CMP = Rs 404 (as of April 25)
Price target: Rs 508
Result highlights
- Elder Pharmaceuticals (Elder) continued its strong performance during the fourth quarter of FY2007. The company’s net sales rose by 26.6% to Rs118.2 crore in Q4FY2007, on the back of a steady momentum in its core brands, a ramp-up in the sales of the Fairone brand due to the launch of the product in south India and the growing revenues from the in-licenced portfolio. The sales were in line with our estimate.
- Elder reported a 65-basis-point drop in its operating profit margin (OPM) to 19.6% during the quarter, on account of a 35.8% rise in the other expenditure and a 29.7% increase in the staff cost.
- The other expenditure was higher on account of the higher selling and promotional expenses incurred for its new launches.
- Consequently, the company’s operating profit rose by 25.4% to Rs23.7 crore in Q4FY2007.
- Despite a 26.6% drop in the other income, and an increase in the interest and depreciation costs, Elder’s net profit grew by 17.6% to Rs15.0 crore. The net profit was in line with our estimate.
- For FY2007, Elder’s revenues grew by 26.1% to Rs447.3 crore. The OPM expanded by 190 basis points to 19%, led by an improvement in the raw material cost, causing the operating profit to rise by 40% to Rs84.8 crore.
- Despite the increases in the depreciation and interest costs, the net profit showed a robust growth of 54.8% to Rs56.8 crore in FY2007. The net profit growth was aided by the sharp drop in the tax incidence (due to the shift of manufacturing to tax-free zones).
- In view of its strong growth potential, we remain positive on Elder’s future growth prospects. At the current market price of Rs404, the stock is quoting at 10.0x its estimated FY2008 earnings.
- I maintain our Buy recommendation on the stock with a price target of Rs 508.
