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Wockhardt: Exports drive topline growth
May 27, 2013

Wockhardt has announced its 4QFY13 results. The company has reported 26% YoY growth in sales and 69% YoY increase in net profits after excluding exceptional losses during both periods. Here is our analysis of the results.

Performance summary
  • Topline grows by 26% YoY during the quarter led by growth in the US and Europe businesses (excluding France). Domestic and emerging markets witness muted growth of ~3% YoY for the quarter.
  • Operating margins improve by 1.4% to 36.7% in 4QFY13 leading to a 31.5% YoY growth in operating profits.
  • Bottomline increases by 69% YoY during 4QFY13 after excluding exceptional losses from both the periods. Excluding impact of forex, revenue from discontinued business and exceptional loss, PAT grows by 164% YoY.

Financial performance: A snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 11,756 14,855 26.4% 43,505 56,094 28.9%
Expenditure 7,607 9,398 23.5% 29,733 35,191 18.4%
Operating profit (EBDITA) 4,150 5,457 31.5% 13,772 20,904 51.8%
EBDITA margin (%) 35.3% 36.7%   31.7% 37.3%  
Other income 68 110 61.3% 233 512 119.7%
Forex (loss)/gain 548 (254)   (215) (279)  
Interest (net) 1,028 607 -40.9% 2,690 2,154 -19.9%
Depreciation 269 328 21.7% 1,151 1,221 6.1%
Profit before tax 3,469 4,378 26.2% 9,950 17,762 78.5%
Exceptional (loss) (3,960) (107)   (4,738) 615  
Share of Profit/(Loss) from Asso (28) -   11 (6)  
Tax 1,486 923 -37.9% 2,217 2,582 16.4%
Profit/(loss) from discontinued operations 89 -   421 152 -63.9%
Profit after tax/(loss) (1,916) 3,348   3,427 15,941 365.2%
Net profit margin (%) -16.3% 22.5%   7.9% 28.4%  
No. of shares (m)         108.0  
Diluted earnings per share (Rs)         145.6  
Price to earnings ratio (x)*         8.8  
*based on trailing 12 months earnings

What has driven performance in 4QFY13?
  • Topline grew by 26% YoY during the quarter led by growth in its US and Europe (excluding France) businesses.

    (Rs m) 4QFY12 4QFY13 Change
    USA 5,710 8,300 45.4%
    India 2,100 2,300 9.5%
    EU 2,920 3,350 14.7%
    - UK 1,980 2,400 21.2%
    - Ireland 470 490 4.3%
    - France 520 240 -53.8%
    RoW 1,026 905 -11.8%
    Total 11,756 14,855 26.4%

  • US witnessed healthy growth of 28% YoY in constant currency terms and 45% YoY in Rupee terms in 4QFY13. Currently, US contributes 52% to total business against 31% and 44% in FY11 and FY12 respectively. The higher contribution was due to the launch of Toprol XL (metropolol succinate) and Para IV launches under low competition; however Toprol remains the key product for the company. This product contributed approx 12% to total sales of the company. Company continues to hold the same market share of ~15% as in previous quarters in this product, despite the entry of Dr Reddy’s drug in the market. Having said that, some price erosion has been witnessed in this product. Other products like Comtan and Stalevo, which were launched under low competition, also contributed to overall growth. Flonase, a respiratory product, is one more important growth driver for the company. Company continues to focus on making niche launches and is making product filings accordingly. Currently, Wockhardt has 46 ANDAs awaiting approval and it intends to file 20 more products in FY14. For FY13, the company had launched 12 new products in the US.

  • During the quarter, EU, excluding France, witnessed growth of 29% YoY, however revenues from France declined by 55% YoY. During the quarter, the company had incurred some charges pertaining to restructuring in France. The company continues to take various steps in order to reduce the costs in this country. UK grew by 21% YoY; however on constant currency terms growth was at 8% YoY. Wockhardt continues to remain the No 3 player in the generic segment and No 2 generic player in the hospital segment. Ireland continued to grow in lower single digits. In constant currency terms, the growth was down by 3% YoY. This geography continues to witness pricing pressures and hence its domestic segment is witnessing growth pressures. However, the export segment continued to witness better growth. In the long run, the company expects the EU segment to continue witnessing double digit growth driven by EU and Irish export segment.

  • India business (excluding Nutrition business) grew at a lower rate of 10%. Company has witnessed improvement in its domestic business and expects to grow at the industry growth rate. Wockhardt is done with sales force restructuring, which will help in generating better productivity.

  • RoW markets, excluding India, declined by 12% YoY for the quarter. Company has commenced operations in Mexico with launch of insulin in this market.

  • Operating margins improved by 1.4% to 36.7% in 4QFY13 leading to a 31.5% YoY growth in operating profits. Excluding impact of Nutrition business which was there in 3QFY13, the margin improvement is 2.7%

  • Bottomline increased by 69% YoY during 4QFY13 after excluding exceptional losses from both the periods. Excluding impact of forex, revenue from discontinued business and exceptional loss, PAT grows by 164% YoY.

    Financial Highlights

  • Company has exited corporate debt restructuring (CDR) plan.

  • On the back of the import ban, topline growth guidance was in lower single digit and EBITDA margins will come down by 200-300 bps.

  • Company has repaid all the Indian debt and is left with only foreign debt.

  • Capex guidance for FY14 is US$ 50-75 m.

  • Tax guidance at 15%.

What to expect?

At the current price of Rs 1,247, the stock is trading at a price to earnings multiple of 8 times our estimated FY15 earnings. On the positive side, company has exited the CDR plan. The domestic business is expected to witness better growth on back of restructuring in sales force. The EU segment too will continue to witness double digit growth. However the recent import alert by USFDA on the company's two facilities is a negative for the company. It is tough to predict the timeline as by when the company will be able to resolve these issues, till then the company is likely to witness lower approvals and also decline in its revenues.

Given the uncertainty with respect to the US FDA issues, we recommend investors to HOLD on to the stock and not to buy more stock at current levels.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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