Buy Wockhardt; target of Rs 885: Ventura

Ventura is bullish on Wockhardt and has recommended buy rating on the stock with a target of Rs 885 in its May 22, 2012 research report.

“Wockhardt, net sales for the quarter stood at Rs 1241.4 crore v/s Rs 938.7 crore, registering a strong growth of 32.2% yoy on the back of good growth in the existing business and in line with our estimates. With FTF opportunities and robust product portfolio, we expect the company to register a strong CAGR of 14.8% over three year period to Rs 5681.5 crore in FY14. On the exceptional items front, the company provided for Rs 450.04 crore for the fourth quarter and Rs 528.2 crore for the full year 2012 which included Rs 133.7 crore on account of settlement of derivative losses, Rs 160 crore on account of CDR recompense provisions and Rs 333.5 crore on account of good will impairment. The company gained Rs 99.7 crore from restructuring activities.”

“On the earnings front, the depreciation and interest expenses were in line with our expectations. However, the tax rate at 31%, stood higher than our estimates. Factoring in higher tax rate, we have scaled down our earnings to Rs 808.2 crore and 968.4 crore for FY13 and FY14 respectively v/s Rs 889.6 crore and Rs 1070.1 crore previously. Further, the Wockhardt- Danone deal for the sale of nutrition business was supposed to be culminated in the month of March. However, it got delayed, considering the management has not given time line of the deal, we have scaled down our earnings and have not factored in the deal. However, the deal if sails through would be EPS accretive, we estimate the company to post an EPS of Rs 164 for FY13 v/s the current forecast of Rs 82.4.”

“Wockhardt surprisingly posted losses for Q4FY12 on the back on exceptional items pertaining to payment of derivative liabilities, provisions on CDR and goodwill impairment. Ex- exceptional items, the net profit registered robust growth and stood at Rs 261.6 crore, up by 57% yoy. The stock had been reeling under the pressure of derivative liabilities and FCCBs repayment over a long time. However, with the settlement of derivative liabilities and strong cash flows, we expect the company to settle all the dues and return back to an era of strong growth in profitability. Wockhardt business had always been strong even at the resilient times but with focus back on the business and a strong pipeline of FTFs, we expect the company to post better growth in times ahead.  However, we have scaled down our earnings for FY13 and FY14 to factor in higher taxations and a likely possibility of the deal fell through. Currently the stock is trading at 8.7x and 7.3x of its FY13 and FY14 earnings estimates indicating cheap valuations. We recommend a BUY with a revised price objective of Rs 885 at 10x FY14EPS,” says Ventura research report.  

Institutional holding more than 40% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More