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Research
Elder Pharma - Q4FY12 Result update - Centrum
Posted On : 2012-05-19 11:35:53( TIMEZONE : IST )
Margin under pressure
Elder Pharma (EPL) sales growth for Q4FY12 was in line with our expectation but EBIDTA margin and net profit growth were below our expectation. The company has reported sales growth of 13%YoY, lower than the industry growth of 15%. Its EBIDTA margin declined by 230bps YoY from 16.9% to 14.6%. The company's other income grew by 236%YoY from Rs9mn to Rs30mn. The tax rate has gone up from 15.5% to 24.6% of PBT. EPL's net profit before EO items declined by 12%YoY due to lower margin and higher tax provision. The company is likely to benefit from better utilisation of its manufacturing facilities and new product launches. We have retained Buy rating for the scrip with a target price of Rs429 (based on 7x FY14E EPS of Rs61.2).
- Subsidiaries report good growth: During the quarter, EPL's domestic business (71% revenues) grew by 9%YoY from Rs2.24bn to Rs2.45bn, lower than the industry growth of 15%. Its subsidiaries Neutra Health, UK and Biomeda, Bulgaria (29% revenues) grew by 25%YoY from Rs812mn to Rs1014mn.
- Margin declines: EPL's EBIDTA margin declined by 230bps from 16.9% to 14.6% due to the rise in material cost and other expenses. The company's material cost grew by 140bps from 48.4% to 49.8% of revenues due to the change in product mix. Other expenses were up by 310bps from 19.1% to 22.1% of revenues due to new product launch expenses.
- Weak quarter: EPL's segment wise growth during the quarter was as follows: Women's healthcare 10%, neutraceuticals 4%, wound & pain management 6%, anti-infectives (-)4% and lifestyle 6%. These figures indicate that EPL had a weak quarter in the domestic market.
New products introduced: EPL has launched Zalain (sertaconazole)-antifungal drug in collaboration with Ferrer, Spain for the first time in India. Zalain has been marketed in more than 21 countries under the same brand name. We expect this product to become a growth driver for the company.
- Attractive valuations; Reiterate Buy: We expect EPL to benefit from good growth from the new product introduction and Shelcal brand in the domestic market. The company's margins are likely to improve with higher capacity utilization of its facilities. We have revised EPS estimates downwards by 11% for FY13 and 6% for FY14. At the CMP of Rs317, the stock trades at 6.9x FY13E EPS of Rs45.9 and 5.2x FY14E EPS of Rs61.2. We retain the Buy rating for the scrip with a target price of Rs429 (based on 7x FY14 earnings).
