Elder Pharma - Major brands to drive growth - Centrum

Elder Pharma's (EPL) results for Q1FY13 were in line with our expectations. The company reported 18%YoY growth in revenues, 180bps decline in EBIDTA margin and 5%YoY decline in net profit. The sales growth of domestic operations was 16%YoY whereas that of overseas subsidiaries was 23%. The merger of Elder Healthcare (EHL) with EPL has no major impact on the overall performance of EPL. The introduction of new products in the domestic market is likely to drive growth. We have a Buy rating for the scrip with target price of Rs429 (based on 7x FY14E EPS of Rs61.2) with an upside of 56.4%.

Good sales growth: EPL reported 18%YoY growth in revenues from Rs3.00bn to Rs3.54bn. The domestic business (74% revenues) grew by 16%YoY from Rs2.24bn to Rs2.60bn.The overseas subsidiaries NeutraHealth, UK and Biomeda, Bulgaria (26% of revenues) collectively reported 23%YoY growth from Rs764mn to Rs936mn.

Margin under pressure: EPL's EBIDTA margin declined by 180bpsYoY from 17.6% to 15.8% due to the sharp rise in the material cost. Material cost grew by 300bps from 50.1% to 53.1% of revenues due to the rise in imported raw material cost with rupee depreciation. Personnel cost declined by 180bps YoY from 14.4% to 12.6% due to good sales growth. Other expenses were up by 60bps from 17.9% to 18.5% due to the additional expenses related to new product launches.

Good growth across segments: EPL has reported good growth across segments in the domestic market as follows: Women's healthcare 21%YoY, Neutraceuticals 15%, Wound & pain management 16%, anti-infective 16%, Lifestyle 16% and others 14%. These segments are likely to drive future growth.

Leading brands growing well: EPL's three major brands are growing faster than the market. As per IMS MAT-June'12 data, the company reported lower growth of 10.8% against the industry growth of 13.9%. EPL's three major brands grew as follows: Shelcal 17.5%, Chymoral 23.0% and Shelcal-CT 17.0%. These flagship brands contribute ~36% to the domestic revenues.

Valuations: We expect EPL to benefit from good growth in the domestic market and from the introduction of new products. The overseas subsidiaries are expected to report better performance and break even in FY14. At the CMP of Rs274, the stock trades at 6.0x FY13E EPS of Rs45.9 and 4.5x FY14E EPS of Rs61.2. We have a Buy rating for the scrip with a target price of Rs429 (based on 7x FY14E EPS of Rs61.3) with an upside of 56.4%.

Source : Equity Bulls

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