Major brands to drive growth for Elder Pharma’s (EPL) ::Centrum

Major brands to drive growth
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.

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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%.