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Wockhardt: Good times ahead - Views on News from Equitymaster
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  • Aug 6, 2003

    Wockhardt: Good times ahead

    Domestic pharma major, Wockhardt has declared its 2QFY04 results recently. After witnessing a poor first quarter, the company has reported a marginal 5% increase in the topline and a 13% increase in the bottomline. For 1HFY04, the company has recorded a stagnant topline and a 20% drop in the bottomline. In this context, let us briefly examine the performance of the company during 2QFY04.

    (Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
    Net Sales 1,937 2,026 4.6% 3,590 3,536 -1.5%
    Other Income 5 8 60.0% 6 10 66.7%
    Total expenditure 1,540 1,611 4.6% 2,881 2,973 3.2%
    Operating Profit (EBDIT) 397 415 4.5% 709 563 -20.6%
    Operating Profit Margin (%) 20.5% 20.5%   19.7% 15.9%  
    Interest 18 18 - 38 30 -21.1%
    Depreciation 32 38 18.8% 65 79 21.5%
    Profit before Tax 352 367 4.3% 612 464 -24.2%
    Tax 44 18 -59.1% 67 30 -55.2%
    Profit after Tax/(Loss) 308 349 13.3% 545 434 -20.4%
    Net profit margin (%) 15.9% 17.2%   15.2% 12.3%  
    No. of Shares (m) 36.3 36.3   36.3 36.3  
    Earnings per share* 33.9 38.5   30.0 23.9  
    P/E ratio   10.7     17.2  

    On the exports front, Wockhardt registered a 38% increase in the formulations business and a 34% growth in the bulk drugs business. Total exports for the quarter stood at Rs 680 m. The company has made eight new filings during 2003. On the domestic front, growth was fuelled by the company’s power brands, which posted a 16% rise in the current quarter. Pain management product ‘Spasmo-Proxyvon’ entered the list of India’s top 50 pharmaceutical brands and ‘Winofit’ has now become the largest anti-oxidant brand in the country.

    Despite tough conditions in the domestic market, Wockhardt has been able to maintain its operating profit margins. A sharp increase in the other income coupled with a drop in the interest cost has helped the company record a 13% increase in the net profit. Wockhardt’s differences with Federation of Medical Representative Association of India (FMRAI) had affected the performance of the company during 1QFY04. However, the company has now restructured its sales force and the revenues are gradually reaching optimum levels.

    In July ’03, Wockhardt acquired CP Pharmaceuticals of UK. The acquisition is expected to help the company in becoming one of the top ten generics companies in the UK. This acquisition has also given Wockhardt a rich portfolio of 225 UK marketing authorisations and a combined business of over 50 million sterling pounds in the UK. With this acquisition, international business now accounts for 53% of total revenues.

    Wockhardt has gradually increased its R&D thrust and expended Rs 97 m (4.8% of net sales) during the current quarter. Wockhardt’s NCE, WCK–1152, indicated for respiratory tract infections is undergoing pre-clinical trials, while another NCE, WCK-771 is undergoing Phase 1 clinical trials. The company plans to file 8-10 ANDAs in 2003 with most filings under Para-3. However, the company has started to gradually increase the number of Para-4 filings.

    At the current price of Rs 411, Wockhardt is currently trading at a P/E of 17.2x its 1HFY04 annualised earnings. The company has off late suffered on account of the VAT fiasco, sales force restructuring and pricing pressure in the domestic market. However, the increased thrust on exports market, recent international acquisitions and the growing NCE pipeline and R&D investments are likely to improve the efficiency and performance of the company in the long term.



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