Wockhardt can see 15% EPS cut, may slide further: CIMB

Wockhardt's shares extended its fall to more than 18 percent on Friday after its 20 percent fall on Thursday owing to the import alert issued by US Food and Drugs Administration over its concerns of the quality of drugs manufactured at their Aurangabad plant in Maharashtra.

In an interview to CNBC-TV18, Prakash Agarwal of CIMB said that it is tough to comment on the extent of downside for Wockhardt in terms of earnings per share (EPS). He added that there could be a 15 percent cut on the EPS and could take a hit furthermore due to the risk of blockage in future approvals like in niche injectable ones. Also read: Wockhardt tanks on import alert; Macquarie, Citi cut target Below is the edited transcript of his interview on CNBC-TV18 Q: Do you think a 33 percent fall in this, adequately prices the disappointment on the Waluj facility? Do you expect the stock to drift even lower?
A: It is very difficult to comment on the stock decline because it gets into that zone where you don't know the downside in terms of earnings per share (EPS). Company has gone on board saying that there could be a potential revenue impact of USD 100 million.
Our numbers suggest it could be around 15 percent cut on the EPS but there could be further downside to it as apart from blockage of manufacturing of existing products you also have hurdle of approvals for future products like the niche injectable ones. So you don't know where the downside in EPS actually is. Q: Have you made any adjustments for your expectations in FY14 both in terms of what the shutting down of this facility could do to potential revenues and the EPS impact?
A: We have done some sensitivity analysis because we await further clarity at the investor's conference call. The analysis indicates around 12-15 percent kind of EPS draw but there could be further downsides because apart from existing facility, the future approvals are also at risk especially the niche injectable ones. Q: Give us one word on Sun Pharma because the Taro numbers just came through. But there seems to be some adjustment with regards to the margins which is the disappointing part. Any thoughts on those numbers and ramifications for Sun Pharma?
A: On topline it is a pretty muted one; around 14 percent growth. On margins, yes if you adjust for the USD 22 million which is for the litigation of few products so that margins are in line around 51 percent. However, if you don't adjust for it, it is 38 percent, which is much lower. It is a muted set of numbers given Taro has been performing very well in the past.