Wockhardt: Recommendation Review

We had recommended Wockhardt in DSIJ Issue No. 20 (dated September 23, 2012). Many would have been surprised to see the stock as our recommendation as the scrip had moved to the ‘T’ category at that very time. However, the stock has performed as per our expectations. On November 9, 2012, it touched its all-time high of Rs 1689. We had advised investors through our ‘Book Profit’ SMS service to book profits at a price of Rs 1560, which provided an opportunity to garner a 32 per cent return from our recommended price of Rs 1184.

Our primary rationale behind recommending this stock was the turnaround that the company achieved after being in distress for quite some time. Wockhardt had opted for a debt restructuring scheme with its principal lenders in 2008. After a lot of business restructuring, it successfully turned profitable in FY12. Default on FCCBs, losses on derivatives, a winding up petition from its bondholders, etc. plagued the company until it took these measures, but it has emerged from the mess successfully. According to the management, FY13 could be a landmark year for the company, in which it is bound to finish off its debt restructuring and emerge a stronger company. Its strong product pipeline, timely launches and divestment of key businesses generated better-than-expected cash flows, which have helped it to repay its debts. The concessional interest rate as a part of the CDR acts as a much-needed kick in these circumstances.

Wockhardt’s results for the first quarter of FY13 have been very good. The company posted a 95 per cent growth in its net profit to Rs 378 crore. Its consolidated revenues were also up by 35 per cent, largely due to strong growth in the US market. On the back of improved fundamentals and strong volumes, the stock saw a fantastic price appreciation when we had initiated our first call to book profits. For those who missed the chance then, the stock is now hovering around the same level again and gives a good opportunity to book profits.