Wockhardt’s Net Weakens 12% In June Quarter

Crisis-hit Wockhardt reported its Q1FY14 earnings on August 14. While the company reported a mere 1% growth in its revenues to Rs 1358 crore, its net profits have declined by more than 12% to Rs 323 crore. The margins too have come in lower at 31.45% against 36.67% a year ago. The import alert on its facility as well as the ban on its drug Dextropropoxyphene in the domestic market has taken a toll on the company’s financial performance during the quarter.

The due the period a year ago, its financial performance included the numbers from the divested nutrition business. Adjusted for this, the company has seen 8% growth in revenues and 8% decline in its net profits. Exactly a year ago, the company was going through a remarkable turnaround and the markets had given a thumbs-up to the stock. Now, the stock has seen a huge crash and remains the cheapest pick among the Large-Caps in the sector.

For the quarter, Wockhardt’s EBITDA margins stood at 31.45%, marking a decline on a year-on-year as well as sequential basis. This is the first in the last six quarters that the margins have come in below 35%. The quarter has also seen a forex loss of Rs 21 crore.

While the company has beat market expectations at this time, it needs to be seen how far the revenues crack going ahead due to the US FDA impact. The stock is trading well below its fair price at this time, but it must be remembered that the regulatory issues are a major burden on the stock.

We believe that the stock should be trading at a price-to-earnings ratio of around 5x-6x, which gives a price target of around Rs 750. The sentiment on the counter, however, remains negative. Hence, only those with a very high risk appetite should enter the stock. The rest should steer clear of this scrip.