WOCKHARDT LTD. Q4 FY13 Detail Reportbreport.myiris.com/firstcall/WOCKHARD_20130601.pdf · Wockhardt is a true Indian Multi-National Company with a multi-ethnic workforce of 7900 Wockhardt

CMP 1132.00

Target Price 1234.00

ISIN: INE049B01025

JUNE 1st

, 2013

WOCKHARDT LIMITED Result Update: Q4 FY13

BUYBUYBUYBUY

Index Details

Stock Data

Sector Pharmaceutical

BSE Code 532300

Face Value 5.00

52wk. High / Low (Rs.) 2166.05/785.10

Volume (2wk. Avg.) 287000

Market Cap ( Rs. in mn.) 124044.56

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY13A FY14E FY15E

Net Sales 56094.20 65069.27 72552.24

EBITDA 21136.80 24315.93 27096.64

Net Profit 15941.20 18088.12 19840.97

EPS 145.48 165.07 181.06

P/E 7.78 6.86 6.25

Shareholding Pattern (%)

One - Year Comparative Graph

BSE SENSEX WOCKHARDT LTD

SYNOPSIS

We initiated coverage of Wockhardt Ltd and set a

target price of Rs. 1234.00 for Medium term

Investment.

Wockhardt is a high technology intensive global

pharmaceutical and biotechnology company with

multi-disciplinary & innovative R&D programmes.

Wockhardt Ltd recommended dividend of Rs. 5/- per

equity share of Rs. 5/- each (i.e. @ 100%) on equity

shares of the Company for the year 2012-2013.

The company’s net profit registered a 274.68%

increase and stood at a record Rs. 3347.60 million

from Rs. (1916.40) million over the corresponding

quarter last year.

Wockhardt filed 20 new product applications with

USFDA in FY 2012-13 and received approvals for 12

products during the year.

Wockhardt has a significant presence in USA, Europe

and India with 81% of its global revenues coming

from international businesses.

Wockhardt won the Pharmexcil Award for the highest

number of patents filed for the 4th year in a row.

The India business grew by 8% and the Emerging

Markets business grew by 24% in FY 2012-13.

Net Sales and PAT of the company are expected to

grow at a CAGR of 16% and 80% over 2012 to 2015E

respectively.

PEER GROUPS CMP Market Cap. EPS P/E (x) P/BV(x) Dividend

COMPANY NAME (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Wockhardt Ltd 1132.00 124044.56 145.48 7.78 5.20 0.00

Dr Reddys Lab Ltd 2112.00 358694.60 74.51 28.35 4.49 275.00

Glaxosmithkline Pharma Ltd 2779.95 192699.40 73.60 30.91 9.59 450.00

Glenmark Pharma Ltd 573.25 155602.90 14.25 40.31 7.12 200.00

Investment Highlights (CONSOLIDATED)

RESULTS UPDATES- Q4 FY13,

Wockhardt Ltd achieved a turnover of Rs. 14860.00 million for the 4th quarter of the current year 2012-13 as

against Rs. 12413.90 millions in the corresponding quarter of the previous year. The company has reported an

EBITDA of Rs. 5098.60 millions and a net profit of Rs. 3347.60 million against Rs. (1916.40) million reported

respectively in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 30.55 for

the 4th quarter as against an EPS of Rs. (17.51) in the corresponding quarter of the previous year.

Months MAR-13 MAR-12 % Change

Net Sales 14860.00 12413.90 19.70%

PAT 3347.60 -1916.40 274.68%

EPS 30.55 -17.51 274.46%

EBITDA 5098.60 4908.00 3.88%

EXPENDITURE

Break up of Expenditure

Rs Millions

Q4 FY13 Q4 FY12

Cost of Material Consumed 3116.80 2640.30

Purchase of Stock in Trade 1296.10 918.80

Employee Benefit Expenses 1581.70 1773.50

Depreciation & Amortization Expense

327.50 269.20

Other Expenses 3518.10 2236.30

LATEST UPDATES

� Wockhardt Ltd recommended dividend of Rs. 5/- per equity share of Rs. 5/- each (i.e. @ 100%) on equity

shares of the Company for the year 2012-2013.

� Wockhardt filed 20 new product applications with USFDA in Financial Year 2012-13 and received approvals

for 12 products during the year. Cumulative products pending approval with USFDA stands at 46 as on March

2013.

� Wockhardt also filed for 162 patents during the year taking the cumulative filings to 1733 and has been

granted 52 patents during the year taking the cumulative patents granted to 206.

� Wockhardt won the Pharmexcil Award for the highest number of patents filed for the 4th year in a row.

� Wockhardt’s International Business contributed 83% of the Total Revenues during the quarter.

� The growth was also aided by increase in market share of some key products. Wockhardt now has 18

products which are at no.1 position and 17 products which are at no.2 position in the US market.

� The UK business recorded a growth of 24% in Financial Year 2012-13 in an otherwise stagnant market. The

Irish market recorded a growth of 13% in Financial Year 2012-13.

� The India business grew by 8% and the Emerging Markets business grew by24% in Financial Year 2012-13.

� Wockhardt Limited was recently bestowed with the ’Best Enterprise’ award by the Europe Business

Assembly in Vienna, Austria for its achievements in the global pharmaceutical industry.

� Wockhardt has received final approval from the United States Food & Drug Administration (USFDA) for

marketing 25mg, 50mg, 100mg, 200mg and 300mg extended release tablets of Lamotrigine which is used in

treatment of epilepsy. Lamotrigine is the generic name for the brand Lamictal,XR® marketed in the United

States by Glaxo SmithKline.

COMPANY PROFILE

Wockhardt is a global pharmaceutical and biotechnology organisation, providing affordable, high-quality

medicines for a healthier world. It is India’s leading research-based global healthcare enterprise with relevance

in the fields of Pharmaceuticals, Biotechnology and a chain of advanced Super Speciality Hospitals.

Wockhardt is a true Indian Multi-National Company with a multi-ethnic workforce of 7900 Wockhardt Associates

from 21 different nationalities globally. It has 3 research centres and 12 manufacturing plants, with businesses

ranging from the manufacture and marketing of Pharmaceutical and Bio-pharmaceutical formulations, Active

Pharmaceutical Ingredients (APIs) and Vaccines.

Global Presence

Headquatered in Mumbai, India, Wockhardt has full-fledged operations in the USA, UK, Ireland and France. It

also has its marketing presence in emerging markets of Russia, Brazil, Mexico, Vietnam, Philippines, Nigeria,

Kenya, Ghana, Tanzania, Uganda, Nepal, Myanmar, Sri Lanka, Mauritius, Lebanon and Kuwait.

Research and Development

Wockhardt has proved its technical excellence by developing patented modified release formulations and

recombinant biotechnology products. It has a multi-disciplinary R&D programme with more than 578 scientists,

including over 80 doctorates, in the areas of:

� Pharmaceutical Research

� Biotechnology & Genomics Research

� Novel Drug Delivery Systems

� New Drug Discovery Programme. API Research

Biotechnology

The company has built a competent organisation of skilled biotechnologists and ‘concept to market’ capabilities,

in all facets of development and manufacture of recombinant biopharmaceuticals with very rich experience in

mastering biotechnology research.

Wockhartd’s comprehensive biotechnology capabilities include:

� Gene cloning

� Development of production strains

� Expression of proteins in all major expression systems - yeast, bacterial and mammalian cells

� Purification

� Downstream processing and development

� Testing

� Marketing of formulations

� Manufacturing Facilities

Manufacturing

The company has successfully created an integrated multi-technology capability to manufacture all types of

dosage forms including sterile injectables and lyophilised products. Highly skilled technicians operate 14

manufacturing facilities that are US FDA, UK MHRA and EMEA compliant sites in India, the US and Europe.

The state-of-the-art biotech plant in Aurangabad has six dedicated manufacturing facilities for biopharmaceutical

bulk as well as recombinant formulations. The Wockhardt Biotech Park has created its own benchmark in

manufacturing recombinant products with world-class technology.

Financial Highlight (CONSOLIDATED)

BALANCE SHEET as on March 31st 2012

(A*- Actual, E* -Estimations & Rs. In Millions)

FY12 FY13 FY14E FY15E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

Share Capital 8160.90 3533.40 3533.40 3533.40

Reserves and Surplus 6549.30 23508.40 41415.42 61256.40

Net worth (a) 14710.20 27041.80 44948.82 64789.80

Minority Interest 0.00 0.00 0.00 0.00

Non-Current Liabilities:

Long-term borrowings 27063.90 14751.50 9293.45 5761.94

Deferred Tax Liabilities [Net] 1010.00 0.00 0.00 0.00

Long Term Provisions 844.90 698.50 719.46 736.72

Long term liabilities (b) 28918.80 15450.00 10012.90 6498.66

Current Liabilities:

Short-term borrowings 2608.00 1820.00 1365.00 1078.35

Trade Payables 5408.00 6341.50 7229.31 8024.53

Other Current Liabilities 9783.80 7899.60 6398.68 5310.90

Short Term Provisions 1109.60 1847.60 2309.50 2679.02

Current Liabilities © 18909.40 17908.70 17302.49 17092.81

Total (a+b+c) 62538.40 60400.50 72264.21 88381.26

ASSETS:

Non-Current Assets:

Fixed Assets:

Tangible Assets 21404.70 17541.90 18419.00 19524.13

(d) 21404.70 17541.90 18419.00 19524.13

Goodwill on consolidation (net) 13331.60 7263.50 8353.03 9722.92

Deferred tax assets 0.00 242.00 266.20 292.82

Other non-current assets 0.00 50.10 62.12 77.66

Non Current Investments 907.50 26.30 28.93 31.82

Long Term Loans and Advances 2079.50 2007.40 2107.77 2213.16

(e) 16318.60 9589.30 10818.05 12338.38

Current Assets:

Current Investments 0.00 0.00 0.00 0.00

Inventories 8885.60 10588.30 12441.25 14618.47

Trade Receivables 7586.90 9584.60 11789.06 14618.43

Cash and Bank Balances 6999.90 10960.60 15721.30 22167.03

Short Term Loans and Advances 1342.70 2135.80 3075.55 4398.04

(f) 24815.10 33269.30 43027.16 55801.98

Total (d+e+f) 62538.40 60400.50 72264.21 88381.26

ANNUAL PROFIT & LOSS STATEMENT FOR THE PERIOD OF 2012 TO 2015E

Value(Rs.in.mn) FY12 FY13 FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 46138.00 56094.20 65069.27 72552.24

Other Income 234.60 233.30 240.30 252.31

Total Income 46372.60 56327.50 65309.57 72804.55

Expenditure -31953.90 -35190.70 -40993.64 -45707.91

Operating Profit 14418.70 21136.80 24315.93 27096.64

Interest -2144.30 -2153.70 -2089.09 -2118.34

Gross profit 12274.40 18983.10 22226.84 24978.31

Depreciation -1225.10 -1221.40 -1270.26 -1308.36

Exceptional Items -5282.10 615.20 645.96 0.00

Profit Before Tax 5767.20 18376.90 21602.54 23669.94

Tax -2351.30 -2582.10 -3564.42 -3881.87

Profit After Tax 3415.90 15794.80 18038.12 19788.07

Extraordinary Items 0.00 152.10 40.00 42.00

Minority Interest 0.00 0.00 0.00 0.00

Share of Profit & Loss of Asso. 11.20 -5.70 10.00 10.90

Net Profit 3427.10 15941.20 18088.12 19840.97

Equity capital 547.20 547.90 547.90 547.90

Reserves 6368.10 23327.30 41415.42 61256.40

Face value 5.00 5.00 5.00 5.00

EPS 31.31 145.48 165.07 181.06

QUARTERLY PROFIT & LOSS STATEMENT FOR THE PERIOD OF 30th SEP, 2012 TO 30th JUNE, 2013E

Value(Rs.in.mn) 30-Sep-12 31-Dec-12 31-Mar-13 30-June-13E

Description 3m 3m 3m 3m

Net sales 13474.40 14350.40 14860.00 16643.20

Other income 171.20 -64.60 -363.60 -414.50

Total Income 13645.60 14285.80 14496.40 16228.70

Expenditure -8304.20 -8902.50 -9397.80 -10651.65

Operating profit 5341.40 5383.30 5098.60 5577.05

Interest -55.90 -359.70 -607.30 -637.67

Gross profit 5285.50 5023.60 4491.30 4939.38

Depreciation -309.60 -303.30 -327.50 -337.33

Exceptional Items 382.50 105.90 107.20 0.00

Profit Before Tax 5358.40 4826.20 4271.00 4602.06

Tax -868.10 -547.80 -923.40 -754.74

Profit After Tax 4490.30 4278.40 3347.60 3847.32

Extraordinary Items 36.10 0.00 0.00 0.00

Minority Interest 0.00 0.00 0.00 0.00

Share of Profit & Loss of Asso. 9.10 0.00 0.00 0.00

Net Profit 4535.50 4278.40 3347.60 3847.32

Equity capital 547.20 547.80 547.90 547.90

Face value 5.00 5.00 5.00 5.00

EPS 41.44 39.05 30.55 35.11

RATIO ANALYSIS

Particulars FY12 FY13 FY14E FY15E

EPS (Rs.) 31.31 145.48 165.07 181.06

EBITDA Margin (%) 31.25% 37.68% 37.37% 37.35%

PBT Margin (%) 12.50% 32.76% 33.20% 32.62%

PAT Margin (%) 7.40% 28.16% 27.72% 27.27%

P/E Ratio (x) 36.15 7.78 6.86 6.25

ROE (%) 49.40% 66.16% 42.99% 32.02%

ROCE (%) 42.76% 55.28% 43.10% 35.47%

Debt Equity Ratio 4.29 0.69 0.41 0.30

EV/EBITDA (x) 10.16 6.13 5.24 4.63

Book Value (Rs.) 63.19 217.88 382.95 564.01

P/BV 17.91 5.20 2.96 2.01

CHARTS

OUTLOOK AND CONCLUSION

� At the current market price of Rs.1132.00, the stock P/E ratio is at 6.86 x FY14E and 6.25 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.165.07 and

Rs.181.06 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 16% and 80% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 5.24 x for FY14E and 4.63 x for FY15E.

� Price to Book Value of the stock is expected to be at 2.96 x and 2.01 x respectively for FY14E and FY15E.

� We expect that the company surplus scenario is likely to continue for the next three years, will keep its

growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.1234.00 for Medium to Long term investment.

INDUSTRY OVERVIEW

India is now among the top five pharmaceutical emerging markets. The Indian pharma industry has been

growing at a compounded annual growth rate (CAGR) of more than 15 per cent over the last five years and has

significant growth opportunities.

The Indian pharmaceutical sector is expected to grow five-fold to reach Rs 5 lakh crore (US$ 91.45 billion) by

2020, as per Dr A J V Prasad, Joint Secretary, Department of Pharmaceuticals (DoP). The industry, particularly,

has been the front runner in a wide range of specialties involving complex drugs' manufacture, development, and

technology. With the advantage of being a highly organized sector, the numbers of pharmaceutical companies are

increasing their operations in India.

The pharmaceutical industry in India is an extremely fragmented market with severe price competition and

government price control. The industry meets around 70 per cent of the country's demand for bulk drugs, drug

intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals, and injectables.

Sector Structure/ Market Size

The domestic pharmaceutical market is expected to register a strong double-digit growth of 13-14 per cent in

2013 on back of increasing sales of generic medicines, continued growth in chronic therapies and a greater

penetration in rural markets.

The cumulative drugs and pharmaceuticals sector has attracted foreign direct investments (FDI) worth US$

10,308.75 million during April 2000 to February 2013, according to the latest data published by Department of

Industrial Policy and Promotion (DIPP).

Growth

Drug sales to retailers in India registered a growth of 7.7 per cent in February 2013, according to a data compiled

by market research firm AIOCD AWACS. This was probably due to a high base given the strong performance last

year and higher substitution of branded drugs with their unbranded equivalents.

Among the listed companies, ZydusCadila topped the list, recording 25.3 per cent growth in February. Other

companies that managed to grow faster than the industry include Sun Pharma (14.8 per cent), JB Chemicals (13.7

per cent), IPCA Labs (13 per cent), Lupin (11.6 per cent), Glenmark (10.3 per cent) and Cipla (9 per cent).

Exports

The Ministry of Commerce has targeted Indian pharma sector exports at US$ 25 billion by 2014 at an annual

growth rate of 25 per cent.

Last year, the industry registered exports of US$ 13 billion at a growth rate of 30 per cent, as per Dr P V Appaji,

Director-General, Pharmaceutical Exports Council of India (Pharmexcil). The Government has also planned a

‘Pharma India’ brand promotion action plan spanning over a three-year period to give an impetus to generic

exports.

“Of the export markets, Indian pharma will focus on the US market which presents significant opportunities for

the next two years for generics, due to patent cliffs and recent changes in healthcare policies,” said the India

Ratings report on outlook for Indian pharmaceuticals for 2013.

Generics

Generics will continue to dominate the market while patent-protected products are likely to constitute 10 per

cent of the pie till 2015, according to McKinsey report 'India Pharma 2015- Unlocking the potential of Indian

Pharmaceuticals market'.

Dr Reddy's Laboratories Ltd has launched Finasteride tablets, a bio-equivalent generic version of Propecia

(Finasteride) tablets, in the US market. The tablets are used for treating male pattern hair loss.

Diagnostics Outsourcing/ Clinical Trials

Indian diagnostics and labs test services, in view of its growth potential, is expected to reach Rs 159.89 billion

(US$ 2.93 billion) by 2013. The Indian market for both therapeutic and diagnostic antibodies is expected to grow

exponentially in the coming years. Findings from the report by “Corporate Catalyst India” suggest that more than

60 per cent of the total antibodies market is currently dominated by diagnostic antibodies.

According to new RNCOs report, “Booming Clinical Trials Market in India”, the number of clinical studies by

domestic and global players has sharply risen. Besides, availability of skilled manpower and good medical

infrastructure will augment the number of clinical trials from 1300 in 2009 to more than 1900 by 2013. Further,

the report also indicates that, India, over the last decade, has developed significant capabilities in clinical trials,

along with certain capabilities in project management and data management. The country is able to provide

significant cost savings of 50-60 per cent for clinical trials.

Investments

Some of the investments in the sector are:

• Orchid Chemicals and Pharmaceuticals has entered into a partnership with Europe-based Allecra

Therapeutics to develop antibiotics to treat multi-drug resistant bacterial infections

• Ranbaxy Pharmaceuticals Inc has entered into an in-licensing agreement with Alembic Pharmaceuticals to

exclusively market desvenlafaxine base extended release tablets in the US. The drug is used for treatment of

major depressive disorder

• Biocon has entered into an agreement with Mylan for the global development and commercialisation of

Biocon's generic insulin analog products (long lasting insulins), which has a global addressable market of US$

11.5 billion

• ZydusCadila has received tentative approval for Doxepin Hcl tablets from the US drug authorities. Cadila will

launch the drug in 2020 after original drug maker's patent expires

• Aurobindo Pharma Ltd has received US Food and Drug Administration (USFDA) approval to manufacture and

market Tamsulosin Hydrochloride Capsules and Clindamycin Palmitate Hydrochloride for oral solution

• Sun Pharma has received a tentative approval from the US Food and Drug Administration (USFDA) for a

generic version of Januvia. Sun Pharma is expected to launch the drug in 2022

Government Initiatives

FDI, up to 100 per cent, under the automatic route, would continue to be permitted for Greenfield investments in

the Pharmaceuticals sector. 100 Per cent FDI is also permitted for Brownfield investment (i.e. investments in

existing companies), under the Government approval route.

According to the Union Budget 2013-14, investment allowance of 15 per cent on new plant and machinery has

been allowed. The allowance is expected to increase investments in new projects while simultaneously providing

tax benefit to the industry.

The Department of Pharmaceuticals has prepared a 'Pharma Vision 2020' document for making India one of the

leading destinations for end-to-end drug discovery and innovation and for that purpose, the department

provides requisite support by way of world class infrastructure, internationally competitive scientific manpower

for pharma research and development (R&D), venture fund for research in the public and private domain and

such other measures.

Road Ahead

In order to encourage production of drugs by indigenous industries, the 12th Five Year Plan (2012-17) has

recommended capacity building of private sector to meet WHO-GMP standards and other international

manufacturing standards.

The pharmaceutical companies such as Cipla, Ranbaxy, Dr Reddy's Labs and Lupin might soon be part of the

government's ambitious 'Jan Aushadhi' project. In an attempt to commercialise the project, the Government is

likely to rope in the private sector to bulk-procure generic drugs from them. There are 117 Jan Aushadhi stores

across the country and the plan is to expand to at least 600 in the next two years and 3,000 by 2016.

Further, India will see the largest number of merger and acquisitions (M&A) in the pharmaceutical and

healthcare sector, according to consulting firm Grant Thornton. A survey conducted across 100 companies has

revealed that one-fourth of the respondents were optimistic about acquisitions in the pharmaceutical sector.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – [email protected]

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