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Mar 29, 2012, 12.14 PM IST | Source: CNBC-TV18

P-note hit Wockhardt attractive at current levels: Finquest

Selling from participatory note holders hurt Wockhardt in trade yesterday, says senior research analyst at Finquest Securities Anand Bagaria.

Anand Bagaria

Sr Research Analyst, Finquest Securities

Expertise : Equity - Fundamental

More about the Expert...

Selling from participatory note holders hurt Wockhardt in trade yesterday, says senior research analyst at Finquest Securities Anand Bagaria. At the current levels, he believes the stock looks attractive and therefore has a buy call on it.

“We expect earnings of Rs 90 in FY13 and that makes a stock 6.5 times the current price,” he said, adding that the PE multiple gap between Wockhardt and other pharma players will narrow down going ahead.

He goes on to say that the next big triggers for the stock are the completion of its nutrition deal with Danone and overcoming its FCCB issues.

Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: Do you think the correction in Wockhardt is on the back of any participatory note type selling or has there been any fundamental reason for the stock to correct?

A: I don’t think there might be some fundamental reason. The rumor is that is was a participatory note correction. But apart from this it is a good buy; it is a chance to buy at these levels.

Q: What are you basing that buy call on? What do you think the big triggers for the stock could be and can you quantify that in terms of what kind of earnings potential you see now?

A: When we initiated that in September 2011, the stock was at Rs 380 levels, we gave a target of Rs 600 with the time frame of one year. The investment argument at that time we placed were improvement in base earnings. FCCB settlement, contingent liability settlement and sale of nutrition business settlement but surprisingly all this came at a very fast pace ahead of our expectations. So the stock had appreciated from Rs 380 levels to near to our target price.

Going forward the triggers which we feel is going ahead of its nutrition business with Danone and completion of payment to the FCCB holders. Once the company is out of this corporate debt restructuring (CDR), the company management will come out to the investor and there will be more disclosures on the part of the business front, then the company will find its right value.

If we look at the current valuations it is quoting at a bargain compared to the other pharma players. We expect earnings of Rs 90 in FY13 and that makes a stock 6.5 times the current price and we believe that the PE multiple gap between Wockhardt and other pharma players will narrow down going ahead.

Q: Any risk that you see either on the CDR or the FCCB front, or the recent OTC drug recall which seemed to have cause a little bit of concern?

A: If we talk about first the OTC drug recall, the drug recall sale value if I compare that it is just 0.1 million and the recall is not because of the default in drug but it is because of packaging error. It is just 0.1 million so it will not impact the bottom-line and the top-line of the company.

Regarding the FCCB we believe that there is no objection from the FCCB holders so we believe that whatever the court has directed to repay the FCCB holders Wockhardt is paying as per the installment directed by the court and at present if we look there should be approximately Rs 250 crore to be paid and we believe that it will be paid by August 2012.

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