Wockhardt - Regulatory uncertainties loom large; Hold - Anand Rathi

Results below estimates. Wockhardt's revenue declined 11.2% yoy, to Rs. 11.97bn, in line with our expectedRs. 11.86bn. EBITDA margin declined 2200bps yoy, to 16.4% (versus our estimated 27%), on higher raw material costs, staff expenses and R&D spend. However, there were one-time costs of Rs. 600m pertaining to regulatory issues which are unlikely to recur. Weak revenue growth and margin decline led adj. PAT to decline 57.3% yoy, to Rs. 1.64bn, lower than our estimated Rs. 2.2bn. Weak revenues were chiefly on account of 26% decline in US generics and subdued performance in domestic and emerging markets formulations.

Regulatory overhang worrying. The company is facing various regulatory issues, including USFDA import alert at Waluj and Form 483 at Chikalthana units (further response awaited). In addition, UKMHRA has also put ‘restricted GMP' certificate at Waluj, Chikalthana and Kadaiya facilities. The company is working to resolve these issues at the earliest to limit the financial impact. However, we do not see any resolution at least for a year.

Our take. We believe revenue growth and margins would remain subdued in the near-to-mid term due to import alert on Waluj plant and ban on Opioid Dextropropoxyphene in India. Further, the company has also received Form 483 for its Chikalthana unit which contributed US$230m revenue in FY13. There could be significant downside to our estimates if USFDA issues a warning letter or import alert on this unit. The company has a total of 53 ANDAs pending for approval, of which, 43 are from Waluj and Chikalthana. We lower our FY14 and FY15 revenue estimates 7% and 13% and adjusted PAT 26.9% and 33.8%, respectively.

The stock is trading at 7x FY14e and 7.9x FY15e revised earnings. We maintain Hold with a revised target ofRs. 450 based on 8x FY15e earnings (earlier Rs. 595). Risks. Currency fluctuations, regulatory hurdles.

Source : Equity Bulls

Keywords