CARE maintains fundamental grade of 3/5 on Elder Pharma

CARE Equity Research has come out with its report on Elder Pharmaceuticals Limited (EPL). The research firm has maintained the fundamental grade of 3/5 on the company, which indicates 'Good Fundamentals'.

Healthy growth in revenue

EPL posted consolidated revenue of Rs.331 crore in Q2FY12 – a y-o-y growth of 57.2 per cent. Of this, revenue of Rs.78 crore was from the recently acquired stakes in Elder Biomeda AD and Neutrahealth PLC. On a standalone basis the revenue for the company stood at Rs.252.8 crore - up 24 per cent, y-o-y. All therapeutic segments witnessed healthy growth in the quarter.

Three new product launches

EPL furthered its strategy to enhance its product portfolio through new launches in Q2FY12. The company launched three new products, one each in lifestyle care, anti-infectives and nutraceuticals segment in Q2FY12. The company is further expected to add 8 more products to its portfolio in H2FY12. New product launches would be a critical monitorable for sustaining the growth in EPL's top-line going forward.

Margins witness some pressure

EPL's margins witnessed some pressure in Q2FY12 when compared with Q2FY11. The same was primarily on account of higher raw materials, employee and other expenses. Consequently, net margins too witnessed a decline y-o-y, and stood at 5.8 per cent in Q2FY12. However, on a standalone basis the margins have witnessed a slight improvement.

Valuation

CARE Equity Research assigns valuation grade of 4/5 to EPL based on the Current Intrinsic Value (CIV) of Rs.434 as against Current Market Price (CMP) of Rs.349 indicating that shares of EPL have 'Moderate Upside Potential' at the CMP.

EBITDA growth continues; margins witness some pressure on consolidated basis On a consolidated basis

EPL reported an EBITDA of Rs.54.9 crore in Q2FY12 – up 31 per cent, y-o-y. EBITDA for H1FY12 stood at Rs.107.75 crore – up 35 per cent, y-o-y. Operating margins however, stood lower at 16.6 per cent, as against 19.9 per cent in the same quarter of the previous year. The drop in margins was on account of increased expenses in the current quarter over Q2FY11. Other expenses, materials cost & staff cost witnessed a rise of 72.9 per cent, 60 per cent & 64.7 per cent, respectively, y-o-y. The PAT margins too were lower with drop in operating margins and higher interest expenses. The increase in other income, which comprised primarily of interest income, insurance claims received and duty drawbacks restricted the extent of drop in net margins. On standalone basis, however, the company reported an improvement in both operating and net margins.