Wockhardt Jumps On Promoters’ Stake Increase
DSIJ Intelligence / 06 Sep 2013
Reports say that the largest promoter group entity Khorakiwala Holdings & Investments has bought additional stake in the company. This has increased investors’ confidence. What is more crucial for the company in the long term, however is to address the quality issues
The shares of troubled pharma company Wockhardt have surged by more than 15% on the news that the promoters 
have increased their stake in the company. As per news articles, Khorakiwala Holdings & Investments, the largest promoter group entity, has bought 211,094 equity shares representing 0.19% stake in the company. With this, the stake of this entity has gone up from 63.62% to 63.81%.
The company has been seeing many regulatory issues at its Waluj manufacturing facility due to the import alert and a warning letter on this facility due to the quality slip-ups on this facility. UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) has also banned drugs from the same facility.
On its part, Wockhardt has said that it has taken care of all the quality-related issues and has also hired a few people who will look after the quality of drugs. The company is now deploying new software which will streamline quality and compliance system across all its manufacturing facilities. It is also undertaking a compliance training programme for all its staff responsible for compliance and quality control.
Wockhardt’s shares have tumbled from the high of Rs 2166 in March 2013 to Rs 344 in August 2013, but are now seeing some recovery. They are currently up by 54%, most of which could be on account of value buying. As per our sources, many institutions have exited from this counter. One has to wait until the end of the current quarter to see which institutions have sold the stock.
The question is should one buy the stock at this time as its current price is well below the fair value? While we at DSIJ have a target price of around Rs 700 and believe that the stock may well be on course to reach that target, it is equally true that any further regulatory issues would prove to be a further massive value destroyer. The company has also said that the US FDA team that audited another plant has made a few observations. It is not clear yet how serious these are. We believe that only those investors with a decent risk appetite should buy this stock at this juncture.
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