Sunday, September 22, 2013

WOCKHARDT LTD - TIGHTROPE WALKER




Price movements of some stocks are always violent and such stocks are the favorites of high risk traders ,investors and operators.But it is rare to see such stocks in BSE ’A’ group.Normally low float ‘B’ group stocks are showing such extreme movements with low volume.Such stocks are not suitable for an average investor and it is equal to playing with fire.These type stocks are capable to create millionaires or beggars in short span of time.Wockhardt is one such rare stock from ‘A’ group ,showing such  a movement in past few years. We will get a clear picture about its price movement by checking the high and low price recorded in the past few years.From a low of Rs.68 in 2009 ,its share price touched a high of Rs.2166 in 2013. Even we take the case of 2012 to 2013 only ,it reported a low of Rs.251 and Rs.2166 in this short period itself

Actually Wockhardt  is not a small company based on many parameters. It is one of the largest Indian pharma company and a pioneer in Indian Bio-pharma space with a turnover of more than Rs.5000 Cr and a net profit of over Rs.1500 Cr.Company having more than 200 patents  globally  and selling more than 500 products in US market.It is the company won the maximum number of patents awarded by India Government in pharma space for 4 years in a row. Company is the largest Indian and third largest generic pharma company in the UK market.Wockhardt is also the largest branded generic pharma company in Ireland.Company operating 12 manufacturing facilities across the globe  ( 9 in India,1 in USA,1 in UK and 1 in Ireland) .Many of you may surprise why the stock price of such a company with good credentials showing sharp swings in short span of time especially from pharma sector which is generally known as a safe sector for steady gain.  

                                                                                      Now let us look into the reasons and current situation.In 2010, even its existence  was a  big question mark  when the Mumbai high court admitted a winding-up petition filed by the company’s foreign currency convertible bond holders.Actually sharp appreciation of Indian Rupee created headaches for Wockhard from both sides and negatively affected its business (Unlike many Indian pharma companies ,contribution of overseas earnings is very high in case of Wockhardt.It is as high as 80% of its total turnover) and ability to payback FCCB amount .To escape from this do or die situation ,company forced to sacrifice a part of its hospital business , the entire nutrition business and animal health business ..etc.In 2009-10 Wockhardt’s debt equity ratio was at an alarming level of 5.5 which now reduced to just 0.4 . In 2012 FCCB holders withdraw the winding up petition .This default and repayment created big fluctuations in its share price during 2010-1012 period.2012-13 was a fantastic year in the history of Wockhardt .Company reported a consolidated sales of Rs.5610 cr ( Rs.4351 Cr in previous year) , net profit of Rs.1594 Cr ( Rs.343 Cr)  and an EPS of Rs.146.00. Then the next blow came in 2013 in the form of USFDA inspection.Wockhard received a warning letter from US FDA due to violation of CGMP and data integrity issues .This prevents company from exporting products from Waluj facility and on this news ,share price started to crash from a level of Rs.2100 level.Again it received a Form 483 on its Chikalthana unit .. 483 is a form used by the US FDA to document and communicate concerns discovered during their inspections. After issuing 483 ,company will get certain time to correct the mistakes and comply with the standards of USFDA .If USFDA satisfied with the corrective steps they will withdraw 483 and if not , ban export from the facility .Wockhardt now claiming that they have taken every steps to avoid a ban and appointed US based third party consultants to advice the company in  ensuring CGMC standards,as requested by USFDA itself .It is reported that M/s. Lachman GMP Consultant INC USA has appointed for this purpose.Company also changed the head of its quality control department and requested to report the new QC head directly to MD in order to avoid delay in taking and implementing decisions.

                                                                                  Whether the company will survive the storm or not is the question now. It is expected to receive a final verdict on this subject within two months.Either the stock will go back to Rs.250 level or come back to Rs.1500 level based on the final decision of USFDA in this matter.If we check the history of the company ,promoters never repeated one mistake more than once.( This is the first USFDA related issues with Wockhardt in its history and inspections of both plants happened almost simultaneously) .If they are fortunate to escape this time ,I hope company will never look back on USFDA related issues anytime in the future . Till June quarter almost 100% of promoter holding were pledged ,but in last month they released entire pledge and recently even hiked their stake through open market purchases.Now promoter stake is almost near to the maximum permissible limit ie,75% .If we exclude the USFDA related issues ,Wockhardt is the cheapest  pharma stock which is trading with a P/E multiple of just 4 .At CMP of Rs.590 ,this stock is suitable only for investors who are willing to play with fire.Either your investment will multiple or it will become half or below in another 6 month or one year.

Recent Concall Transcript HERE

Link to Company Website HERE

Disc: I have vested interest in Wockhardt

26 comments :

  1. IT WOULD HAVE USFDA ban, Ranbaxy with so strong promoter could not save themselves.Also whenever 483is issued by USFDA there are 99% chances of USFDA Ban.Stock would tocuh Rs 300.

    ReplyDelete
    Replies
    1. Keeping figures crossed in this matter and I don't think the promoters of Ranbaxy is superior in handling these type matters.Two of Ranbaxy's other plants, at Dewas and Paonta Sahib, were hit with the same import alerts in 2008 .But they didn't took it seriously and even not appointed an expert consultancy firm till recently to work on it.Even after 5 years they could not lift this ban where in other many cases it happened within 2 or 3 years.

      Delete
  2. Even I attended the concall and by looking at the promoters confidence, I can bet that the stock will again come up to 1000 levels. Volatility cant be ruled out anyways...

    ReplyDelete
  3. What gives confidence are the promoters actions in market. Its no small feat to bring back the company from brink. However, USFDA has been very aggressive and unforgiving recently as it wants to reduce imports from non-US corporations under pressure. Escaping USFDA will be very difficult, although management seems extremely confident. I sold most of my holdings bought at 470. Waiting for get the clouds to clear.

    ReplyDelete


  4. sir .. please have a look at hanung toys and textiles ... its fell from 270 to 28 few years ago , then bounced back to 410 ... its available at 28 now , the promoter holdings is around 70 % .. its on a major bullish trend, kindly share your views which willl be veryyy much appreciated ... thaks sir

    ReplyDelete
    Replies
    1. Hanung's lower level of cash flow not giving comfort considering its huge debt of more than Rs.1600 Cr.

      Delete
    2. Dear sir,please share your views on ybrant digital

      Delete
  5. dear vp,
    I have written to you earlier too regarding praj ind. and i am awaiting your reply .I have brought praj at 39 -40 .Can you suggest whether i can hold it ,I see it as multi bagger in years to come but would like to hear from you.

    regards.

    ReplyDelete
  6. Sir, what is your opinion on Divi's Laboratories? Is it worth buying at CMP?

    ReplyDelete
    Replies
    1. Bit skeptical about its published result

      Delete
  7. Sir how pe ratio is 4? When eps is less than 60?

    ReplyDelete
    Replies
    1. From where you got this data ? .Anyway it is wrong .Wockhardt is a company operating through many subsidiaries .On a consolidated basis it reported an EPS of Rs.145.6 in last FY .As investors you should spend at least some time to dig deep before reaching conclusions about these type basic facts .Refer below link


      http://www.bseindia.com/corporates/results.aspx?Code=532300&Company=WOCKHARDT%20LTD.&qtr=77.50&RType=C

      Delete
    2. Sorry I saw standalone income statement

      Delete
  8. hello sir, please share your view on zicom price falling continuosly.......................is company facing any problem.

    ReplyDelete
    Replies
    1. Company importing parts and assembling in India ,this model may negatively impact due to Rupee depreciation in medium term.This may be a reason for muted price movement.

      Delete
  9. vpji,in wockhardt from this querter sell and NP is down drastically some analyst told is it right?

    ReplyDelete
    Replies
    1. No doubt it should happen .Because the Waluj plant issue and some other issues happened during this quarter.Company indicated the same in all their recent investor communications.But one should not forget that the share price also crashed from Rs.2000 + to current level . Even If we just consider a loss of its half of business (in any worst case) it should still report at least Rs.70 EPS in this year ,ie, it is trading @ P/E of 8 where others in the same league Sun pharma trading at a P/E of 38 and Lupin @ 29 .No justification for such a valuation gap ,considering USFDA issue is not a permanent one and it can resolved by corrective measures.

      Delete
  10. Dear VP Sirji,
    With rupee depreciating in this quarter most export oriented shares might do well. In this perspective what is your take on ADF foods?

    ReplyDelete
    Replies
    1. Taking a decision only thinking about one side may not bring any result.Take the case of ADF ,even if the rupee depreciation may be favorable ,there is sharp spike in its raw material cost due to increasing trend in food and vegetable price.

      Delete
  11. Sir throw some lights on kerala ayur

    ReplyDelete
  12. Any change in view due to the Chilikantha plant issues?

    ReplyDelete
  13. Nov 27, 2013, 10.57 AM IST Wockhardt hit by FDA alert on Chikalthana plant

    Read more at: http://www.moneycontrol.com/news/business/wockhardt-hit-by-fda-alertchikalthana-plant_997712.html?utm_source=ref_article

    ReplyDelete
  14. Dear Valuepick Ji,

    Thanks for your valueable insights,
    Is Wockhardt still a buy for long term and for risk taking individual.

    Thanks a ton in advance
    Regards

    Jay Muscat

    ReplyDelete
  15. I plan to increase my stake in Wockhardt. Agree such stock with such valuation is a grab. Ofcourse there are lot of short term headwinds. Please keep us posted if your views on this stock changes. I am long term investor with huge risk appetite

    ReplyDelete

Followers

Tweet TopOfBlogs