Strong operating performance in the September 2012 quarter helped the Wockhardt stock notch up five per cent 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 per cent year-on-year (y-o-y) to Rs 1,347 crore. Earnings before interest, tax, depreciation and amortisation margins for the quarter and first half of the financial year were up over 10 percentage points (35 per cent to 38 per cent) 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 it will be able to maintain margins at around 35 per cent levels, which is much better than 29 per cent reported last financial year.
Growth will be driven by its performance in the US market (48 per cent 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 H1FY13).
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 per cent 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 the target prices in the region of Rs 2,100 to Rs 2,400.
Strong US growth
Revenues in the first half from this region were up 61 per cent 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 per cent in the quarter.
The management believes 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 this market will be the 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 the company has a strong pipeline to offset the decline in sales of hypertension medication Toprol, which currently contributes 40 per cent of its US sales.
India biz to fare better
While the overall performance, both in the US as well as Europe (excluding France), was good, there was disappointment on revenues from India which grew only four per cent y-o-y due to the filed force restructuring. The management believes the geography which contributes 19 per cent of overall revenues should be able to grow at 12-15 per cent in the second half of FY13, in line or higher than the sector growth rate of 12 per cent.