Strong operating performance in the September 2012 quarter helped the Wockhardt stock notch up 5% gains and touch a 52-week high of Rs 1,784 before closing at Rs 1,778 on Thursday. On a robust performance by its US business, its revenues were up 29% year-on-year to Rs 1,347 crore. Ebidta margins for the quarter and first half of the fiscal was up over 10 percentage points (35% to 38%) on the back of its high margin US business as well as a better product mix. Some of the gains were also due to currency movements. The company believes that it will be able to maintain margins at around 35% levels, which is much better than 29% reported in last fiscal. Going ahead, growth will be driven by its performance in the US market (48% of overall sales) where the company plans to launch 10 products every year.
In addition to the operational performance, the key reason for the stock being rerated has been the repayment of FCCBs (FY12 and H1'FY13). Moreover, the company is aiming to come out of the CDR in FY13 and has repaid part of its domestic debt (now at Rs 935 crore) through internal accruals and proceeds from the sale of its nutrition business. Wockhardt also used the cash inflow and profits to clean up its balance-sheet in the quarter by writing-off Rs 1,040 crore worth of goodwill and R&D expenses, which analysts say improves the quality of earnings which was a key investor concern earlier.
The stock which has made smart gains (over 500% since the start of the year) is still trading at 14 times its FY13 estimates. Given its strong operational performance and prospects as well as cash in hand worth Rs 1,950 crore, analysts have pegged target prices in the region of Rs 2,100 to Rs 2,400.
Strong US growth
Revenues in the first half from this geography were up 61% to Rs 1,298 crore as compared to the year ago period on the back of strong growth of its existing portfolio-- US sales were up 22% in the quarter. The management believes that it will be able to replicate the performance in the second half as well in the geography where it launched eight new drugs during the quarter. Macquarie Securities analysts Abhishek Singhal and Kumar Saurabh say that this market will be key driver for the company due to niche multi-year opportunities and more than 30 pending applications for drug approvals of which 10 are first-to-file. Analysts believe that the company has a strong pipeline to offset the decline in sales of hypertension medication Toprol which currently contributes 40% of its US sales.
India biz to fare better
While the overall performance both in the US as well as Europe (excluding France) were good, there was a disappointment on revenues from India which grew only 4% year-on-year due to the restructuring of the field force. The management believes that the geography which contributes about 19% of overall revenues should be able to grow at 12-15% in the second half of FY13, in line or higher than the sector growth rate of 12%.
