Wockhardt - Company Update - Centrum

Integrated pharma company with global foot print: Wockhardt is an integrated pharma company with a strong presence in the US, Europe, India and RoW. The company has 12 manufacturing facilities across the globe of which 9 are in India. The other three facilities are in Chicago, US, UK and Ireland. The company has an employee strength of 7,900 people spread across the globe.

- Research, the backbone: Wockhardt has 3 R & D centres worldwide – in India, US and UK. The main research areas are, generics, biosimilars and New Chemical Entities (NCE). In the generic area, the company focuses on complex technology, niche molecules and blockbuster drugs where the competition is limited. In biosimilars, the company has developed insulin and its analogs and monoclonal antibodies. Wockhardt specialises in NCE research of anti-infectives. The company invests ~6% of its revenues in R & D and has plans to spend 7-8% in FY14.

- Strong presence in the US: Wockhardt is a leading generic player in the US market and derives 50% of its revenues from there. US revenues have increased from 31% in FY11 to 50% during 9MFY13 indicating strong growth in the US market. The company derives 25% of its revenues from Europe, 18% from India and 7% from RoW operations.

- Excellent margins: Wockhardt has reported 37.5% EBIDTA margin during 9MFY13. EBIDTA margin was 31.6% in FY12 and 18% in FY10. Wockhardt had 12 consecutive quarters of sequential growth. The company expects EBIDTA margin in excess of 35% in future.

- Strong cash flows: The company generated free cash flow of over Rs2.75bn in Q3FY13 and over Rs8.0bn during 9MFY13. Wockhardt has already applied for exit from CDR and is waiting for clearance. The company has repaid debt of Rs16.0bn during 9MFY13 from operations and from the sale of its nutritional business to Danone. The company's debt: equity is currently below 0.5:1.

- US business driven by new product launches: Wockhardt's US business grew by 45% in Q3FY13 to $141mn (Rs7.7bn) and by 55% during 9MFY13. The company launched 11 new generic products in the US market during 9MFY13. Notable among them are, Prevacid (lansoprazole), Geodon (ziprasidone), Flonase (fluticasone), Lamictal (lamotrigine), Stalevo (levodopa, entacapone and carbidopa) and Comtan (entacapone). The company had FTF opportunity for Stalevo and currently markets Authorised Generics (AG) of Comtan in the US market. Wockhardt has plans to launch 15-20 generic products in the US in FY13 and ~ 20 in FY14.

- No.3 generic player in UK: Wockhardt is the third largest generic player and No.2 in the hospital segment in UK. The company has a manufacturing facility, C P Labs in the UK. The company's UK operations grew by 19% during Q3FY13 and 25% during 9MFY13. The company launched 8 new products in UK during 9MFY13.

- Largest generic player in Ireland: Wockhardt is the largest generic player in Ireland due to its acquisition of Pinewood Labs. It is also the largest generic player in Ireland with MS of 30%. Its Irish business grew by 3% in Q3FY13 and 16% during 9MFY13.

- Low growth in the domestic market: Wockhardt derives 16% of its revenues from the domestic market. This business grew by 14% in Q3FY13 and 7% during 9MFY13. The company markets well-known brands namely, Spasmo-proxyvon, Bro-zedex, Zedex, Proxyvon in the domestic market. Wockhardt has restructured the field force and has currently ~3,000 MRs in India.

- Sale of nutraceutical business to Danone: Wockhardt sold its nutraceutical business to Danone in Q2FY13 for Rs12.8bn and recorded a gain of Rs11.87bn. The divestment included well-known brands namely, Farex, Protinex and Dexolac.

- Strong generic pipeline for US market: Wockhardt has filed 130 ANDAs with US FDA of which 96 have been approved and 34 are pending approval. The company currently markets 70 products in the US. Wockhardt's 13 products are ranked No.1 and 29 ranked among top three in the US generic market.

- Leading player in insulin in India: Wockhardt manufactures and markets insulin under brand name Wosulin in India. The company also markets insulin analogue glargine in India and other developing countries. The insulin business currently generates revenues of ~Rs1.0bn. Wockhardt is currently conducting clinical trials in the US and Europe for its recombinant human insulin and plans to launch it in these markets after patent expiry in FY16/FY17.

- No major threat from NPPP: Wockhardt has currently 25% of its products under price control in the domestic market. The company expects the same range of business under NLEM. It expects an impact of ~Rs250mn on revenues due to NPPP.

- Decline in revenues in France: Wockhardt's revenues in France declined by 50%YoY, from Rs540mn to Rs270mn in Q3FY13. During 9MFY13, the revenues fell by 36% from Rs1.76bn to Rs1.13bn. The company has subsidiary a laboratory Negma in France which is now breaking even. The company has re-structured its French operations and reduced the headcount from 493 to 50 people.

Valuations:

- At the CMP of Rs2069, the stock trades at 27.5x FY12 EPS of Rs75.2 and 14.2x FY13 annualised EPS of Rs145.8.

- We are positive on the long-term prospects of the company due to its strong performance in the US market and good performance in Europe.

Source : Equity Bulls

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