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Wockhardt Ltd. Recommendation Target Price Rs 302.80 Buy Rs. 600
Market Data As On 28th October 2010 Total Equity Shares 10.94cr. Equity Share Capital Rs 54.7cr Market Capitalisation Rs 3,313cr 52 Wk H/L (Rs.) 344.95/115 Face Value Rs. 5 BSE Code 532300
India's pharmaceutical industry is now the fourth largest in the world in terms of volume and stands 13th in terms of value. According to data published by the Department of Pharmaceuticals, Ministry of Chemicals and Fertilizers, the total revenue of India's pharmaceuticals industry between September 2008 and September 2009 was US$ 21.04 billion (Rs 97,000cr). Of this the domestic market was worth US$ 12.26 billion or Rs 56,000 cr. The Indian pharmaceutical market has grown at a Compounded Annual Growth Rate (CAGR) of 14% over the last five years and is expected to touch $40 billion (Rs 1.8 lakh cr) by 2015 according to global management consulting major McKinsey & Co. The company is present in the following segments of the pharmaceutical industry: Formulation: India’s pharmaceutical market is highly fragmented with 10,000 firms controlling 70% of the market. The top ten firms account for the remaining 30%. Most of the top formulation companies in India have plans to set up manufacturing base for developed countries since registration processes are highly time-consuming and complicated and they are the only ones with the required capital and market reputation to do so. Formulation is a mechanical process and there is less scope for growth or margin improvement. This is because the specific dosages of drugs are fixed by the Government of India and companies have to adhere to the existing norms.
Contract Research and Manufacturing Services (CRAMS): Increasing costs of R&D. India has a significant advantage in this segment due to its high-quality US FDA-approved facilities. Contrary to popular belief. There are two kinds of bulk drugs: synthetic and biopharmaceuticals. coupled with low productivity and poor bottom lines. have forced major pharmaceutical companies worldwide to outsource part of their research and manufacturing activities to low-cost countries. which manufactures drugs that mimic natural molecules and interactions between them. existing players can capture a disproportionate share of the market. The drawback in this segment is that it is highly capital-intensive and has high technology requirements. As the Indian bulk drug industry is primarily export-oriented. in Delhi and Mumbai. major cap-ex and lengthy approval processes. The opportunities in the regulated market (outsourcing/supply of bulk drugs) are expected to emerge both for manufacturing on-patent and off-patent drugs. contract manufacturing yields decent margins with most deals having been struck at 20-25% EBITDA levels. has scope for innovation and the market for these drugs is expected to grow rapidly over the next few years. The US FDA has already approved over 100 manufacturing sites – more than in any country except the US. On-patent product supplies are likely to attract higher margins due to the better pricing power enjoyed by the Innovator MNC in its home market.ISJ Premium Research Bulk Drugs: Bulk drugs or active pharmaceutical ingredients (API) are the raw materials for manufacturing formulations or finished dosage forms of drugs. excellent chemistry skills and IPR (Intellectual Property Rights) compliance policies. Synthetic bulk drugs are made by the synthesis of organic compounds and there is limited scope for innovation in this segment as most ailments have been tackled by existing drugs. its future prospects largely hinges on its ability to tap the opportunity arising both in the regulated and semi-regulated market. Among six offices that the US FDA has overseas. The biopharmaceutical segment. . This business is also scalable and as barriers to entry are high in the form of quality standards. thereby saving costs and time in the process. This is in the wake of the extensive cost-reduction initiatives of global pharmaceutical companies in a bid to improve profitability and impending genericisation respectively. two are located in India.
The company earns approximately 69% of its revenues abroad and is active in the CRAMS or the research outsourcing industry. Ireland and UK and subsidiaries in US. Besides formulations. The debt restructuring of the company is nearly complete and will be closed within this financial year.000 doctors to the existing coverage of around 200. Wockhardt will establish a B2B model for penetration in emerging markets where the company does not have a direct presence. Dumex India (2006).ISJ Premium Research Company Overview Wockhardt Ltd. the Company is also amongst the world's leading manufacturers of active pharmaceutical ingredients (APIs). Merind. The company has 14 manufacturing plants in India. UK. is a global. The total debt of Rs 4000cr will reduce over the next few quarters. Almost 75% of the FCCB holders have been settled and the rest will be taken care of in the coming months. pharmaceutical and biotechnology company that has grown by leveraging two powerful trends impacting the world of medicine globalization and biotechnology. It has 14 facilities worldwide which are all approved either by the US FDA or the European Union regulatory authorities. bulk actives. Pinewood Laboratory. CP Pharmaceuticals. biopharmaceuticals. to develop a long-acting insulin analogue – Glaritus. the company has increased its field force by over 500 bringing the total to 2100 feeton-street. The Company has built a strong presence in healthcare encompassing pharmaceutical formulations. The company is looking to double the field force in two years. UK (2003). Espharma GmbH. Germany (2004). UK (1998). In the US. Vitamin B12 and Captopril. Key Highlights Wockhardt has restructured the business verticals to penetrate the market and provide better service and products to doctors and patients. US. Ireland and France. vaccines and nutritional products. In the last year.000 doctors. Wockhardt is among the world’s top three suppliers of Dextromethorphan. France (2007). India (1998). It has also added 70. The company was founded by Habil Khorakiwala in the early 1960s. Ireland (2006) and Negma. Wockhardt's acquisitions include Wallis Laboratory. It also has the highest filings for patents of any Indian pharmaceutical company for the current year. the company has 87 ANDA approvals by the US FDA with many more filings and approvals to come in the near future. . The US FDA has approved IND for Wosulin and clinical trials are underway. Wockhardt is the only company after the originator.
38 14.ISJ Premium Research Shareholding Pattern As on 30th June.6 132.3 54 -92.76 22.7 382.1 113 708.17 2008-09 3625.3 25.5 606.1 78.65 2009-10(15 months) 4501. In Cr.4 474.5 54 35.7 852.8 18.3 821.) OPM (%) NPM (%) 2007-08 2699.9 685.3 309.7 148.4 54 -14.) Revenue Expenses EBDIT Depreciation EBIT Interest PBT Tax Exceptional Items Net Profit Equity EPS (Rs.94 - .4 3648.4 2804. 2010 Actual Yearly Financials (Rs.9 -1002.1 704.2 2013.1 378 330 91.6 395.3 -167 1294.2 -91.6 581 -159.
4 852.47 131.48 133.08 24.73 152.55 - Peer Group Comparison (Rs.33 29.78 18.5 160.36 150.7 19.7 19.33 755.52 351.64 20.94 -10.96 102.77 43.30 21.7 770.1 182. Reddy’s 27829 7092.93 54.7 18.42 27.88 54.) Revenue Expenses EBDIT Depreciation EBIT Interest PBT Tax Exceptional Items Net Profit Equity EPS (Rs.06 0 239.62 16.6 47.91 1356.9 215.7 15.11 25.7 -1002.98 713.ISJ Premium Research Actual Quarterly Financials (Rs.31 34.89 51.89 88.09 Figures for FY09-10 .5 54.29 -55.36 104.05 Mar ‘10 871.12 June ‘10 921.87 54.45 45.19 29.47 84.29 1480.20 42.88 96.71 Dec ‘09 889.79 24.83 51.03 -57.98 158 26.92 Torrent 4748 1916.) Market Capitalization (as on 28th Oct 2010) Revenue EBITDA Net Profit Equity EPS (Rs.) OPM (%) P/E Book Value per share Wockhardt(15 months) 3313 4501.53 86.32 -186.64 741.85 30.42 150.55 Dr.58 -113.88 59.04 420.45 180.3 54.3 1082.5 13.78 231.38 73.55 357.98 104.33 633.96 16.) OPM (%) NPM (%) Sept ‘09 922. In Cr. In Cr.7 -83.69 Cipla 28094 5624.
Management is optimistic that no further provisions will have to be made and hence Bottom Line should improve sharply. Historically. Whereas. Hence there is a Gap in valuation between Wockhardt and other Large Cap Pharma Stocks.) 2010-11 4200 3360 840 130 710 240 470 250 220 65. As the company addresses the issue of Debt and Forex Losses in the coming few quarters. .) Revenue Expenses EBIDTA Depreciation EBIT Interest PBT Exceptional Items Tax Net Profit Equity* EPS (Rs. market cap of Large Cap Pharma stocks are nearly 5 times their respective Sales. company’s operations were EBITDA positive however due to Forex Losses on account of Derivatives Exposure.ISJ Premium Research Financial Forecast (Rs.76 2011-12 5000 4000 1000 150 850 250 600 120 480 65. We feel that Wockhardt shall command a PE Multiple of 17 times its 2011-12 expected EPS of RS. In Cr. Wockhardt’s Market cap is just 1 times its Sales. Stock has underperformed its peers in last couple of years due to heavy R&D expenses and Forex Losses.6 36.36 and shall quote at Rs. the company made huge losses.6 42. Currently. Wockhardt has already provided Rs 1500cr in its books in last 2 years on account of Forex Losses.68 *We have considered Equity Capital post conversion of FCCBs Valuation Wockhardt has invested huge amount in Research and Development in last 6 years to address more profitable US & EU Markets. We believe Wockhardt has judiciously invested in R&D to strengthen its reach in US & EU markets.600.6 16. we feel that the above Gap will narrow down sharply.58 2012-13 6000 4700 1200 200 1100 300 800 240 560 65.
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