Dishman to focus on high margin products

In a bid to strengthen its bottom lines, Ahmedabad-based contract research and manufacturing services (CRAMS) major Dishman Pharmaceuticals and Chemicals Ltd is planning to shift its focus from low-margin to high-margin products. The company is also working on re-structuring its Swiss subsidiary Carbogen Amcis, to bring it back on a growth track.

After posting an eight per cent rise in sales during the year to Rs 990.84 crore, Dishman posted a 31 per cent dip in its net profit which was down from Rs 117.63 crore in 2009-10 to Rs 81.39 crore in 2010-11. Reviewing its performance, the company said besides the performance of the Swiss subsidiary dampening the profits, the proportion of low-margin products in its portfolio also did not help the profitability.

In the process, Dishman has decided to hive off some of its commercial off-the-shelf (COTS) products as well as low margin products from its production.

"We will rather use the existing capacity to make high-end products. Since, a significant chunk of our product pipeline this year has been the low-margin category, the profits have been affected despite our net volumes growing," said a senior official at Dishman. Refusing to elaborate on whatt percentage of the total production would be diverted towards high margin products, the official said that the company expected to register a 20-21 per cent rise in the earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins of 2011-12.

The company has already received orders worth $12 million (Rs 53.8 crore ) for cardiovascular intermediaries from Europe. JR Vyas, managing director of Dishman pointed out that while globally there has been a slowdown in the contract research industry last year. "We, however, have started this year on a high note, and have secured orders from both domestic and international clients that will boost our revenues in the coming quarters. We may also consider raising prices by 20-25 per cent to improve profitability," Vyas said.

Moreover, in another significant development, Dishman is working on re-structuring its Swiss subsidiary Carbogen Amcis. Vyas informed that the company has already given retrenchment notice to 60 people in the subsidiary, and the move should save close to $8-10 million (Rs 35-45 crore) per annum, and part of the savings will be accrued in fiscal 2012.

Carbogen Amcis is also gathering sales force to capture more business from its clients. A senior official in Dishman informed that while the company expected revenue growth at Carbogen Amcis to remain flat during the fiscal, things were expected to start looking up from the next financial year. Carbogen contributed nearly 37 per cent to Dishman's turnover in 2010-11.