Buy Wockhardt; target of Rs 2160: Emkay

Emkay Global Financial Services is bullish on Wockhardt and has recommended buy rating on the stock with a target of Rs 2160 in its November 5, 2012 research report.

“Wockhardt’s US business, which currently constitutes 40% of revenues, is likely to grow at 21% CAGR over FY12-14E led by niche launches like Toprol, Flonase, Comtan and Stalevo, which are either difficult to manufacture or are multi-year opportunities with high entry barriers. In H1FY13, the company launched 9 products and is expected to launch 6-9 more products in H2FY13, which will propel the growth in FY13 and FY14. Company has stepped up new fillings in US and plans to file 12-15 products every year.”

“We expect Wockhardt’s domestic business (25% contribution) to grow by 12% CAGR over FY12-14E, led by its focus on Vitamins, Respiratory, Diabetes and Pain therapies, which contribute 55% of the domestic portfolio. Post the divestment of its Rs2.5bn nutrition business to Danone, brands retained by Wockhardt in Nutrients & Vitamins segment still have the ability to deliver good growth in coming years. Wockhardt has settled all its liabilities related to currency derivatives last year. Debt, which has been a major overhang on the stock, is likely to reduce to nil by FY14E on the back of strong cash flows from the business and sale of its nutrition business. Company has Rs19bn of cash on the balance sheet after receiving Rs12.8bn of cash from Nutrition business sale. This cash will be primarily used in reduction of Rs32bn of debt out of which Rs11.5bn of debt is under the CDR Scheme.”

“Wockhardt has one of the largest and the most profitable US businesses with steady India business. It has one of the best in class operating and balance sheet ratios. Going forward – 31% CAGR in earnings & reduction in net debt to zero will re-rate the stock from current 12x FY14E to 18x FY14E EPS of Rs120. Initiate coverage with a BUY and TP of Rs 2,160 which is 45% upside from CMP of Rs1,503. At CMP, the stock trades at 15x FY13E and 13x FY14E EPS,” says Emkay Global Financial Services research report. 

Public holding more than 90% in Indian cos

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