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BUY Elder Pharma – Reliance Money

October 15, 2007

Reliance Money has initiated coverage on Elder Pharmaceuticals with a BUY recommendation and a target price of Rs 554.

Elder Pharma has been a India centric pharma company but of late it has forayed into the regulated markets of Europe by acquiring a strategic 20% stake in Neutra Health PLC (an UK based neutraceutical company) and a 51% stake in Biomeda (one of the top 10 manufacturing and distribution company in Bulgeria).

The company maintains its leadership positioning in Women’s healthcare, wound care management and nutraceuticals. It has a fantastic folio of domestic Fast Moving Heath Goods (FMHG) segment with brands like – Fair One, Tiger Balm, AM PM Mouthwash etc.

Elder Pharma’s revenues and profit grew at a CAGR of 19.3% and 50% respectively over last five years upto FY07. Going forward, RMoney estimates the revenues to grow at a CAGR of 18.3% during FY07-09E. As a result,profit growth is estimated to be @ 31.5% and 24.9% to Rs 647.10 mn and Rs 808.4 mn in FY08E and FY09E respectively.

At current price of Rs 416 the stock trades at a 9x EV/EBITDA of FY09E and trades at 10x EPS FY09E. R Money are initiates coverage on Elder with a target price of Rs 554, based on DCF valuations.

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