Looking to raise equity & cash through restructuring – Habil Khorakiwala, Wockhardt

Update on the Indian Equity Market:

On Wednesday, Nifty ended 0.6% higher at 12,130. Among the sectoral indices, Nifty FMCG (+1.3%), Nifty Metal (+0.9%) and Nifty Auto (+0.8%) were the top gainers. Nifty Pharma ended the day marginally in the red. Tata Motors (+6.8%), Bajaj Finance (+5.1%) and Infratel (+3.4%) were the top gaining stocks while Eicher Motors (-4.5%), Yes Bank (-1.4%) and Dr Reddy (-1.4%) were the top losers.

Looking to raise equity & cash through restructuring – Habil Khorakiwala, Wockhardt

Excerpts from an interview with Habil Khorakiwala, Founder, Chairman and Group CEO, Wockhardt:

• The company is looking to raise some equity and cash through a restructuring of the organization. There are alternatives on which the company is working.
• The restructuring process would likely be completed in the next month.
• The Q3 financial results of the company were recently released, and sales are up 9-10 percent compared to the previous quarter. Expense management over the last 9-12 months has resulted in significant operating cost reduction.
• The 3Q margins (17.7%) are among the highest in recent times and a result of product mix. Despite spending heavily on both R&D and capex, there is a significant increase in EBITDA without R&D.
• Addressing the liquidity issue, he said that last year the company has repaid ₹ 780 crore of its debt. The net debt increase period has been supported by the promoter. The new cash is to sustain drug discovery research programme and go into growth momentum in 2021.
• They have completed most of the remediation measures at their Waluj facility and are in communication with the US FDA and hopeful of being on track as far as the US business is concerned.
• There are three components to their India business: branded, generic, and active pharmaceutical ingredient (API) business. The branded business is down by less than a single digit. Though mostly discontinued, the generic business is showing a decline. The API business in India is down but up in the international markets.
• Globally, their focus is on three-four areas. Their pharma business is important worldwide, including India. The research programme with the new chemical entity (NCE) is very important for the therapy area antibiotics. Third, the biosimilars are very important since new FDA guidelines has them thinking about entering the US market biosimilars segment. Last, due to technology advantage in formulation, the worldwide diabetic portfolio is a favorite.
• Strategy for the antibiotic drug is marketing themselves in the US and India and looking for partners in the rest of the world.
• Two of their molecules (EMROK (IV) and EMROK 0 (Oral)) have been approved by the Drug Controller General of India, which will be in the Indian market in the next three-four months. Another molecule, 5222 is entering phase-III clinical trial in the next few months.

Consensus Estimate:

The closing price of Wockhardt was ₹ 349 as of 29-January-20. The consensus estimate for EPS of Wockhardt is not available. Wockhardt reported a loss of ₹ 10.6 per share for FY19 and ₹ 13.8 for 9 months ending December 19 respectively.