Elder Pharmaceuticals - Domestic formulations on track; Buy - Anand Rathi

Elder Pharmaceuticals' (Elder) 2QFY13 results were above our estimates, led by strong growth in domestic business and higher contribution from international subsidiaries. EBITDA margin, however, declined 140bps yoy due to higher contribution of low-margin exports revenue. We maintain Buy with a target price of Rs.410.

- 2QFY13 results. Elder's revenue grew 22.1% yoy to Rs.4bn versus our estimates of Rs.3.7bn, led by strong growth in domestic business and higher contribution of international subsidiaries. EBITDA margin decreased 140bps yoy to 15.2% (against the estimated 16%) due to lower gross margins. Adjusted net profit grew 22% yoy, to Rs.262m (above the estimated Rs.210m), on account of higher revenue.

- International sales on high growth trajectory. The share of international sales increased from 25.5% in 2QFY12 to 27.5% in 2QFY13. International sales during the quarter were Rs.1.1bn, up 26.1% yoy, mainly on account of acquired businesses in UK and Bulgaria which grew 30% yoy.

- Revenue growth picks up in domestic market. For the quarter, domestic formulation sales grew 18.1% yoy, to Rs.1.9bn, mainly driven by women healthcare, anti-infectives and nutraceuticals. Overall domestic business, including APIs, reported 21% higher revenue growth (yoy) during the quarter. We expect revenue growth in domestic formulations to outperform sector growth in FY13 and FY14.

- Valuation. The stock is trading at 7.4x FY13e and 5.4x FY14e earnings. We maintain a Buy, with target price of Rs.410, based on 7x one-year forward earnings. Risks: Great dependence on a single product (Shelcal) and delay in turnaround of international subsidiaries.

Source : Equity Bulls

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