Foreign strategy may have pushed Elder Group towards a debt trap

Elder Pharmaceuticals Ltd seemingly has everything going for it. It owns the extremely successful brands, Shelcal and Chymoral. It has high quality investors in Acraf SPA, owned by Italy-based Angelini Group. Yet 82.4 per cent of its promoter share - amounting to 32.77 per cent of the total shares - is pledged , a 40 per cent increase in just a year. It is also groaning under huge debt while its net profit margin remains stagnant.

The situation may well have arisen because of the company's aggressive foreign acquisition strategy, said one analyst. It has subsidiaries in Dubai, Bulgaria and the United Kingdom. In February 2012, it increased its stake in its Bulgarian subsidiary, in which it already had 92.2 per cent, to complete 100 per cent ownership.

"That is the reason why we had to incur so much debt. The attempt is now to pay off debt. The banks don't support you when you need them," says Jagdish Saxena, Chairman and Managing Director, Elder Pharma. Acraf SPA holds over 12 per cent in Elder Pharmaceuticals, but has not approached the promoter family with any proposal to increase its stake, Saxena added. Consultancy firm Ernst & Young has been appointed as consultants to find possible avenues to reduce debt.

Elder was set up by first generation entrepreneur Saxena, who also owns Elder Healthcare and Elder Projects, besides a host of smaller companies. Elder Pharmaceuticals has been seen by analysts as driven by its brands in women's health-care ever since it decided to make a calcium supplement from a natural source, oyster shells (Shelcal). It also has a presence in pain management, anti-infectives and nutraceuticals, all fairly well-appointed segments, say analysts.

However, the company's net profit fell to Rs 19.66 crore on a revenue base of Rs 250.86 crore in  the September-December 2012 quarter from Rs 27.03 crore on Rs 302.59  crore in the July-September 2012 quarter.

Sources in the company said consumer spending in the segments where Elder has its biggest revenues was "stagnating", adding to its problems.