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TURNAROUND
MANAGEMENT
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VISHAKA VAMANJUR

TYBBI 55


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INDEX

SR.NO TOPIC PAGE NO
1 SUMMARY

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2 COMPANY INTRODUCTION

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3 TROUBLE AT WOCKHARDT

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4 TURNAROUND


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5 CONCLUSION

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6 BIBLIOGRAPHY

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3
SUMMARY

Wockhardt Limited was the fifth largest pharmaceutical company in India
before it got into financial trouble in 2008. The company moved to the
corporate debt restructuring cell in the first half of 2009 to get out of the
trouble that was rooted in a mounting debt burden and huge losses in
complex currency derivatives. After two years of continuous losses,
Wockhardt was able to come back in the third quarter of 2010. However,
its hurdles and legal dispute continued till late 2012.
To come out of the crises, Wockhardt under the leadership of Habil
Fakhruddin Khorakiwala, its Chairman, sold its noncore businesses, cut
down costs, and kept a distance from derivatives. This ultimately revived
the company, resulting in the fastest turnaround in Indian corporate
history. The case study helps the students to analyze the turnaround of
Wockhardt. It also discusses the importance of leadership in the
turnaround of any company.



























4
COMPANY INTRODUCTION: WOCKHARDT

In 2013, Wockhardt was a Rs. 46.14 billion Indian multinational
pharmaceutical and biotechnology company. It was a research-based
healthcare company with exposure in pharmaceuticals, biotechnology,
and hospitals. By the end of FY12, Wockhardt had 12 manufacturing
plants and 3 research centers worldwide with 7900 Wockhardt Associates
in 21 different countries around the world. Till September 2012, company
had filed 1,667 patents and had got a grant on 169 patents. However,
Wockhardt was a very small concern in the early 1960s.

In 1959, Murtaza's grandfather, Fakhruddin T. Khorakiwala
(Fakhruddin), had acquired Worli Chemical Works (WCW) which
manufactured medicines for common ailments. After returning from the
US, Fakhruddin's son, Habil, took charge of WCW and renamed it
Wockhardt', which meant work hard in German. When Habil took
over Wockhardt in 1966, it was a 0.4 million company with 20
employees. This proved to be a turning point for the company. It
began to grow significantly in terms of revenue, number of products,
market share. etc. In the early decades, Wockhardt grew organically by
setting up state-of-the-art greenfield manufacturing facilities in various
parts of India, its home country, and sales and marketing offices in
various parts of the globe. According to experts, Wockhardt's world class
but low cost manufacturing facilities and its strong base in research had
helped the company grow rapidly in the international market, especially
in the European countries.
In 1991, the promoters of the company incorporated First Hospitals &
Heart Institute Limited (FHHIL) to start a super specialty hospitals chain
in India. In December 1992, the company went in for a public issue. In
February 1994, Wockhardt issued US$75 million worth of Global
Depository Receipts (GDRs), thereby becoming the first Indian
pharmaceutical company to issue GDRs. In 1995, Wockhardt acquired
RR Medi Pharma Limited based in Tamil Nadu in South India . This
acquisition helped the company to reduce the cost of transporting bulky
intravenous fluid to the southern parts of the country.
In 1998, Wockhardt acquired two companies, one in India and the other
in the UK. In India, the company acquired a controlling stake in Merind
Limited (Merind) from the Tata group for Rs. 470 million. Habil said,
By taking over Merind, Wockhardt became the fifth largest pharma
company in the country. In the UK, Wockhardt acquired Wallis
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Laboratories (Wallis) for US$5 million. According to experts, company
used Wallis as a manufacturing facility for European markets. These two
acquisitions increased the turnover of the company significantly. Habil
said that the sales growth in the future would come largely from organic
growth, partly aided by domestic and international acquisitions.





















6
TROUBLE AT WOCKHARDT
Declining Phase
In January 2008, WHL came up with an Initial Public Offer (IPO) of
about 25 million equity shares. It planned to use the proceedings of the
IPO for its expansion plans (Rs. 5.69 billion) and for prepayment of short
term loans (Rs. 2.85 billion ). However, the IPO failed to garner funds
and was called off by the promoters as it got poor investor response even
after a reduction in the price band from Rs. 280-310 to Rs. 225-360 and
extension of the closing date (of IPO) by two days. On February 9, 2008,
Livemint reported that the company was looking for other ways to raise
funds including private placement.
Wockhardt Under Corporate Debt Restructuring
On March 31, 2009, in a statement to the Bombay Stock Exchange
(BSE), Wockhardt decided to refer itself to the CDR cell through ICICI
Bank Limited (ICICI) to resturctured its mounting debts of over Rs. 38
billion . In a letter (mentioned earlier) Habil said, "It (CDR) allows us
non-payment towards our loans for some time, thereby giving us a huge
flexibility in generating our own liquidity. Huzaifa Khorakiwala
(Huzaifa), Executive Director, Wockhardt, and Habils elder son, said,
Its a natural progression in the lifetime of a dynamic organization to
continuously further the interests of all its stakeholders."
Liquidating Assets
In an attempt to get rid of non-core assets, the company sold its German
subsidiary Esparma GmbH to Mova GmbH for around Rs. 1.2 billion and
signed an agreement with Vtoquinol SA to sell its animal health
business in India for an estimated Rs. 1.7 to1.8 billion. , In August 2009,
Wockhardt sold its ten hospitals to Fortis Healthcare Ltd. for Rs. 9.09
billion (Rs. 0.052 million per bed).
Default on FCCBs Payment Consequences
In October 2009, Wockhardt had defaulted on repayment of US$74
million worth of FCCBs. On October 31, 2009, the company reported Rs.
542 million of net loss in the quarter that ended on September 30, 2009.




7
WOCKHARDT TURNAROUND

In February 2011, after eight quarters of continuous losses, Wockhardt
reported a positive result for the December quarter. The company
reported a Rs. 1.4 billion profit compared to a Rs. 1.8 billion loss in same
period of the previous year. The company also witnessed a 7% growth in
sales from Rs. 8.9 billion in the December quarter of 2009 to Rs. 9.5
billion in the December quarter of 2010. launches. The companys UK
market grew by 10%. On the other hand, the company was able to reduce
the overall expenses by 6.4% and increase margins by about 10%
compared to the same period of the previous year...
Wockhardt Acquisation Spree Through Leverge - Growth Phase
In May 2004, Wockhardt acquired Esparma GmbH (Esparma), a German
company, for US$11 million, funded through internal accruals. Esparma
had a significant presence in urology, neurology. and diabetology, which
was in line with Workhardts therapeutic strengths. Wockhardt acquired
only Esparmas brand, businesses, and sales and marketing organization -
not its manufacturing facility However, Wockhardt decided to use the
manufacturing facility for two years before production shifted to the
companys own facility in the UK and India...
Another Attempt to Sell Nutrition Business
On August 2, 2011, Danone signed an agreement to purchase
Wockhardts nutrition business including brands and related business
operations from Carol Info Services Limited (Carol Info) for about 250
million or about US$ 356.3 million or about Rs. 16 billion. , Wockhardt
and its subsidiary would get about Rs. 12.8 billion and Carol Info about
Rs. 3.2 billion. The deal size was more than double the deal with Abbott
in 2009. On August 3, Wockhardt filed an application in court to get legal
clearance on the sale of the nutrition business which was mandatory
because the company was facing a winding up petition...
Surprising Financing Performance
On November 12, 2011, Wockhardt reported a Rs. 1.3 billon net profit in
the second quarter ended on September 30, 2011, compared to the Rs.
967 million net losses in the same period a year ago. On February 13,
2012, the company reported its third quarter results. The net profit had
increased by 50% to Rs. 2.1 billion in Q3FY12 from Rs. 1.4 billion in
Q3FY11. In the same period, sales also increased by 20% to Rs. 11.4
billion from Rs. 9.5 billion...
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Sale of Nutrition Business - Pay to Exit CDR
In July 2012, Wockhardt completed the sale of its nutrition business to
Danone for a consideration of Rs. 12.8 billion. On August 6, 2012, the
company announced its Q1FY13 results. The company reported 95%
growth in net profit to Rs. 3.8 billion from Rs. 1.9 billion in Q1FY12. By
August 21, 2012, Wockhardt had paid off its US$73 million of dues to
bondholders as per the schedule set by the court. However, in the final
payment of US$32.9 million, a dispute arose between the bondholders
and the company. According to the bondholders, the actual final payment
was US$35.1 million (US$32.9 million + US$2.2 million toward
redemption premium and interest). On this difference, Wockhardt filed a
petition in the court against the bondholders....














9
Wockhardt posts a smart
turnaround

BS Reporter | Mumbai August 7, 2012

The smile usually doesnt leave Habil Khorakiwalas face. But the cheer
in that smile had gone missing in last four years, as his pharma company,
Wockhardt, plunged into one crisis after another. on Monday, the cheer
came back, with the firm posting a spectacular 95 per cent growth in net
profit in the June quarter.
Wockhardt is also set to exit the corporate debt restructuring programme
it entered in 2009 when its debt touched Rs 3,800 crore. But following a
series of sale of non-core assets, the pharma majors debt-equity ratio has
come down from a high of 5:1 to below 1.
That is a distant memory from April 2008 when Wockhardt reported its
first ever loss, due to a mark-to-market loss of Rs 581 crore. The market
has been quick to recognise the smart turnaround: the share price of the
company had nosedived to Rs 96 during the end of 2008 from Rs 419 on
January 1, 2008. The stock price went down further to Rs 68 on March
12, 2009. On Monday, the stock price ended at Rs 1,085.
Khorakiwala said on Monday debt worth about Rs 1,300 crore has been
structured through CDR already. However, he refused to disclose the
exact amount of the remaining debt. The fund, which Wockhardt had
received after the nutrition business sale to Danone last week, will be
used to repay the debt.
During the first quarter, Wockhardts consolidated net profit went up to
Rs 378 core from Rs 194 crore in the similar period for last year. Net
sales also grew 35 per cent to Rs 1,426 crore from Rs 1,053 crore. The
companys US business recorded a growth of 78 per cent during the
quarter.
Wockhardt has also repaid almost all its pending foreign currency
convertible bonds (FCCB). About Rs 200 crore, the last tranche of FCCB
due, will be paid before August 31 as directed by the Bombay High
Court.
Recently, French food multinational Danone completed its acquisition of
Wockhardts nutrition business for Rs 1,280 crore. Wockhardt was
awaiting for a clearance from the Bombay High Court after it got
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engaged in a litigation with bondholders, after defaulting on the re-
payment of its $110 million FCCB in 2009.
Wockhardt had agreed to pay the bondholders after the Bombay High
Court directed debt-ridden company to clear its payments by August 31.






















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CONCLUSION
The successful turnaround of the Wockhardt was a remarkable achievement for the
management of the company, especially for the 70-plus Habil, who got FCs Businessman of
the Year 2012 award in December 2012. Y K Hamied, Cipla Chairman, said, "Hats off to
Habil. What he has done in the past one year has been super remarkable. By the looks of it, it
will keep on improving."

Wockhardt has defied the doomsayers who wrote it off and bounced back. It has
put its finances in order and regained the confidence of investors, who have sent
its shares surging 364% in the year-to-date, compared with a 19.98% rise in BSE
Ltds benchmark Sensex.

The companys stock ended down 3.88% to Rs.1,282.75 apiece, while, the Sensex
closed up 0.42% at 18,542.3 on Monday.
After receiving Rs.1,280 crore from the sale of its nutrition business to French
food company Danone SA, the company has sufficient cash to retire short-term
liabilities. The sale was completed in July.
No surprise, then, that chairman Habil Khorakiwala is in good spirits.

The company has a cash balance of about Rs.2,000 crore now that came from
divestment of our nutrition business and the profit that we made during the last
few quarters, Khorakiwala said on the sidelines of the companys 13th annual
general meeting in Mumbai on Thursday. It is enough to settle all pending dues
including the remaining liabilities on bonds, and loans.
Wockhardt has written to its bankers, with which it had to enter a corporate debt
restructuring (CDR) agreement in 2009 to advance its exit to as early as
December.

CDR is a financial restructuring process for troubled companies, which eases
conditions on debt repayments but also limits the powers of the management to
take operational and strategic decisions. In Wockhardts case, the CDR plan,
through lead banker ICICI Bank Ltd, allowed for most of its Rs.3,800 crore debt
to be recast, and was to last until March 2018.
And Wockhardt has reduced its debt-to-equity ratio from a dangerous 5.5 in 2010
to less than 1 as of 30 August.
Ours was one of the few examples of a very successful CDR process in the
country, where the liabilities had been settled well ahead of the expected time,
said Khorakiwala.

Investors have shown their appreciation. The companys shares have moved from
Rs.275.7 on 2 January to Rs.1,282.75 on Monday.
The stock rally is mainly triggered by the high performance in the last few
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quarters owing to growing business in the US and India, and the nutrition deal that
helped the company to come out of the FCCB (foreign currency convertible
bonds) debacle. And the second factor is certainly the successful CDR, said
Ranjit Kapadia, senior vice- president (institutional research) at Centrum
Broking Ltd.






















13
BIBLIOGRAPHY
http://www.business-
standard.com/article/companies/wockhardt-posts-a-smart-
turnaround-112080700010_1.html

http://www.icmrindia.org/casestudies/catalogue/Finance/W
ockhardt%20Limited%20Turnaround%20Story-
Excerpts1.htm

http://www.icmrindia.org/casestudies/catalogue/Finance/W
ockhardt%20Limited%20Turnaround%20Story-
Case%20Study.htm

http://en.wikipedia.org/wiki/File:Wockhardt_Logo.svg


http://www.livemint.com/Companies/DKPDWtTYzVQJhvmbYJA
RdO/Fortune-smiles-on-Wockhardt-again.html