are still unknown, but its core business and balance sheet reassure us of the sustainability of business and free cash accruals.

Although the media reports suggest (though denied by management), IT department found irregularities in financial transactions worth Rs 1,770 crore which includes Rs 327 crore of unaccounted cash, Rs 600 crore of fake loan receipts and Rs 700 crore of bogus loan and advances.

As on 30th Sept 2019, DCAL had Rs 880 crore of net debts (Rs 116 crore of cash) and Rs 53.60 crore of Loans and Advances.

The drug makers CRAMS business is likely to show steady growth on the back of 500 molecules under the scanner (including 18 molecules in late phase), 2-3 molecules may enter commercial space in FY20-21E, may bring revenue potential of $15-20mn and Vitamin-D business witnessing conducive environment.

Management retains its guidance of 8-10% revenue growth in FY20 (6% growth in H1FY20).

The stock price trend in the coming few days will be decided by the buyback price. In all likelihood, unless this is an aggressive investor-friendly buyback offer the stock may not react very positively.

Also operating metrics for the company have not been great with both roce and roe below 10% for the last 2 years. Dividend payouts also are not encouraging with payouts of less than 10% which does not inspire confidence

Also with fairly heavy Capex plans lined up over the next 3 years it looks difficult to expect a large buyback offer from the company.

In any case, unless operating metrics do not improve we don’t believe that the buyback can rebuild the price damage seen off late in short span of time

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