WOCKHARDT LTD - TIGHTROPE WALKER

Price movements of some stocks are always violent and such stocks are the favorites of high risk traders ,investors and operators.But it is rare to see such stocks in BSE ’A’ group.Normally low float ‘B’ group stocks are showing such extreme movements with low volume.Such stocks are not suitable for an average investor and it is equal to playing with fire.These type stocks are capable to create millionaires or beggars in short span of time.Wockhardt is one such rare stock from ‘A’ group ,showing such  a movement in past few years. We will get a clear picture about its price movement by checking the high and low price recorded in the past few years.From a low of Rs.68 in 2009 ,its share price touched a high of Rs.2166 in 2013. Even we take the case of 2012 to 2013 only ,it reported a low of Rs.251 and Rs.2166 in this short period itself

Actually Wockhardt  is not a small company based on many parameters. It is one of the largest Indian pharma company and a pioneer in Indian Bio-pharma space with a turnover of more than Rs.5000 Cr and a net profit of over Rs.1500 Cr.Company having more than 200 patents  globally  and selling more than 500 products in US market.It is the company won the maximum number of patents awarded by India Government in pharma space for 4 years in a row. Company is the largest Indian and third largest generic pharma company in the UK market.Wockhardt is also the largest branded generic pharma company in Ireland.Company operating 12 manufacturing facilities across the globe  ( 9 in India,1 in USA,1 in UK and 1 in Ireland) .Many of you may surprise why the stock price of such a company with good credentials showing sharp swings in short span of time especially from pharma sector which is generally known as a safe sector for steady gain.  

                                                                                      Now let us look into the reasons and current situation.In 2010, even its existence  was a  big question mark  when the Mumbai high court admitted a winding-up petition filed by the company’s foreign currency convertible bond holders.Actually sharp appreciation of Indian Rupee created headaches for Wockhard from both sides and negatively affected its business (Unlike many Indian pharma companies ,contribution of overseas earnings is very high in case of Wockhardt.It is as high as 80% of its total turnover) and ability to payback FCCB amount .To escape from this do or die situation ,company forced to sacrifice a part of its hospital business , the entire nutrition business and animal health business ..etc.In 2009-10 Wockhardt’s debt equity ratio was at an alarming level of 5.5 which now reduced to just 0.4 . In 2012 FCCB holders withdraw the winding up petition .This default and repayment created big fluctuations in its share price during 2010-1012 period.2012-13 was a fantastic year in the history of Wockhardt .Company reported a consolidated sales of Rs.5610 cr ( Rs.4351 Cr in previous year) , net profit of Rs.1594 Cr ( Rs.343 Cr)  and an EPS of Rs.146.00. Then the next blow came in 2013 in the form of USFDA inspection.Wockhard received a warning letter from US FDA due to violation of CGMP and data integrity issues .This prevents company from exporting products from Waluj facility and on this news ,share price started to crash from a level of Rs.2100 level.Again it received a Form 483 on its Chikalthana unit .. 483 is a form used by the US FDA to document and communicate concerns discovered during their inspections. After issuing 483 ,company will get certain time to correct the mistakes and comply with the standards of USFDA .If USFDA satisfied with the corrective steps they will withdraw 483 and if not , ban export from the facility .Wockhardt now claiming that they have taken every steps to avoid a ban and appointed US based third party consultants to advice the company in  ensuring CGMC standards,as requested by USFDA itself .It is reported that M/s. Lachman GMP Consultant INC USA has appointed for this purpose.Company also changed the head of its quality control department and requested to report the new QC head directly to MD in order to avoid delay in taking and implementing decisions.

                                                                                  Whether the company will survive the storm or not is the question now. It is expected to receive a final verdict on this subject within two months.Either the stock will go back to Rs.250 level or come back to Rs.1500 level based on the final decision of USFDA in this matter.If we check the history of the company ,promoters never repeated one mistake more than once.( This is the first USFDA related issues with Wockhardt in its history and inspections of both plants happened almost simultaneously) .If they are fortunate to escape this time ,I hope company will never look back on USFDA related issues anytime in the future . Till June quarter almost 100% of promoter holding were pledged ,but in last month they released entire pledge and recently even hiked their stake through open market purchases.Now promoter stake is almost near to the maximum permissible limit ie,75% .If we exclude the USFDA related issues ,Wockhardt is the cheapest  pharma stock which is trading with a P/E multiple of just 4 .At CMP of Rs.590 ,this stock is suitable only for investors who are willing to play with fire.Either your investment will multiple or it will become half or below in another 6 month or one year.

Recent Concall Transcript HERE

Link to Company Website HERE

Disc: I have vested interest in Wockhardt