Buy Wockhardt: ICICI Securities

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Buy Wockhardt: ICICI Securities

Broking house, ICICI Securities has maintained buy rating on Wockhardt.

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Wockhardt BSE | NSE 25/05/12 Are Mutual Funds betting on Wockhardt?

Broking house, ICICI Securities has maintained buy rating on Wockhardt .

ICICI Securities report on Wockhardt:

In Q4CY06, Wockhardt registered a 19% YoY rise in consolidated recurring net profits to Rs 871 million, ahead of our estimates. This was primarily due to higher-than-expected growth in EU sales and EBITDA margin. Total operating revenues rose 44% YoY to Rs 5.26 billion, mainly fuelled by an 81% surge in its largest market EU to Rs 2.9 billion and a 22% YoY growth in domestic dosage form sales. Excluding acquisitions, sales growth was healthy at 22% YoY to Rs 4.5 billion. From a 12-15 months perspective, the stock could benefit from strong growth in the US & biogenerics business as well as consolidation of acquisitions. Trading at CY07E P/E of 11.8x, valuations are quite attractive. Maintain BUY.

Sales surged 44%YoY to Rs 5.26 billion: Excluding acquisitions (Pinewood Labs and   Nutrition business), sales growth was healthy at 22% YoY to Rs 4.5 billion driven by a strong 30% rise in EU sales, ahead of our estimates. Domestic dosage form sales (excluding the Nutrition business) witnessed a healthy 10% growth to Rs 1.43 billion on the   back of continued focus on power brands. Dosage form exports to the US rose 15%, while dipped 21% to the rest of the world.

EBITDA margin was almost flat at 23.2% pulled down by: i) consolidation of the acquired businesses with lower margins and ii) higher other expenditure due to commencement of production at the new biotech park. However, reduction in R&D costs (20% YoY and 54% QoQ) to Rs 130 million (much lower than our estimates) and   tight control over other expenditure helped the company offset the pressure on   margins. The depreciation charge more than doubled to Rs 212 million and income tax provision rate was lower at 10.4% versus 12.2% a year ago. The company has not disclosed forex details. Consequently, consolidated recurring net profits rose 19% to Rs 871 million, ahead of our estimates.  

CY06 - A washout year: In CY06, Wockhardt's performance was much below peers with 6% decline in reported consolidated net profits to Rs 2.4 billion. Excluding nonrecurring expenditure of Rs 491 million {on account of a chargeback (Rs 367 million) on US sales; acquisition-related costs (bidding for Andrx and Alpharma's US generics   businesses) of Rs 228 million and gain of Rs 113 million due to change in accounting policy relating to R&D expenditure for ANDAs}, recurring net profits rose 10% to Rs 2.9 billion. EBITDA margin declined 75bps to 22.5% on the back of 22% YoY sales growth to Rs 17.3 billion. We shall revisit our earnings forecast after attending the investor meet today.

The worst seems to be over; reiterate BUY. With CY06 being a poor year for Wockhardt, the company is looking to step-up it efforts to come out of the woods. It acquired Dumex and Pinewood Labs to further boost its headline growth and expand   product and geographic coverage. The stock is currently trading at an attractive valuation of CY07E P/E of 11.8x; reiterate BUY.