 "Wockhardt: Flying high on recovery hopes")
The Wockhardt stock has risen 23 per cent this month and has been touching its 52-week high on expectations of a turnaround in its US business, research and development (R&B) approvals and on hopes of getting acquired by an international generic company. Wockhardt is also considering merging its subsidiaries - Vinton and Wockhardt Biopharm - with itself.
Analysts say unlike the import alert issues of Ranbaxy, the Wockhardt case could get resolved earlier, with approvals in place by CY15. Further, given the sharp run-up in prices of large-cap companies, investors are focusing on companies which could recover and could be available at reasonable valuations. While the current earnings forecasts have a muted outlook on Wockhardt, the marginally lower valuations compared to large-cap peer group suggests the risk-reward is not favourable. But, if a recovery takes place, it will lead to significant earnings upgrades.
On the other hand, the India business has done well, with Wockhardt registering 18 per cent sales growth to Rs 295 crore in the June quarter. With 16 new products launched during the quarter, the company is likely to maintain its sales momentum. The US FDA fast-tracking of two anti-infective drugs in the R&D pipeline is also a boost for its research capability. Among the larger companies, with the exception of Dr Reddy's, Wockhardt is the only other pharma player with a high R&D spends at nine per cent of sales.
While issues in terms of balance sheet (debt to equity under 0.3 times now from four times in FY12) and mark-to-market losses in forex derivatives have been resolved, future growth is contingent on US FDA approvals. While the gains could be high, the risks if the approval situation worsens too will be higher for investors.
Analysts say unlike the import alert issues of Ranbaxy, the Wockhardt case could get resolved earlier, with approvals in place by CY15. Further, given the sharp run-up in prices of large-cap companies, investors are focusing on companies which could recover and could be available at reasonable valuations. While the current earnings forecasts have a muted outlook on Wockhardt, the marginally lower valuations compared to large-cap peer group suggests the risk-reward is not favourable. But, if a recovery takes place, it will lead to significant earnings upgrades.
On the other hand, the India business has done well, with Wockhardt registering 18 per cent sales growth to Rs 295 crore in the June quarter. With 16 new products launched during the quarter, the company is likely to maintain its sales momentum. The US FDA fast-tracking of two anti-infective drugs in the R&D pipeline is also a boost for its research capability. Among the larger companies, with the exception of Dr Reddy's, Wockhardt is the only other pharma player with a high R&D spends at nine per cent of sales.
While issues in terms of balance sheet (debt to equity under 0.3 times now from four times in FY12) and mark-to-market losses in forex derivatives have been resolved, future growth is contingent on US FDA approvals. While the gains could be high, the risks if the approval situation worsens too will be higher for investors.