Elder Pharmaceuticals - Strong Growth Ahead

Elder Pharmaceuticals (EPL) since listing in 2000 has given a return of 24 per cent on a compounded basis. Its topline and the bottomline have witnessed a CAGR of 17 per cent and 34 per cent respectively in the last 10 years. The company is present in the niche segment of women healthcare (the largest segment) which contributes to more than 25 per cent of its revenues. This includes its blockbuster brand Shelcal which enjoys a numero uno position in the calcium supplements segment.

The company has launched extended versions of Shelcal namely Shelcal K and Shelcal HD in December 2010 to be used primarily for treatment of osteoporosis. The market size of calcium supplements is Rs 400 crore and according to the management is likely to grow at 17 per cent going forward. According to Alok Saxena, Director, Elder Pharmaceuticals, “the company is trying to consolidate its position in the women healthcare segment and will maintain its leadership position in this segment going forward.”

The product pipeline of the company is also robust as it plans to launch 29 products mainly focusing on Women’s Healthcare and Neutraceuticals in the next 14 to 18 months. A Thrust on mass and rural markets through two of its divisions Elvista and Adventitus, the company is planning to witness better performance going forward. The expected growth in other segments including Women Healthcare (13 per cent), Wound Care (10 per cent), Neutraceuticals (17 per cent), Anti Infectives  and Lifestyle (25 per cent) in FY12 is likely to add to the strength of the company.

The company continues to focus more sharply on the domestic market which brings in more than 95 per cent of its revenues. It has forayed into the European market through two acquisitions; Neutrahealth in UK and Biomeda in Bulgaria. Nutrahealth focuses on high quality OTC products and CRAMS. The Biomeda acquisition in CY10 brings in distribution and manufacturing base for EPL in the EU market.

Coming to the financials, for FY11 the company has witnessed a good performance. The topline stands at Rs 827 crore for FY11 up 17.7 per cent on a YoY basis. The bottomline stands at Rs 71.29 crore, up 29 per cent on a YoY basis. The company has improved its margins in FY11 partly due to transfer of production of some products to the excise free area and rationalization of expenses according to Alok Saxena.

On the valuation front at the present price the company trades at a P/E of 10.30 times which is much cheaper as compared to its other listed peers like Torrent Pharma (18.2X) and Unichem Laboratories (14X). The stock trades at EV/EBITDA of 7.87 times which also looks attractive when compared to peers mentioned above. The debt of the company is on the higher side and stands at Rs 858 crore, this is mainly due to the acquisition and expansion of facilities at Dehradun. However, we feel that higher sales of existing products and incremental contribution from new launches are likely to be the main triggers going forward. At present we suggest our readers to invest in the stock for a return of 20 per cent from the current price for a time horizon of one year.