FUNDAMENTALS VALUATION
ELDER PHARMACEUTICALS
LIMITED
01 June, 2011
ANALYTICAL CONTACT
Ms. Revati Kasture +91-22-6754 3465 [email protected]
BUSINESS DEVELOPMENT CONTACTS
MUMBAI
Mr. P. N. Satheeskumar +91-22-6754 3555 [email protected]
KOLKATA
Mr. Sukanta Nag +91-33- 2283 1800 [email protected]
CHENNAI
Mr. V Pradeep Kumar +91-44-2849 7812 [email protected]
AHMEDABAD
Mr. Mehul Pandya +91-79-40265656 [email protected]
NEW DELHI
Ms. Swati Agrawal +91- 11- 2331 8701 [email protected]
BANGALORE
Mr. G. Sundara Vathanan +91-80-2211 7140 [email protected]
HYDERABAD
Mr. Ashwini Kumar Jani +91-40-40102030 [email protected]
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ELDER PHARMACEUTICALS LTD.
1 www.careratings.com
EQUIGRADE
EQUIGRADE – Analytical Power for Investment Decision
ELDER PHARMACEUTICALS LTD. Pharmaceuticals: Bulk Drugs
Good Fundamentals , Considerable Upside Potential CMP : Rs. 366.05 / CIV: Rs. 468.5 1
Sensex: 18,503.28
CARE Equity Research assigns 3/5 on fundamental grade to Elder
Pharmaceuticals Limited (EPL)
CARE Equity Research assigns fundamental grade of 3/5 to EPL.
This indicates ‘Good Fundamentals’. The grading draws its
strength from EPL’s presence in niche therapeutic segments across
women’s healthcare, nutraceuticals, pain management and anti-
infective all of which are growing at a high growth with strong
brands both owned and in-licensed. EPL also has a healthy mix of
formulations and APIs and has developed 8 new APIs in past using
its internal R&D. The company has around 6 manufacturing units
in India, all as per international standards. Post increasing its stake
in Elder Biomeda AD and Neutrahealth PLC, EPL will also have
access to the manufacturing units of these companies in Bulgaria
and Birmingham, UK respectively coupled with distribution
network and brands of the same. This is expected to help EPL
increase its reach in developed markets; the company at present is
primarily a domestic pharmaceutical player.
Valuation
CARE Equity Research assigns valuation grade of 5/5 to EPL
based on the current Intrinsic Value (CIV) of Rs. 468.5 as against
Current Market Price (CMP) of 366, indicating ‘Considerable
Upside Potential’ from CMP. The valuation is arrived using the
DCF methodology.
Financial Information Snapshot
(Rs. Millions) FY10 FY11 E FY12 P FY13 P
Operating Income 7,216 9,603 12,496 14,252
EBITDA 1,224 1,761 2,249 2,565
PAT (After minority interest) 472 635 917 1,196
Fully Diluted EPS* (Rs.) 25.0 31.0 44.7 58.3
Dividend Per Share (Rs.) 3.5 3.5 3.9 4.2
P/E (times) 14.6 11.8 8.2 6.3
EV/EBITDA (times) 9.7 6.7 5.3 4.6
* Calculated on Current Face Value of Rs. 10/- per share
1st
June 2011
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
Primarily a domestic pharmaceuticals play; growth be supported by the growing economy and changing
lifestyle
Elder Pharmaceuticals Limited [EPL] is primarily a domestic pharmaceutical player – domestic segment
constitutes around 95% of its sales. The domestic pharmaceuticals market is still at its nascent stage when
compared with the developed countries. The healthcare expenditure in India stands at around USD 10 per capita
as compared with a world average of around USD 191 per capita. Given, low penetration with changing
demographics, higher urbanisation, rising reach of health insurance policies and private sector hospitals along with
expansion of other medical infrastructure the domestic pharmaceutical market is expected to grow at a CAGR of
14-15%. Within the domestic market, demand is expected to be higher especially for branded generics given the
cost consideration. The demand for therapeutic segments related to lifestyle related diseases such as cancer,
obesity, infective, respiratory, cardiovascular, CNS diseases and immune system disorders given rapid urbanization
and increase life-expectancy is expected to be higher. Alongside, the niche segment of nutraceuticals (currently is
about Rs. 44 billion market) and women’s healthcare (around Rs 24 billion market) is expected to witness strong
growth supported by the changing lifestyles. CARE Equity Research believes, the market growth and the
therapeutic mix are expected to auger well for EPL and assist it in sustaining the growth in revenues.
Healthy mix of own and in-license brands with presence in both formulations and API’s
EPL has a healthy mix of owned brands and 24 in license agreements with a total product portfolio of around 250
-270 formulations across the niche therapeutic segments like women’s healthcare, nutraceuticals, pain management
and anti-infective most of which are growing at a high growth rate having strong brand recognition in the domestic
market. The in-license agreement helps strengthen the product offerings with minimal risk and costs. Also, most of
the in-license agreements are with relatively small international players which helps in maintaining the margins, on
account of lower bargaining power of the innovator company. Also, as a strategy the company plans to enter into
molecule in-license agreements as against brand in-license, thereby helping the company build and develop its own
brands. EPL is also positioning itself to become a prominent API (Active Pharmaceutical Ingredient) and
advanced pharmaceutical intermediates supplier. EPL has developed about 8 new APIs using internal R&D. It
has also expanded API capacity at several locations and started manufacturing these API’s in-house thus moving
up the value chain. The company is also planning to venture into high margin APIs for the export market. This
multi segment format helps EPL in maintaining sustainable revenues.
FUNDAMENTAL GRADE Good Fundamentals 3/5
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
EPL’s revenue from key therapeutic segment
Source: Company and CARE Equity Research
In-licensing deals across various therapies improves product portfolio
Source: Company and CARE Equity Research
Well established brands; most are market leaders
EPL caters to niche therapeutic segments like women’s healthcare, pain management, nutraceuticals, anti-infective
and lifestyle disease care and has strong brands in each of these segments. Shelcal, with a turnover of Rs 175 crores
in FY11 (estimated) is 25th
largest brand in Indian Pharmaceutical Industry and 4 other brands - Chymoral,
Formic–O, Eldervit, and Amifru are also market leaders in their respective segments. The company has also been
Product Segment Partner Value (Rs Mn)
Somazina Neuro-protective Ferrer, Spain 188.0
Tantum Pain Management Angelini, Italy 53.5
Hibor Anti Thrombotic Farmeceuticos Rovi, Spain 39.9
Phytomega Dietary supplement Enzymotec, Israel 27.0
Sampure Vitamins Gnosis, Italy 25.0
Imbran Nutritional supplement Daiwa, Japan 16.0
1947.13
822.7682.21
949.28
577.52
1596.5
711.84575.81
788.6
499.63
0
500
1000
1500
2000
2500
Women's
Healthcare
Pain
Management
Nutraceuticals Anti- Infectives Lifestyle Diseases
CareFY2011 FY2010
(Rs. Million)
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
able to enhance the existing brand portfolio further by introducing sub-brands of different dosages with regularity
(key being Somazina Plus, I-Vit Plus and Shelcal CT in FY11), which has helped it in increasing the sales of these
brands over the time. While, EPL has been successful in maintaining its brand leadership so far, it will have to
ensure continued efforts in this direction to maintain revenue and growth. The company expects to introduce
around 13 - 14 new products in the next two years, and we believe this would be a critical monitor-able for
sustaining the growth in EPL’s top-line going forward.
Market share of EPL’s leading brands
Source: ORG-IMS Data December 2010
Product - launches and revenue growth trend
Source: Company and CARE Equity Research
Product Segment Ranking Market Share (%)
Shelcal Calcium Supplement 1 24.7
Chymoral Wound healing enzyme 1 83.3
Formic-O Anti-Bacterial 1 41.1
Eldervit-12 Vitamin B-12 injectible 1 37.8
Amifru-40 Anti-Hypertension 1 69.5
Product Segment
Product Revenues (Rs Mn.)
Launch FY07 FY08 FY09 FY10
Formic Anti-infective 2006 63 89 180 249
Somazina Brain disorder 2006 65 112 154 150
Somazina 500mg Brain disorder 2007 - 59 134 100
Chymoral Plus Pain Management 2007 - 43 100 102
Eldervit-ZC Nutraceuticals 2007 19 69 71 64
Shelcal CT Women Healthcare 2008 - 14 154 183
Hibor Anti Thrombotic 2008 - 19 35 38
Elfi Range Women Healthcare 2008 - - 35 64
Elpod Range Pain Management 2008 - - 12 30
Imbran Cap
250mg Cancer 2008 - - 5 30
Augpod Range Anti-infective 2009 - - 19 40
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
Product Launches in FY11
Source: Company and CARE Equity Research
Fairly decent marketing and distribution footprint; further efforts in that direction
With tier II and III cities expected to account for around half of the pharmaceuticals demand, enhancing reach
into these markets is an important consideration for the pharmaceuticals sector. EPL currently has around 2300
medical representatives, more than 3000 authorised distributors, 31 stock points and 350 managers managing the
sales network with a contact base of around 350,000 doctors (of 750,000 physicians in the country) and 80,000
pharmacies. To further strengthen its sales presence and reach EPL has forayed into these markets by setting up
two distinct divisions each with around 300-400 member strong team: Elvista which focuses on the rural markets
targeting categories like anti-peptic ulcerates, anti-malaria, anti-infectives, NSAIDS, quinolones and cough
medication. Adventtus on the other hand is a multi speciality division focussing on sales through General
Practitioners in class I & II towns. The company has also roped well experienced personnel to head the company’s
domestic marketing initiatives. While the initiatives coupled with new product launches has increased the
employee and selling and marketing expenses in the short term, we believe the same would augur well over the
longer term to strengthen its presence and expand reach.
Products Month of Launch Therapeutic Category
NRT Jun-10 Anti Smoking
Eldervit Plus tablet Jun-10 Nutraceutical
Elmecob PG Sep-10 Lifestyle Disease Portfolio
Eldoflam MR Oct-10 Pain Management
Somazina Plus Nov-10 Lifestyle Disease Portfolio
Eltrodar GM Nov-10 Pain Management
Junimol suspension Nov-10 Antipyretic
Acebrolin capsules & syrups Dec-10 Cough and Cold
Eldocort Dec-10 Pain Management
Prexan Dec-10 Haematinic
Shelcal K Dec-10 Anti Osteoporosis
Elfecol syrup Dec-10 Cough and Cold
Bronconil Syrup Jan-11 Cough and Cold
Plasmorid Jan-11 Anti Malarial
Samplus Jan-11 Lifestyle Disease Portfolio
I-Vit Plus Jan-11 Nutraceutical
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
Middle order player; R&D budget would be constrained, however the same doesn’t have any immediate
impact
India adopted product patent regimen with effect from January 1st
2005 after which Indian pharma companies
were forced to innovate new products. Although government allows 200% weighted deduction on in-house
research and development (R&D) expenses not many Indian companies in the pharma industry have leading R&D
centres that can invest in new molecule (new drug discovery) development given huge cost considerations and long
gestation period. While, EPL has in past developed APIs which were previously outsourced and also been able to
introduce products based on New Drug Delivery Systems (“NDDS”) including mouth dissolving tablets
(chewable), taste mask tablets and sustained release/controlled release formulations in different dosage forms using
internal R&D. It is still ranked at 28th
in the Indian Pharmaceutical Industry making it a middle order player and
fairly small in size when compared with the international players, we believe the R&D budgets could be
constrained to certain extent to be successful in timely developing the various products in the R&D pipeline in
future. However, given the current focus on enhancing its already established drugs by introducing the different
dosages and delivery systems, coupled with an increase in the product profile on account of the acquisition in
Neutrahealth PLC, the company would not see any immediate impact of this.
R&D product pipeline
Source: Company and CARE Equity Research
Geographically diversified manufacturing units; most as per international standards
EPL has 6 manufacturing plants in India located across Maharashtra (Nerul, Patalganga, Pawane), Uttarakhand
(Selaqui, Langa Road) and Himachal Pradesh (Paonta Sahib) possessing a capability to manufacture various
dosage forms like tablets, capsules, syrups, injectibles, topical creams and ointments. Two of the Uttarakhand
facilities are in the excise free zones. Since both the Uttarakhand facilities are equipped to manufacture all dosage
forms, higher utilisation of the same will help the company avail higher excise benefits in the future.
The company has periodically invested to enhance their manufacturing capacities. The company’s Nerul, Paonta
Therapeutic Segment No. of Products
Women's Healthcare 5
Pain Management 5
Neutraceuticals 8
Anti Infectives 6
Cough & Cold 8
Others 4
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
Sahib and Selaqui facilities are certified as per WHO GMP, Selaqui facility is also expected to get the UK MHRA
certification. The recently commissioned Langha Road facility is as per USFDA. Also, its Patalganga facility has
recently been accredited by the Ministry of Health – Japan which will open its access to the Japanese market, the
world second largest pharma market. We believe the international certifications are key for the company to
enhance its reach in exports market and also to further its in-licensing strategy.
EPLs manufacturing facilities - capacities and accreditations
Source: Company and CARE Equity Research
Combined capacity details for formulations
Source: Company and CARE Equity Research
Patalganga Paonta Sahib Selaqui Nerul API Pawane Langa Road
Maharashtra HP Uttarakhand Maharashtra Maharashtra Uttarakhand
ISO 9001:2000
WHO cGMP
WHO cGMP WHO cGMP GMP
USFDA USFDA
USFDA
USFDA
eDMF- AFSSAPS UK MHRA
(Expected)
Ministry of
Health, JAPAN
APIs API API
Injectibles Creams, Lotions,
Ointment
Tablets,
Capsules
Liquids, Tablets,
Capsules, Ointments,
Sachets
Liquids Liquids,
Tablets
R&D Centre
Formulations Units FY2008 FY2009 FY2010
Tablets Million Units 160 206 299
Capsules Million Units 233 299 481
Injectables* Million Units -- -- 156
Ointments Tonnes 1255 1255 1255
Syrups/Liquids Kilo Litres 1056 1056 8616
API/ Powder Tonnes 381 261 233
*includes manufactures by loan licensees
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
Subsidiaries may be a future bright spot for knowledge share and market reach
EPL has two key step down subsidiaries held through its wholly owned Dubai based subsidiary, ‘Elder
International FZCO, Dubai’ – Elder Biomeda AD, Bulgaria and Neutrahealth PLC, UK. EPL has recently
increased its stake in both these subsidiaries to 92.2 percent and 100 per cent respectively.
Elder Biomeda AD in turn holds 100% stake in both Biomeda 2000 EOOD (which is amongst the top 10
distributors and markets about 200 companies’ pharma products) and the manufacturing arm Elder Bulgaria
EOOD. The company expects to make its Bulgarian step-down subsidiary EU compliant by upgrading quality
control systems which in turn will help the company to further penetrate the EU and CIS markets.
Neutrahealth PLC which offers high quality vitamins and supplements (VMS) and probiotics, again has two
subsidiaries - Brunel Healthcare Manufacturing Limited, which primarily caters to private labels with a MHRA
approved manufacturing facility in Birmingham, UK and Biocare Limited, which is involved in prescription drugs
business primarily through its online portal.
The company is in the process of en-cashing the synergies between itself and Neutrahealth PLC. To start with,
EPL plans to manufacture a part of the API requirement for Neutrahealth PLC in India. EPL’s procurement team
is also revamping the sourcing for Neutrahealth PLC, from low cost destination like India and China. Also, the
company plans to introduce the existing brands of Neutrahealth PLC in India. CARE Equity Research believes the
increased stakes in these subsidiaries will provide EPL an access to the European markets for its own brands and
also help bring some of their private labels in the domestic market. Going forward, the revenues from these
subsidiaries are expected to form around 18 - 20 per cent of total the revenue for the company.
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
EPL’s subsidiaries
Source: Company and CARE Equity Research
Corporate governance in compliance with listing norms
EPL board comprises of eleven directors, three of who are executive and remaining eight are non executive
directors. The board is headed by the promoter and managing director Mr. J Saxena. As per annual report the
board has formed two sub committees for audit and remuneration. The audit committee comprises of four
members, all non-executive and independent and have financial and accounting knowledge - headed by the Mr.
Michael Bastian with effect from 29th April 2009s. The remuneration committee comprises of three directors
Dr.R Srinivasan, Dr. S Jayaram, Mr. J Saxena, and is headed by the non-executive and independent chairman Dr.
R Srinivasan. The practices are in compliance with the clause 49 of the listing agreement with the stock exchanges.
NeutraHealth
Plc, UK
Elder International
FZCO, Dubai
Elder
Pharmaceuticals Ltd
Elder Biomeda
AD, Bulgaria
Biomeda 2000 EOOD
100%
92.2%100%
100%
Elder Univeral
Pharmaceuticals, Nepal
49%
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
CARE Equity Research values Elder Pharmaceuticals Limited (EPL) at Rs. 468.5 per share
According to CARE Equity Research, the Current Intrinsic Value (CIV) of EPL stands at Rs.468.5 per share. This
translates into Enterprise Value (EV) of Rs. 1600 crore. Thus, EPL has ‘Considerable Upside Potential’ from the
current market price of Rs 366 per share.
The CIV is calculated based on Discounted Cash Flow model
CARE Equity Research has arrived at CIV of the stock on the basis of Discounted Cash Flow (DCF) model.
The overall firm Weighted Average Cost of Capital (WACC) is calculated based on our long term
assumptions of cost of financing summarized in below table.
CARE Equity Research has used Free Cash Flow (FCF) methodology to arrive at the firm value, as EPL’s
business is (working) capital intensive in nature.
The forecasted FCF is as per CARE Equity Research estimates.
Terminal value is arrived at by using Gordon Growth Model.
CARE Equity Research has assumed that in the long-run, EPLs’ capital expenditure shall be Rs. 400 crore.
The terminal value forms 77 per cent of the firm’s total equity value, which appears to be reasonable.
EPL: Valuation Based on Discounted Cash Flows (DCF)
Source: CARE Equity Research
VALUATION GRADE Considerable Upside Potential 5/5
Item Value Basis
Risk Free Rate 8.25% 10 year G-Sec yields
Equity Risk Premium 6.00%
Beta 0.6 Adjusted Beta
Cost of Equity 11.58%
Cost of Debt 9.6% Long term cost of debt
Tax Rate 30.00% Long term tax rate
Debt/Equity Ratio 0.68 Long term target D/E ratio
WACC 9.62%
Terminal growth rate 2.50%
ELDER PHARMACEUTICALS LTD.
11 www.careratings.com
EQUIGRADE
Source: CARE Equity Research
EPL: Sensitivity Analysis – Share price
Source: CARE Equity Research
(Rs Millions except per share data)
2011-12 2012-13 2013-14 2014-15 2015-16
PAT 917 1,196 1,578 1,967 2,416
Depreciation 341 358 376 395 415
Interest (1-Tax Rate) 578 533 487 421 342
Capital Expenditure 0 -369 -437 -459 -530
Increase in Working Capital -1,180 -745 -1,081 -1,246 -1,413
Free Cash Flow (FCF) 655 973 924 1,079 1,231
Discount Rate 0.91 0.83 0.76 0.69 0.63
PV of FCF 598 810 701 747 778
PV of Terminal Value 12,367
Total Discounted Value of Firm 16,001
Less: Net Debt (FY11) 6,384
Present Value of equity 9,617
No of Equity Shares (Million) 21
CIV 468.5
Weighted Average Cost of Capital (%)
9.00% 9.25% 9.62% 10.00% 10.25%
Term
inal
Year
Gro
wth
Rat
e
2.00% 496.8 467.0 426.2 388.8 366.0
2.25% 521.7 489.9 446.7 407.1 383.0
2.50% 548.4 514.5 468.5 426.6 401.1
2.75% 577.3 541.0 491.9 447.4 420.4
3.00% 608.6 569.7 517.2 469.7 441.0
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EQUIGRADE
The CIV of Rs. 468.5 per share translates into EV/EBITDA multiple of 7.1 times FY12P EBITDA and
P/E of 10.5 times FY12P EPS
The CIV of EPL at Rs.468.5 per share as arrived by CARE Equity Research translates into Enterprise Value to
EBITDA (EV/EBITDA) multiple of 7.1 times the FY12P EBITDA of Rs. 224.9 crore. This seems reasonable, as
the average one year forward rolling EV/EBITDA multiple since April 2007 stands at 7.6 times.
EPL: Implied EV/ EBITDA and P/E Multiples
(Rs Millions except per share data)
Source: CARE Equity Research
Similarly, the CIV of Rs. 468.5 per share translates into price-earnings (P/E) multiple of 10.5 times the FY12P EPS
of Rs. 44.7 per share. This too seems reasonable, as the average one year forward rolling P/E multiple for EPL
from April 2007 stands at 10.3 times.
EPL: One year forward
rolling EV/EBITDA multiple
EPL: One year forward
rolling P/E multiple
Source: CARE Equity Research
Implied EV/ EBITDA
EBITDA (FY12) 2,249.3
Fair Value 468.5
No. of Shares (Mn) 20.5
Market Cap 9588.7
Net Debt (FY11) 6,384.0
EV 16,000.8
Implied EV/ EBITDA 7.1
Implied P/E
PAT (FY12) 916.9
Fair Value 468.5
No. of Shares (Mn) 20.5
EPS (FY12) 44.7
Implied P/E 10.5
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
Peer Set Comparisons
(Rs. Mn) Elder Pharma Glenmark Cadila Healthcare Lupin
Financial Statements FY09 FY10 FY09 FY10 FY09 FY10 FY09 FY10
Net Operating Income
6,203.4
7,216.0
20,402.0
24,123.7
29,275.0
36,868.0
38,666.4
48,707.9
EBITDA
981.0
1,224.1
3,791.5
5,312.9
6,058.0
8,086.0
7,392.8
9,838.9
EBIT
865.8
1,052.1
3,934.2
4,106.8
4,940.0
6,747.0
6,512.9
8,599.8
PAT
608.3
472.2
1,934.7
3,310.3
3,031.0
5,051.0
5,015.4
6,816.3
Margins
EBITDA 15.8% 17.0% 18.6% 22.0% 20.7% 21.9% 19.1% 20.2%
EBIT 13.7% 14.4% 17.8% 16.7% 16.8% 18.2% 16.8% 17.6%
PAT 9.7% 6.5% 8.7% 13.4% 10.3% 13.6% 13.0% 14.0%
Per Share Data
EPS 32.3 26.3 7.7 12.3 14.8 37.3 11.2 15.3
DPS 2.9 3.5 0.5 0.5 3.9 6.0 2.7 3.2
BVPS (Tangible) 207.1 246.9 27.3 48.4 61.4 53.0 31.9 54.2
Valuations Ratios (Trailing)
P/E - 13.9 - 24.7 - 24.3 - 30.5
EV/ EBITDA - 9.7 - 18.7 - 24.0 - 22.1
Price /Sales - 1.0 - 3.4 - 5.0 - 4.3
Profitability Ratios
ROCE - 10.9% - 13.3% - 27.3% - 26.4%
ROE - 11.0% - 33.3% - 43.1% - 35.5%
- - - -
* Per share data for Lupin has been
adjusted for split.
Source: Company annual reports and CARE Equity Research
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
Company Background
Elder Pharmaceuticals Ltd (EPL), incorporated in 1989 is a India based integrated pharmaceutical player involved
in the manufacturing of pharmaceutical-based intermediates, formulations and bulk drugs (API) along with a
specialized in-house R&D unit. It has presence across several niche therapeutic segments with some market leading
brands in its respective segments. EPL is the 28th
largest pharmaceutical company in India and one of the fastest
growing companies in terms of revenue, according to ORG-IMS. The company has 6 manufacturing units located
across India in states like Maharashtra, Himachal Pradesh and Uttarakhand and produces between 250-270
formulations. Over the years the company has built-up over 24 in-licensing agreements and strategic alliances with
international pharma companies operating in similar therapeutic segments to further augment their revenues in the
domestic market. The company has recently acquired stakes in pharma companies in the UK and Bulgaria to
diversify into international markets. In FY2010, only 5 per cent of their total revenues were sourced from overseas
market.
Business Mix
EPL is present in several niche therapeutic segments in India all of which are growing at a healthy rate. Some of the
dominant segments where it is present includes women’s healthcare, pain management, anti-infectives’, lifestyle
related diseases, and nutraceuticals. Four of their products have market share in excess of 30% in their respective
categories. Women’s healthcare, pain management and nutraceuticals are some of the leading growth drivers
amongst all other business segments.
a. Women’s Healthcare - EPL famous brands in this segment includes Shelcal, Deviry, B-Long, Bonviva. The
segment caters to various therapeutic needs such as pre-menstrual, infertility, labor/ parturition and hormonal
imbalance and vitamin necessities. Shelcal has firmly established itself as the No. 1 drug in the calcium
supplement market, and is the 25th
largest brand in the Indian Pharmaceutical market.
b. Pain Management– The products in this segment address a wide range of wound applications and pain
management requirements during pre & post-operative stages and also during the course of surgery.
Chymoral is a market leader in this segment with over 33 per cent market share. Other key brands in this
segment include Oxoferin, Tantum and Clotan.
c. Nutraceuticals– EPL’s key brands in the nutraceuticals segment include the Eldervit range, I-Vit, Phytomega,
Elmecob Plus, Thrive Group and Nephrocaps. The products include vitamin supplements and vitamins
combinations capable of handling problems of diabetes, arthritis, neurological issues and cardiac ailments.
COMPANY BACKGROUND
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
d. Anti-Infectives– EPL’s anti-infectives’ portfolio comprises of cephalosporin’s, aminoglycosides and
amoxicillin which help in the cure of several bacterial infections, UTI and RTI. Formic-O is a leading brand
in anti-bacterial segment with market share of over 46%. Other key brands include Widcef, KefBactum,
Tobraneg and Elfi
e. Life style disease– EPL’s focus key areas include anti-hypertensive, LMWH and neuro-protection in the
event of stoke. Carnisure is the major product in this category. Other key brands are Somazina, Hibor and
Amifru.
f. API – EPLs focus in the API segment is towards speciality products with a gradual shift from the amoxicillins.
The company has received accreditation for its Patalganga plant from the Ministry of Health – Japan, thereby
opening opportunities for supply contracts with Japanese generic companies. The company also plans to
manufacture API for its recently acquired UK based subsidiary Neutrahealth PLC.
Segment-wise growth in FY11
Source: Company and CARE Equity Research
The company also has in-licensing deal/agreements with foreign pharmaceutical companies in existing therapeutic
segments for manufacturing and marketing of their formulations. The in-licensing division which contribute
approximately 12-13% of the total revenue has witnessed healthy growth.
Segments Growth %
Women's Healthcare 22%
Pain Management 16%
Nutraceuticals 18%
Anti- Infectives 20%
Lifestyle Diseases Care 16%
API 15%
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EQUIGRADE
Trend in segment wise revenue break-up
Source: Company and CARE Equity Research
Export Business
Exports form a miniscule part of EPL’s total revenue and it earned 2.5 per cent of its total revenue from exports in
FY2010 compared to approximately 5 per cent in FY2009. It exports mainly to Asian and African countries which
are typically semi-regulated markets and also to a few developed countries.
FY2011
FY2010
Wome
n's
Healthc
are, 24
%
Pain
Manage
ment, 1
0%
Nutrace
uticals,
8%
Anti-
Infectiv
es, 11%
Lifestyle
Disease
s
Care, 7
%
API, 40
%
Wome
n's
Healthc
are, 23
% Pain
Manage
ment, 1
0%
Nutrace
uticals,
8%
Anti-
Infectiv
es, 11%
Lifestyle
Disease
s
Care, 7
%
API, 41
%
ELDER PHARMACEUTICALS LTD.
17 www.careratings.com
EQUIGRADE
Promoter and Management
Source: Company and CARE Equity Research
Name Designation held Qualification
Mr. Jagdish Saxena Chairman and MD Science Graduate
Mr. Alok Saxena Wholetime ED B.A.
Mr. M V Thomas** Wholetime Director (Finance) Chartered Accountant
Dr. R Srinivasan Independent, NED Ph.D.(Banking & Finance), Ex Chairman
& MD-Bank of India
Mr. Peter C Bibby* Independent, NED Science Graduate
Dr. J S Juneja Independent, NED Ph.D. (Applied Economics),M.B.A.
Dr. S Jayaram Independent, NED M.D. Medical Practitioner
Dr. Sailendra Narain Independent, NED Ph.D.(Humanity), M.A.(Economics)
Mr. Saleem Sherwani Independent, NED Member of Parliament
Mr. Edoardo C. Richter NED
Mr. Michael Bastian Additional NED CA, Ex-CMD of Syndicate Bank.
Mr. Yusuf Karim Khan Executive Director BA.LLB,
Mrs. Urvashi Saxena* NED
* Mrs. Urvashi Saxena was appointed in place of Mr. Peter Bibby w.e.f April 29th 2009
** Resigned from the Directorship of the Company w.e.f. 1st July 2010
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EQUIGRADE
The Indian Pharmaceutical Industry (IPI) has grown to around US$20 bn (Rs 95,000 crore) industry. It is now the
3rd
largest in the world in terms of volume and 13th
largest in terms of value thereby accounting for around 10% of
world’s production by volume and 2% by value due to lower prices. The industry now produces about 400 bulk
drugs (APIs) and almost entire range of formulations belonging to all major therapeutic groups requiring complex
manufacturing technologies. It is supported by strong scientific and technical manpower and pioneering work done
in process development. However, the industry is highly fragmented with around 20,000 odd players of which
approximately 250 medium to large corporations controlling about 70% of the total domestic market. The industry
has been growing at a healthy rate of 11-12% CAGR over the last 10 years, with growth in exports outstripping
steady growth in the domestic market.
The key drivers of growth for the IPI would be –
Large generic opportunity arising out of significant patent expiries in the regulated markets
Outsourcing by global pharmaceutical companies
Growth in domestic pharmaceutical market
Opportunity presented by bio-similars
Pharmaceutical industry growing at a healthy rate backed by robust exports
Export market which constitutes around 41 per cent of the total IPI/ API sales has shown a robust growth rate of
nearly 18 -20 per cent CAGR over last five years. Indian exports are destined to more than 200 countries around
the globe including highly regulated markets of US (21 per cent export share), Europe (24 per cent export share),
Japan and Australia. This can be attributed to growing share of generic drugs in the regulated markets and
opportunities from CRAMs (Contract Research and Manufacturing Services) on account of outsourcing by global
pharmaceutical companies to low cost destinations like India. Within exports, formulations constitute
approximately 58 per cent of the total exports and the other 42 per cent comprises of APIs/ bulk drugs exports.
Formulations exports have been growing at a healthy rate of around 26 per cent, while, the APIs have grown at
around 19 per cent over the last four years. Although, currently majority of the API exports from India are to less-
regulated markets. However, the trend is changing and the share of exports to regulated markets is on the rise with
growing number of Drug Master File (DMF) filings from Indian companies with regulators in the regulated markets.
Going forward we expect the API/ bulk drugs export to grow at a faster pace than formulations given the changing
dynamics and increased outsourcing by global companies.
SNAPSHOT OF THE INDIAN PHARMACEUTICAL INDUSTRY
ELDER PHARMACEUTICALS LTD.
19 www.careratings.com
EQUIGRADE
Domestic market to grow at a higher trajectory in future
The domestic market has been growing at around 10 -12 per cent over the last decade. Going forward, the market
is expected to shift to a higher growth trajectory of around 14 -15 per cent on the back of increase in incomes levels,
higher penetration of health care and increase in health awareness among masses. The higher growth would be
supported by strong growth in the tier II, III cities, semi-urban and rural markets. These markets currently
constitute around 20% of the total domestic market and are expected to grow at around 25-30 per cent in the future
and thus forming around half the market over the next decade.
Key industry demand drivers
Source: CARE Research
Key Therapeutic segments in India
In the Indian pharmaceutical industry, anti-infective remain the most crucial segment and accounts for
approximately 18 per cent of the total market revenue. Cardiovascular preparations, cold remedies, pain killers and
respiratory solutions have a proportion of approximately 10 per cent each. Chronic therapies like anti-diabetes,
cardiovascular (CVS) & central nervous system (CNS) have grown at a higher rate compared to other therapy
classes indicating a shift in disease profile towards that prevailing in the developed countries. Moreover, the market
for treating diseases such as diabetes and obesity, or so-called lifestyle drugs such as anti-depressants, anti-wrinkle
drugs etc, is of less significance at present, but is expected to grow at faster rate in the future given changing
demographics pattern. The top 10 therapies have remained constant over the last 4 years and consistently
contributed to over 87 per cent of the IPI. New introductions are driven growth was the highest for the therapeutic
segments of Anti-infectives, Anti-diabetic, Vitamins/Minerals/Nutrients.
•Increase in penetration of health insurance
•Increase in disposable incomes and the number ofmiddle-class households
•Expansion of medical infrastructure including privatesector hospitals
•Adoption of product patent laws
• Rapid urbanization and rising prevalance of chronicdiseases coupled with increased life expectancy
•Market penetration in rural hinterland to expandreach and availability to the masses
Factors influencing domestic growth
ELDER PHARMACEUTICALS LTD.
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EQUIGRADE
Key Therapeutic segments in India
Source: ORG-IMS and CARE Research
Anti-
infectives, 18
%
Gastro, 11%
Cardiac, 11%
Respiratory, 9
%Pain, 9%
Vitamins, 8%
Gynaec, 6%
CNS, 5%
Dema, 5%
Anti-
diabetic, 5%
Others, 13%
ELDER PHARMACEUTICALS LTD.
21 www.careratings.com
EQUIGRADE
Consolidated Income Statement
(Rs Million) FY08 FY09 FY10 FY11 E FY12 P FY13 P
Operating Income 5,512 6,203 7,216 9,603 12,496 14,252
EBITDA 1,051 981 1,224 1,761 2,249 2,565
Depreciation and amortization 106 115 172 296 341 358
EBIT 944 866 1,052 1,465 1,908 2,207
Interest 210 260 573 736 825 762
PBT 734 606 479 730 1,083 1,445
Ordinary PAT (After minority interest) 687 608 472 635 917 1,196
PAT (After minority interest) 687 608 472 635 917 1,196
Fully Diluted Earnings Per Share* (Rs.) 36.5 32.3 25.0 31.0 44.7 58.3
Dividend, including tax 55 55 66 72 79 87
* Calculated based on ordinary PAT on Current Face Value of Rs. 10/- per share
Consolidated Balance Sheet
(Rs Million) FY08 FY09 FY10 FY11 E FY12 P FY13 P
Tangible Net worth (incl. Minority Interest) 3,629 3,905 4,655 5,801 6,639 7,748
Debt (incl. Preference Shares) 3,416 4,991 5,739 8,985 7,518 7,164
Deferred Liabilities / (Assets) 52 50 38 38 38 38
Capital Employed 7,097 8,946 10,432 14,824 14,194 14,950
Net Fixed Assets, incl. Capital WIP, net of reval
reserve 3,308 4,217 5,308 7,110 6,769 6,780
Investments 879 502 660 100 100 100
Loans and Advances 707 1,246 1,494 1,830 2,280 2,527
Inventory 837 881 1,434 2,402 2,910 3,319
Receivables 1,396 1,776 1,953 2,775 3,631 3,944
Cash and Cash Equivalents 790 1,464 786 2,601 1,133 1,278
Current Assets, Loans and Advances 3,771 5,393 5,702 9,608 9,954 11,068
Less: Current Liabilities and Provisions 861 1,166 1,238 1,994 2,628 2,997
Total Assets 7,097 8,946 10,432 14,824 14,194 14,950
Ratios based on Consolidated Financials
FY08 FY09 FY10 FY11 E FY12 P FY13 P
Growth in Operating Income 22.7% 12.5% 16.3% 33.1% 30.1% 14.1%
Growth in EBITDA 34.7% -6.6% 24.8% 43.9% 27.7% 14.1%
Growth in PAT 30.1% -11.4% -22.4% 34.6% 44.3% 30.5%
Growth in EPS 28.6% -11.7% -22.4% 23.6% 44.3% 30.5%
EBITDA Margin 19.1% 15.8% 17.0% 18.3% 18.0% 18.0%
PAT Margin 12.5% 9.8% 6.5% 6.6% 7.3% 8.4%
RoCE 14.8% 10.8% 10.9% 11.6% 13.2% 15.1%
RoE 20.1% 16.1% 11.0% 12.2% 14.7% 16.6%
Net Debt-Equity (times) 0.7 0.9 1.1 1.1 1.0 0.8
Interest Coverage (times) 5.0 3.8 2.1 2.4 2.7 3.4
Current Ratio (times) 4.4 4.6 4.6 4.8 3.8 3.7
Inventory Days 55 52 73 91 85 85
Receivable Days 92 105 99 105 106 101
Price / Earnings (P/E) Ratio 14.6 11.8 8.2 6.3
Price / Book Value(P/BV) Ratio
1.5 1.2 1.0 0.9
Enterprise Value (EV)/EBITDA 9.7 6.7 5.3 4.6
Source: Company, CARE Equity Research
FINANCIAL STATISTICS
ELDER PHARMACEUTICALS LTD.
www.careratings.com 22
EQUIGRADE
CARE Equigrade Grid (CEG)
Through CEG, CARE Equity Research addresses two critical factors considered by an investor while investing in a
particular company’s equity shares:
1. Fundamentals: Whether the company is fundamentally sound with respect to its business, its financial position, its
management and its prospects.
2. Valuation: What is the Current Intrinsic Value (CIV) of the stock and how it compares vis-a-vis its Current
Market Price (CMP)
These factors are answered assigning quantitative grades to both these parameters. CEG is the snapshot of
‘Fundamental Grade’ and ‘Valuation Grade’ assigned by CARE Equity Research.
Fundamental Grade
This grade represents how sound the company is fundamentally, vis-à-vis other listed companies in India. This grade
captures:
1. Business Fundamentals and Prospects
2. Financial Soundness
3. Management Quality
4. Corporate Governance Practices
The grade is assigned on a five-point scale as under:
CARE Fundamental Grade Evaluation
5/5 Strong Fundamentals
4/5 Very Good Fundamentals
3/5 Good Fundamentals
2/5 Modest Fundamentals
1/5 Weak Fundamentals
Valuation Grade
This grade represents the potential value in the company’s equity share for the investor over a 1 year period. The
Current Intrinsic Value (CIV) or the price arrived by CARE Equity Research on fundamental basis is compared with
the current market price (CMP) of the stock and the grade is assigned based on the gap between CIV and CMP of the
stock.
EXPLANATION OF GRADES
ELDER PHARMACEUTICALS LTD.
23 www.careratings.com
EQUIGRADE
The grade is assigned on a five-point scale as under:
CARE Valuation Grade Evaluation
5/5 Considerable Upside Potential
(>25% from CMP)
4/5 Moderate Upside Potential
(10-25% from CMP)
3/5 Fairly Priced
(+/- 10% from CMP)
2/5 Moderate Downside Potential
(Negative 10-25 from CMP)
1/5 Considerable Downside Potential
(<25% from CMP)
Grading determination is a matter of experienced and holistic judgment, based on relevant quantitative and qualitative factors of
the company in relation to other listed companies.
+
DISCLOSURES
Each member of the team involved in the preparation of this grading report, hereby affirms that there exists no conflict of interest that can
bias the grading recommendation of the company.
This report has been sponsored by the company.
DISLCLAIMER
This report is prepared by CARE Research, a division of Credit Analysis & REsearch Limited [CARE]. CARE Research has taken utmost care to
ensure accuracy and objectivity while developing this report based on information available in public domain or from sources considered reliable.
However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Research operates independently
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EQUIGRADE
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