STOCK IDEAS- Elder Pharmaceuticals Limited

Elder Pharmaceuticals Limited

BSE Code-532322

NSE Code-ELDERPHARM

Elder Pharmaceutical Ltd (EPL) with an array of acknowledged brands like Shelcal, Fairone etc has established itself as a fast progressing pharmaceutical. While the existing brands are no doubt contributing to the revenues, Shelcal CP, Phyto Omega and Hibor the three new launches have also been a runaway success. EPL plans to introduce 6-7 new products in the Indian market in FY09, apart from entry into newer therapies and ramping up marketing operations. EPL’s business model comprises of introduction of in-licensed products and new in-licensing deals. Recent European acquisitions augurs well both for the domestic and export market. An excellent growth momentum coupled with a healthy operating margin makes it an attractive buy.

Business-

EPL has business interests in Pharmaceutical (both in branded and generic) and manufacturing of consumer health care products. It also has interest in active pharma ingredients (API).

EPL’s successful brand basket comprises of Chymoral Forte, Eldervit, Shelcal, Amrifru etc. As part of brand expansion it launched three new brands during Q3FY08 namely Phyto Omega, Hibor, Shellcal CP and Fairone all of which have been received well in the market.

With more than 140 products generics division has a lot of significance in the post patent arena. In this segment EPL prefers in-licensed manufacturing of patented products generics and has around 30 in-licensing agreements in place. The emphasis on in-licensed products over manufacturing of generic version of patented molecules increases credibility of the company. Looking at the attractive margins in the generics segment and the potential in the Indian Market, it had launched Elenza division to market the generics in 2004.

Apart EPL has also business interests in Active products ingredients (API) Business. It had set up plant in Patalganga for manufacture of API for both captive use and also for marketing.

In the Surgical and Hygiene products for supply to hospitals and nursing homes, EPL has collaboration with Hartman (Germany) and also has interests in Industrial and Medical Electronics, medical Equipments like Nebulizers and Oxygen Concentrators. Ellife division of EPL has successful products addressed to life style disorders.

EPL manufactures and market all dosage forms. It has manufacturing facilities in Nerul, Pawane and Patalganga all in Maharashtra. It also has four manufacturing plants for topical creams injectibles and lotions in the state of Himachal Pradesh and Uttarakhand including the newly commissioned plant for semi solid dosage in Himachal Pradesh. It is also planning one injectibles plant in Uttaranchal by June, 2008.

EPL exports Bulk drugs and Formulations to CIS, African and SAARC countries and has major stakes in Ghana with Joint ventures where the company hoping for major growth volumes.

Elder has become a preferred manufacturing and marketing partner for foreign firms given its strong sales force of over 1600 spread across the country and a wide network of 31 C&F agents and 3000 stockists.

Investment rationale-

EPL has a strong revenue growth and had reported a growth of 22 per cent in topline in FY08.The growth momentum seems to continue with the both existing and new launched products. It reported an impressive OPM of around 20 per cent for both Q4FY08 and FY08. Elder has always been a India centric company. Most of the business turnover and plans have been to grow in and around Indian markets. Going forward our vision is to consolidate our position in India and launch brands which will become large players in the Indian markets said Alok Saxena, Director of the company.

Increase in OPM is mainly on account of the facilities in Himachal Pradesh and Uttaranchal which is excise-free zones. More than 40 per cent of EPL’s production is contributed by these facilities. EPL plans about 70 per cent of its productions to come from these excise free zones. Hence the OPM is expected to remain firm in the coming years due to excise benefits.

EPL has plans to launch a series of 6-7 new product in FY09 added Alok Saxena. EPL’s thrust on in-licensed products continues and deals for new in-licensed products are in progress.

Export emphasis and increased returns from Ghana is expected to continue. EPL entered the Europe market with the acquisition of UK- based Neutra Health PLC and a 51 per cent stake in Bulgaria-based Company Biomeda. While distribution and marketing network of Neutra Health will certainly help EPL, it on the other hand plans production and marketing of some Neutrahealth products in India and other countries. Besides this, Biomeda acquisition will help EPL in promoting its products in CIS and other European Countries.

EPL’s efforts in the field of Contract research and manufacturing service (CRAMS) continue and the developments will positively add to the revenues and profitability.

Valuation-

At the current market price of Rs.362.5the stock s available at7.9x its FY09 earnings and at 6.2x its FY10 earnings. Valuations seem attractive given its strong growth opportunities offered through in-licensing agreements, new launches and CRAMS. Financial estimates do not include the Biomed acquisitions and any future acquisitions Export opportunities and tax advantage on account of shifting manufacturing facilities will benefit the overall profitability. It is a good long term bet.

Sales and profit projections
	Q4	Annual	Annual E	Annual E
	FY08	FY08	FY09	FY10
Net sales	156.40	548.14	657.77	789.33
OP	31.52	110.49	131.55	157.87
PAT	20.42	71.80	85.51	102.61
Capital	18.79	18.79	18.57	17.47
EPS	10.87	38.21	46.04	58.73

Price and Value Ratios
Price	362.5	Date	9/5/2008
PE	7.87	BV	208.11
P/BV	1.74	EV	1182.75
EV/EBIDTA	10.70	Mcap	688.75
		(Rs.crore)

Shareholding Pattern
Shareholding		31-03-2008
Promoter		37.55
FII		20.45
Public		10.42
Others		31.58
Total		100