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Nursing back to Health

Wockhardt is one of the few companies that have pulled up its socks & made a comeback in the game…

One of the few companies that have successfully managed to pull up its socks and get back in the game, Wockhardt managed to trim its debt from 5.5 times its equity (March 2010) to an expected less than one this year. Not without paying a hefty price though. It had to sell its nutrition business (Farex and Protinex) to French dairy major Danone for Rs 1,280 crore. That was not the only pound debt extracted from Habib Khorakiwala, founder of the Wockhardt group. He also had to part with 10 of his 17 Wockhardt hospitals at that time for which he got Rs 900 crore.

One thing that separated Wockhardt from its erstwhile CDR peers was that its pharma business model remained intact and has managed to get back its groove. Sales for the company were up 35 per cent (y-o-y) in its June quarter while Ebitda margins improved from 29.5 per cent (year ago) to 35.2 per cent this year.

At the moment, Wockhardt seems to be making all the right moves. US sales are going strong with revenues up 45 per cent (constant currency terms) bolstered by sales of Flonase and Stalevo, both of which have 180 days exclusivity. Wockhardt has just received the USFDA nod to sell its anti-ulcer drug the market for which is estimated at around $700 million.

India and emerging countries brought around a third of Wockhardt’s total sales. Sales, though, have been growing at 10 per cent lower than the industry growth rate.

As the company moves out of debt (debt-equity ratio for Wockhardt is expected to fall to 0.3 levels this financial) the company’s operating metrics should improve further. However the stock has already run up 350 per cent this year (YTD). Don’t count on huge upside in the immediate term. Hold on.