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Wockhardt: The right prescription - Views on News from Equitymaster
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  • Jun 12, 2000

    Wockhardt: The right prescription

    Over the last year, after the spin off of its life sciences business, Wockhardt has emerged among the top Indian pharmaceutical companies. Besides, the company has integrated the Merind generic businesses last year. (Merind now is a shell company.)

    While the company’s pharmaceutical business has been hit by the overall slowdown in the pharma market, still the company’s branded formulation business grew by 11% in the first quarter ended March 2000 outperforming the overall industry growth of 9.8%. This is exclusive of the revenue accruing from the products that were discontinued in the current quarter. (These products contributed Rs 68 m i.e. over 6% of Wockhardt’s first quarter turnover last year.)

    Segmental growth
    Branded Formulations 11.0%
    Generics -27.0%
    Medical Nutrition 35.0%
    Exports 6.0%
    Local Bulk Drugs -24.0%
    Veterinary 95.0%

    The company’s star product Spasmo Proxyvon last year grew by 31% and is expected to maintain that level of growth in the current year also. It would contribute over 7% to the company’s turnover in the current year. (i.e. calendar year 2000). Since the company also manufactures the bulk drug for this formulation margins are relatively higher for this product.

    Wockhardt has a relatively young portfolio as evidenced by the fact that new products (i.e. products that have been introduced over the past five years) contributed 28% to the company’s turnover in 1999. Even in the current year the company is to launch quite a few new products. While the company’s Hep–B vaccine has been launched (India has 45 m patients infected with Hep–B) the development process for human insulin segment is also underway. Another product slated for launch in the current year is a biotech product erythoproetin (for the treatment of anaemia).

    The company is among the highest spenders on R & D and spends anywhere between Rs 400 m to Rs 450 m on R & D every year, it amortises over a period of three years. It is also estimated to clock exports of a Rs 1 bn in the current year, most of which would go to UK subsidiary Wallis. The latter is a private label manufacturer and derives almost 28% of its turnover from UK’s top retail chain Tesco.

    With the company expected to clock a turnover of over Rs 5300 m and a net profit of Rs 800 m in the current year (the company’s year ends in December) the stock quotes at an earning multiple of 18.5 times. The stock has just come of its 52 week low of Rs 358 (52 week range: 1100/358) and at the current price of Rs 423, the stock should yield decent returns over the medium term.



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