Buy And Sell Calls [[August 31, 2006]

[ViJiT]

Elder Pharmaceuticals
Cluster: Apple Green
Recommendation: Buy
Price target: Rs410
Current market price: Rs367

Management sounds confident
Elder has been slowly and steadily expanding its presence in the domestic market through in-licencing opportunities and in the export market through contract manufacturing initiatives. The company's strategy of manufacturing its own brands as against outsourcing them has had a positive impact on its margins. Further, Elder is on its way to generate substantial cost savings by shifting its manufacturing activities to excise-free zones of Uttaranchal and Himachal Pradesh. As more products start coming from these facilities, the company will be able to reap the benefits of lower excise and tax rates. With its strong marketing agreements with foreign firms, continued launch of new products, scale up of business in the lifestyle, skin-care and pediatric areas, coupled with the effective cost-cutting measures, the company is on a growth track and will continue to show good results in the coming years.

At the current market price of Rs367, the stock is trading at 13.2x its FY2007E earnings and 9.9x its FY2008E earnings, on a fully diluted basis. We maintain our Buy recommendation on Elder with a price target of Rs410.



Mahindra & Mahindra
Cluster: Apple Green
Recommendation: Buy
Price target: Rs700
Current market price: Rs651

Gains from value unlocking
Mahindra and Mahindra (M&M) is in the process of unlocking value in its subsidiaries. In February 2006 M&M divested its stake in Mahindra and Mahindra Financial Services (MMFSL) and now with the Tech Mahindra initial public offering (IPO), its stake in this subsidiary is also being valued by the public.

These divestments are in line with the company's policy of promoting investments in appropriate businesses and monetising the same at an opportune moment for creating wealth for the company's shareholders.