Buy Wockhardt; target of Rs 950: FinQuest Securities

FinQuest Securities is bullish on Wockhardt and has recommended buy rating on the stock with a target of Rs 950 in its May 29, 2012 research report.

“Wockhardt, WPL core earnings surpassed our estimates by a huge margin. WL reported a 30% Y-o-Y top line growth clocking sales of Rs.12.41bn, 2% ahead of our estimate while the outperformance was quite stark at the EBITDA level,17% higher than our expectations. The strong growth was backed by robust performance from the US where the company achieved 70% Y-o-Y growth contributed by stable market share from its top products mainly Generic Toprol XL and increased sales from new products (Generic Flonase). We maintain our strong BUY rating on WPL with a target price to Rs.950 (Upgraded on 22nd May post 4QFY12 results) valuing it at a P/E multiple of 10x to its FY13 earnings.”

“Wockhardt reported EBIDTA margins of 34.6% and EBIDTA of Rs.4.3bn in 4QFY12. EBIDTA margins was higher by 345bps Q-o-Q and 635bps Y-o-Y. WPL EBIDTA margins have expanded in the last 8 Quarters from 19.6% in 1QFY11 to 34.6% in 4QFY12. We believe EBIDTA margins have expanded on the back of niche and high margin product launches in US like Toprol-XL in 2QFY11 and Flonase in 4QFY12. Even though the EBITDA margins have expanded through out the quarters in FY12 we believe our current assumption of 31.2% for FY13 factors in the entry of new players into its niche product segments. Any delay from new players could provide incremental upside to our margin assumptions. WPL reported net loss in 4QFY12 at Rs.1.9bn. The loss was due to the exceptional items to the tune of Rs4.5bn. Exceptional items included impairment of goodwill of Rs3.3bn, provision for CDR recompense of Rs1.6bn, settlement of loan/disputed derivative liabilities of Rs1.3bn and restructuring gain of Rs997mn.”

“We maintain our strong BUY rating on WPL with a target price to Rs.950 (Upgraded on 22nd May post 4QFY12 results) valuing it at a P/E multiple of 10x to its FY13 earnings. Our target price is still at a ~17% discount compared to a what was arrived from DCF and peer valuation. We believe the stock has rerated itself in the last couple of quarters by answering investor concerns by maintaining market share in its core products (Generic Toprol-XL) and to ramp up sales in newly received approvals (Generic Flonase & Stalevo) in US,” says FinQuest Securities research report. 

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