ELDER - EQUIGRADE by icestar




                                  01 June, 2011

Ms. Revati Kasture                           +91-22-6754 3465                revati.kasture@careratings.com


Mr. P. N. Satheeskumar                       +91-22-6754 3555             sathees.kumar@careratings.com

Mr. Sukanta Nag                              +91-33- 2283 1800                sukanta.nag@careratings.com

Mr. V Pradeep Kumar                          +91-44-2849 7812            pradeep.kumar@careratings.com

Mr. Mehul Pandya                              +91-79-40265656             mehul.pandya@careratings.com

Ms. Swati Agrawal                            +91- 11- 2331 8701              swati.agrawal@careratings.com

Mr. G. Sundara Vathanan                      +91-80-2211 7140          sundara.vathanan@careratings.com

Mr. Ashwini Kumar Jani                        +91-40-40102030                 ashwini.jani@careratings.com


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EQUIGRADE – Analytical Power for Investment Decision
Pharmaceuticals: Bulk Drugs
                                                                                                          1st June 2011

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.


                                                     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

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                                      ELDER PHARMACEUTICALS LTD.                                        EQUIGRADE

      FUNDAMENTAL GRADE                                 Good Fundamentals                                       3/5

   Primarily a domestic pharmaceuticals play; growth be supported by the growing economy and changing
   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.

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                                  ELDER PHARMACEUTICALS LTD.

                                       EPL’s revenue from key therapeutic segment

              (Rs. Million)


              1000                          822.7                                    788.6
                                                711.84      682.21
                                                                 575.81                           577.52

                         Women's              Pain         Nutraceuticals      Anti- Infectives Lifestyle Diseases
                         Healthcare        Management                                                  Care
                                                         FY2011       FY2010

                                        Source: Company and CARE Equity Research

                        In-licensing deals across various therapies improves product portfolio

               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

                                       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

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                                        ELDER PHARMACEUTICALS LTD.                                      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

                           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

                                          Source: ORG-IMS Data December 2010

                                        Product - launches and revenue growth trend

                                                                   Product    Revenues (Rs Mn.)
                       Product                Segment              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

                                          Source: Company and CARE Equity Research

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                             ELDER PHARMACEUTICALS LTD.

                                           Product Launches in FY11

                           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

                                    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.

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                                      ELDER PHARMACEUTICALS LTD.                                         EQUIGRADE

   Middle order player; R&D budget would be constrained, however the same doesn’t have any immediate

   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

                                        Therapeutic Segment             No. of Products
                                        Women's Healthcare                     5
                                          Pain Management                      5
                                           Neutraceuticals                     8
                                           Anti Infectives                     6
                                           Cough & Cold                        8
                                               Others                          4

                                        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

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                                   ELDER PHARMACEUTICALS LTD.

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

        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
                                                  UK MHRA
        Ministry of
      Health, JAPAN

           APIs                                                                 API               API
                                                                          Liquids, Tablets,
                          Creams, Lotions,           Tablets,                                                 Liquids,
        Injectibles                                                     Capsules, Ointments,     Liquids
                             Ointment                Capsules                                                 Tablets
                                                                            R&D Centre

                                        Source: Company and CARE Equity Research

                                        Combined capacity details for formulations

                      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

                                        Source: Company and CARE Equity Research

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                                      ELDER PHARMACEUTICALS LTD.                                      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.

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                              ELDER PHARMACEUTICALS LTD.

                                                  EPL’s subsidiaries

                                                  Pharmaceuticals Ltd

                                           100%                         49%

                                     Elder International              Elder Univeral
                                       FZCO, Dubai                 Pharmaceuticals, Nepal


                        Elder Biomeda                NeutraHealth
                         AD, Bulgaria                  Plc, UK


                     Biomeda 2000 EOOD

                                    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.

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                                      ELDER PHARMACEUTICALS LTD.                                      EQUIGRADE

        VALUATION GRADE                               Considerable Upside Potential                              5/5

   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)

                      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%

                                               Source: CARE Equity Research

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                               ELDER PHARMACEUTICALS LTD.

                                                                         (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

                                        Source: CARE Equity Research

                                  EPL: Sensitivity Analysis – Share price

                                                  Weighted Average Cost of Capital (%)
                                         9.00%       9.25%       9.62%       10.00%       10.25%
                                2.00%     496.8      467.0       426.2        388.8        366.0
               Terminal Year
                Growth Rate

                                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

                                        Source: CARE Equity Research

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                                     ELDER PHARMACEUTICALS LTD.                                           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)

          Implied EV/ EBITDA                                               Implied P/E
          EBITDA (FY12)                      2,249.3
                                                                           PAT (FY12)                       916.9
          Fair Value                           468.5
          No. of Shares (Mn)                   20.5                         Fair Value                      468.5
          Market Cap                          9588.7                  No. of Shares (Mn)                     20.5
          Net Debt (FY11)                    6,384.0
                                                                           EPS (FY12)                        44.7
          EV                                 16,000.8
          Implied EV/ EBITDA                    7.1                        Implied P/E                       10.5

                                            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                                      EPL: One year forward
                rolling EV/EBITDA multiple                                     rolling P/E multiple

                                             Source: CARE Equity Research

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                                 ELDER PHARMACEUTICALS LTD.

                                                   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

  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

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                                     ELDER PHARMACEUTICALS LTD.                                       EQUIGRADE

                                           COMPANY BACKGROUND

   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

   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.

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                              ELDER PHARMACEUTICALS LTD.

  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

  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

                                                Segments             Growth %
                                          Women's Healthcare           22%
                                           Pain Management             16%
                                             Nutraceuticals            18%
                                             Anti- Infectives          20%
                                         Lifestyle Diseases Care       16%
                                                   API                 15%

                                     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.

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                                      ELDER PHARMACEUTICALS LTD.                                          EQUIGRADE

                                          Trend in segment wise revenue break-up

                                             n's                                                Wome
                                           Healthc                                                n's
                                           are, 24                                              Healthc
                                             %                                                  are, 23
                                                                                                  %        Pain
                   API, 40                                                API, 41                         Manage
                     %                            Pain                      %                             ment, 1
                                                 ment, 1
              Lifestyle                                              Lifestyle
              Disease                                                Disease                              Nutrace
                               es, 11%        Nutrace
                  s                                                      s                     Anti-      uticals,
              Care, 7                                                Care, 7                  Infectiv      8%
                 %                                                      %                     es, 11%

                             FY2011                                                  FY2010

                                          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.

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                           ELDER PHARMACEUTICALS LTD.

                                      Promoter and Management

               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 29 2009

                                           ** Resigned from the Directorship of the Company w.e.f. 1st July 2010

                               Source: Company and CARE Equity Research

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                                     ELDER PHARMACEUTICALS LTD.                                            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.

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                              ELDER PHARMACEUTICALS LTD.

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

                               Factors influencing domestic growth

                                  •Increase in penetration of health insurance
                                  •Increase in disposable incomes and the number of
                                   middle-class households
                                  •Expansion of medical infrastructure including private
                                   sector hospitals
                                  •Adoption of product patent laws
                                  • Rapid urbanization and rising prevalance of chronic
                                   diseases coupled with increased life expectancy
                                  •Market penetration in rural hinterland to expand
                                   reach and availability to the masses

                                               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.

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                          ELDER PHARMACEUTICALS LTD.                                    EQUIGRADE

                              Key Therapeutic segments in India

                                      Others, 13%
                          Anti-                                  infectives, 18
                       diabetic, 5%                                    %

                       Dema, 5%

                      CNS, 5%                                             Gastro, 11%

                      Gynaec, 6%
                                                                     Cardiac, 11%

                          Vitamins, 8%
                                             Pain, 9%    Respiratory, 9

                                Source: ORG-IMS and CARE Research

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                                ELDER PHARMACEUTICALS LTD.

                                                 FINANCIAL STATISTICS

   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
                                                        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

                                                                21                                          www.careratings.com
                                      ELDER PHARMACEUTICALS LTD.                                    EQUIGRADE

                                            EXPLANATION OF GRADES

   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

  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

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                                          ELDER PHARMACEUTICALS LTD.

     The grade is assigned on a five-point scale as under:

             CARE Valuation Grade                                    Evaluation
                                                        Considerable Upside Potential
                                                             (>25% from CMP)
                                                          Moderate Upside Potential
                                                            (10-25% from CMP)
                                                                 Fairly Priced
                                                            (+/- 10% from CMP)
                                                        Moderate Downside Potential
                                                         (Negative 10-25 from CMP)
                                                       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.


    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.

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
of ratings division and this report does not contain any confidential information obtained by ratings division, which they may have obtained in the
regular course of operations. Opinions expressed herein are our current opinions as on the date of this report.

CARE’s valuation of the security is mainly based on company specific fundamental factors. Equity prices are affected by both fundamental factors
as well as market factors such as – liquidity, sentiment, broad market direction etc. The impact of market factors can distort the price of the
security thereby deviating from the intrinsic value for extended period of time. This report should not be construed as recommendation to buy,
sell or hold a security or any advice or any solicitation, whatsoever. It is also not a comment on the suitability of the investment to the reader. The
subscriber / user assumes the entire risk of any use made of this report or data herein. CARE specifically states that it or any of its divisions or
employees have no financial liabilities whatsoever to the subscribers / users of this report. This report is for personal information only of the
authorised recipient in India only. This report or part of it should not be reproduced or redistributed or communicated directly or indirectly in
any form to any other person, especially outside India or published or copied for any purpose.

      Published by Credit Analysis & REsearch Ltd., 4th Floor Godrej Coliseum, Off Eastern Express Highway, Somaiya Hospital Road,
      Sion East, Mumbai – 400 022.

CARE Research is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information
contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this product.
This report is for the information of the intended recipients only and no part of this report may be published or reproduced in any form or
manner without prior written permission of CARE Research.

                                                                          23                                                    www.careratings.com
                                         ELDER PHARMACEUTICALS LTD.                                              EQUIGRADE

                                                              ABOUT US

   Credit Analysis & REsearch Ltd. (CARE) is a full service rating company that offers a wide range of rating and grading services
   across sectors. CARE has an unparallel depth of expertise. CARE Ratings methodologies are in line with the best international

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www.careratings.com                                                   24

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