Wockhardt: French connection

After Negma buy, Europe will contribute 60% of its revenues

With the acquisition of France-based Negma Laboratories, Wockhardt has enhanced its presence in Europe, which contributed to 48 per cent of its revenues in the March 2007 quarter, After Negma buyout, it will go up to 60 per cent. In October, Wockhardt had acquired Pinewood in Ireland for 2.14 times revenues. Compared with that, the price it paid for Negma is lower at 1.8 times revenues.

Wockhardt will pay $265 million or Rs 1,100 crore for Negma, which is 9.7 times the latter's operating profit. Wockhardt has presence in the UK, Ireland and Germany, and Negma will provide access to the French market.

Wockhardt estimates the French generics market at $2 billion. Negma is also strong in R&D with 172 patents and products in arthritis, rheumatology and hypertension segments.

Its acquisitions have been positive so far"" according to the company, even Pinewood has brought profits in the March quarter.

Now Wockhardt will need to bring synergies across its European operations, including four manufacturing facilities. Besides Pinewood, it has Wallis and CP Pharma in the UK, Esparma in Germany and now Negma.

Meanwhile in its March 2007 quarter results, its European operations grew 93 per cent y-o-y aided by its acquisitions. Total revenues grew 49 per cent.

The Indian business grew at 35 per cent y-o-y helped by the Dumex acquisition. Operating profit margin improved 257 basis points y-o-y to 22.17 per cent during the quarter as margins in Europe are good.

However, interest outgo will increase this year""secured debt has gone up from Rs 412 crore at the end of CY05 to Rs 1,475 crore in CY06. The stock trades at 16 times estimated CY07 earnings and 13 times CY08 earnings.

Varun Shipping: Under pressure

Varun Shipping has attempted to minimise the impact of weak spot freight rates in the tanker segment in the March 2007 quarter via its focus on more profitable markets like the Caribbean and the US, coupled with a ramp-up in the booming offshore market.

Nevertheless, operating profit fell 9 per cent y-o-y to Rs 111.7 crore in Q4 FY07, as compared to .5 per cent growth in income from operations to Rs 191.33 crore.

Its operating profit margin also declined 600 basis points y-o-y to 58.4 per cent in the last quarter. The stock fell 5.5 per cent to Rs 57 on Thursday.

This pressure on operating margins in the last quarter was also due to staff cost as a percentage of income rising 430 basis points y-o-y to 12.1 per cent. Meanwhile, in tanker segment like VLCC, the average spot freight rate was $36,306 a day in Q4 FY07 as compared with $53,666 a day a year earlier, say analysts.

Also, in the Suezmax segment, the average spot freight in Q4 FY07 was $34,243 a day as compared to $44,175 a day in Q4 FY06. Senior company officials pointed out that they are eyeing niche markets to offset weak spot freight rates.

In addition, growth in its offshore business was powered by the current surge in daily rig rates in Q4 FY07, thanks to strong demand from the oil and gas sector. In FY07 too, the company's consolidated operating profit margin fell 246 basis points y-o-y to 55.9 per cent.

Going forward, Varun is focusing on expanding its presence in the offshore business. However, its ability to manage costs will also be crucial. The stock trades at a reasonable 5 times March 2007 earnings.

Triveni Engineering: Downswing

The performance of Triveni Engineering in the March 2007 quarter was adversely affected by weak price realisations on a y-o-y basis in its key sugar division.

As a result, the company's operating profit (including off-season expenses) declined a whopping 52 per cent y-o-y to Rs 26.8 crore in the last quarter, as compared to a 6.6 per cent growth in net sales to Rs 364.48 crore.

Its operating profit margin also declined 895 basis points y-o-y to 7.35 per cent in Q4 FY07. In the December 2006 quarter too, the company's operating profit margin fell 590 basis points y-o-y to 12.52 per cent.

Meanwhile, in its sugar division, the company's dispatches fell 3 per cent y-o-y to 111,800 tonne in the last quarter, coupled with average realisations dipping 17.7 per cent y-o-y to Rs 14.77 per kg.

As a result, segment loss of the sugar division (including write-down of inventories to market value) was Rs 36.27 crore in the March 2007 quarter as compared to a segment profit of Rs 23.58 crore a year earlier.

Once again, the company's other divisions have reported strong growth and it helped to partially minimise the weakness in sugar. The segment profit of its steam turbines division grew 51.5 per cent y-o-y to Rs 25.4 crore in the March 2007 quarter.

Growth in this division was powered by continued strong demand for its high and low pressure turbines up to 18 mw. Going forward, no significant improvement in global sugar prices is expected over the next few quarters due to surging output, point out analysts.

Triveni has also extended its current financial year by six months. At Rs 52, the stock discounts FY06 results by around 9 times, and leaves little room for further upside.