CEO's Message

I take pleasure in stating that Elder Pharmaceuticals Ltd. reported a satisfactory performance in 2006-07. Our revenues increased by 26.86% to Rs. 4,539.59 mn, net profits by 43.78% to Rs. 527.70mn and net margin by 137 basis points to 11.62%.

This growth transpired on the back of a healthy industry environment and a better-than-industry performance by some of our leading products. I will specifically mention the success of two such products:

• Shelcal, our flagship brand in the women care segment , turned into a Rs. 1,000-mm product during the year under review.

• Somazina, an in-licensed cerebral disorder product from the portfolio of Ferrer, Spain, emerged as a brand leader, contributing Rs. 73.68 mn to our revenues.

What gives me a sense of excitement is not what we achieved during the last few years; we are invigorated by the prospect of growing at 30% y-o-y and achieving a turnover of Rs. 10,000 mn by 2010.

Organic growth
At Elder, we plan to grow organically as well as inorganically. Our existing products will continue to be marketed deeper and extensively, accelerating offtake. For instance, by 2010, on a conservative estimate, we expect to generate revenues of least Rs. 2,000 mn from Shelcal alone.

At Elder, we will continue to leverage our research and introduce new products as well as widen the product basket through in-licensing route; we believe that this is the most effective way to strength revenues and market share. We demonstrated the effectiveness of this strategy in 2006-07; we launched two new products and created a pipeline of 8-10 products that will be launched in 2007-08.

At Elder, we recognise that it is not only important to widen our therapeutic reach but equally important to be present in the right spaces. In view of this, we plan to address growing opportunities in the neutraceutical segment through our current portfolio. Elder currently supply a range of neutraceutical products and is among the top five neutraceutical companies in the Indian market. We are working at in-licensing technologies and products in the neutraceutical segment.

While enriching our formulations portfolio, we are strengthening our API presence as well. Our APIs were largely used for captive consumption; however we currently posses over 15 API products that are being released for merchant sale. We see a growing opportunity in this segment: with China’s API growth expected to decline due to government regulation, India is attractively placed to plug the gap. At Elder, we posses a robust pipeline of API generic products,
which will strengthen our revenues once commercialised. APIs to enhance their proportion in our turnover from 8% to 20% by 2010.

Inorganic growth
At Elder, we see a growing rule for inorganic growth as a means of enhancing our scale with speed and enriching our portfolio through prudent selection.

We acquired a 20% stake in a £25-mn company in England, NeutraHealth PLC, for Rs. 460-470 mn. This investment provides us with an access to multiple brands in the UK, helping us address the needs of the regulated EU markets, one of the fastest growing today.

To capitalise on the opportunities coming of the CIS, we acquired a manufacturing unit in Bulgaria for Rs. 270 mn, which is expected to grow the turnover from Rs. 325 mn to Rs. 700-800 mn in a few year. The unit, with a facility to manufacture formulations in solid dosage forms, will also generate revenues through contract manufacturing services. We have already tied up with a few companies for contract manufacturing in Bulgaria, which will be initiated once the Bulgaria acquisition goes on stream.

During the year under review, we also commissioned a manufacturing facility for betalactum products in Nepal through a joint venture. The products, already marketed, are expected to contribute significantly from 2007-08 onwards. The cost competitiveness of the unit will help us target the growing markets of South East Asia besides addressing the attractive markets of India and Nepal.

Capabilities
The international acquisitions, joint ventures and exports are strengthening our presence in select markets with attractive potential. However, India itself remains considerably under-penetrated. A growing population in a strengthening economy is catalysing the demand for pharmaceutical products and as purchasing power rises, the market will widen for Elder’s products.

What gives me the optimism that the Rs. 10,000-mn revenue target for 2010 is indeed achievable is our marketing breadth and depth, which has already resulted in the growth of strong brands and created a basis for successful marketing alliances with international companies. Besides, we posses strong manufacturing and R&D capabilities reflected in a team of
40 experienced and motivated people. We have also built in regulatory capabilities, evident from the DMF of one molecule (Clarithromycin), filed during the year under review; we expect to file four-five DMF in 2007-08. We are also expanding our R&D facility in Nerul (Navi Mumbai) at an investment of Rs. 100mn.

We are continuously expanding our manufacturing capacity through brownfield, greenfield and inorganic expansions; the former are being conducted in excise-free zones that will enhance our viability. One such facility for topical dosage forms in Paonta Sahib, Himachal Pradesh, was commissioned during the year under review. We expect to commission another facility in Uttarakhand by March 2008.

People
I must conclude by saying that the growth envisioned for 2010 will be driven by a team of 2,600 motivated Elderites with a periodic inclusion of exports who will enrich their careers, add value for our shareholders and bring smiles on the faces of those who keep us in business.

Yours sincerely,

Mr.J.Saxena
(Chairman)