Wockhardt Ltd: Buy for superb returns!

Face Value: Rs.5

CMP: Rs.212.40.

Market Cap: Rs.3,012 crore.

Market Cap: Rs.3059.84 crore.

CEPS: Rs.2.22

Total Revenue in FY22: Rs.1,372.00 crore.

Introduction: Wockhardt is a leading, research-based global healthcare enterprise, with interests in pharmaceuticals, biotechnology, and has a network of advanced Super Speciality Hospitals.

Wockhardt is a true Indian MNC employing 8600 Associates from 21 different nationalities worldwide. It has 3 (three) research centers and 12 (twelve) manufacturing plants. Its products include pharmaceutical and bio-pharmaceutical formulations, active pharmaceutical ingredients (APIs), and vaccines. Photo: Moneycontrol.com

Wockhardt Hospitals, a subsidiary of Wockhardt Ltd, is an Indian tertiary care and super speciality healthcare network. These hospitals provide services in Cardiology, Orthopedics, Neurology, Gastroenterology, Urology, and other specialties. Photo: Live Mint.

Wockhardt is headquartered in Mumbai, India, and has full-service operations in the United States, United Kingdom, Ireland, and France. It also markets in Russia, Brazil, Mexico, Vietnam, the Philippines, Nigeria, Kenya, Ghana, Tanzania, Uganda, Nepal, Myanmar, Sri Lanka, Mauritius, Lebanon, and Kuwait.

Shareholding Pattern: The promoters hold 67.13%, while the general public holds 32.87%. Among the public shareholding, FPIs and NRIs hold 2.88% and 1.09% respectively, of the shares of the company. The big bull, Rakesh Radheshyam Jhunjhunwala holds 2.08% of the shares of the company.

Triggers:

🏵️Mumbai-based Wockhardt and Serum Life Sciences, a subsidiary of the Serum Institute of India (SII), have formed a collaboration to manufacture 150 million doses of SII vaccines in Wockhardt's UK facility. The vaccine is expected to be ready within 6 - months time. With repeated waves of Covid - 19 pandemic, the vaccine business will give steady income for the company. Photo: Medical Dialogues.

🏵️The company has bulk vaccine and fill-finish manufacturing facilities at Waluj and Shendra, Aurangabad, Maharashtra. The cutting - edge automated manufacturing facilities in Aurangabad are dedicated to producing world-class high-quality injectable products.

🏵️The debt of the company has now come down below Rs.1000 crore. One of the highly placed sources, who refused to be named, put the debt figure at around Rs.600/700 crore, which is nothing as compared to FY22, revenues of the company. The company recently sold 2.08% promoter's holdings to clear the debt of a group company or the money involved actually flew to cut down the debt of a group company.

🏵️Wockhardt Ltd recently came out with the rights issue of Rs.748 Crores at Rs.225 per share in the ratio of 3 rights equity shares for every 10 fully paid-up equity shares held by the eligible equity shareholders on the record date, that is on Wednesday, March 9, 2022. The proceeds of the rights issue, will be used to meet its financing needs for debt repayment, research & development initiatives, and general corporate purposes -- to make repayment of subordinated debt and company's borrowings including interest partially or fully, the allocated amount shall be Rs.590 crores and for general corporate purposes the allocated amount shall be Rs.152 crores.

🏵️The sudden crisis which arose in the Russian Vaccine front due to the Ukraine - Russia war is expected to calm down in the nesr future as the war is coming to an end. Once the war end, the Pharma basket is likely to be first on which restrictions will be removed.

🏵️Wockhardt Ltd in February, 2022 said it had received approval from the Central Drugs Standard Control Organisation (CDSCO) to export up to 10 crore doses of Russian COVID-19 vaccine Sputnik. As the war between Russia and Ukraine is in its final stages, the embargo by the EU might be lifted soon. Thus Sputnik vaccine is likely to generate good revenues for the company. Incidentally, more than half of its revenue is generated in Europe.

🏵️The loss in the March 2022 quarter was mainly due to the stoppage of manufacturing of Russian Covid - 19 vaccine.

🏵️The company basically caters to European and the US markets, which currently generates over 76% of its revenues. With current Rupee depreciation, this is likely to give a good additional revenue for the company.

🏵️The company at the end of June, 2022, sold some loss-making approved generic versions of certain over-the-counter drugs to Mumbai-based Glenmark Pharmaceuticals in the US for an undisclosed sum. The company sold ANDAs for Famotidine Tablets USP, 10 mg and 20 mg (OTC), Cetirizine Hydrochloride Tablets USP, 5 mg and 10 mg (OTC), Lansoprazole Delayed-Release Capsules USP, 15 mg (OTC) and Olopatadine Hydrochloride Ophthalmic Solution USP, 0.1 per cent (OTC) in the US to Glenmark Pharmaceuticals. However, the amount involved in the said deal according to the sources is very nominal and is not going to have a significant effect on its balance sheet. The move infact is expected to strengthen a little of its bottomline , as it is a part of the company's debt reduction efforts and give more focus to its profit making verticals.

🏵️The company is currently focussed on the business of new chemical entities (NCE), original new drugs in the pipeline, certain high value products, in-licensed drugs from other companies and biotech drugs like insulin. According to the sources, some new molecules developed in the last few years through in-house research and development are waiting for final approvals from the authorities. These will cater to both emerging and developed markets.

Conclusion: 

Wockhardt is a fully integrated pharmaceutical company with a solid research foundation in Generics, Biotechnology, New Chemical Entity (NCE), and Novel Drug Delivery Systems (NDDS). Its world-class manufacturing facilities follow strict cGMP protocols and are in compliance with international regulatory agencies such as the US FDA, the UK MHRA, ANVISA, and others.

The stock of Wockhardt Ltd fell from a high of around Rs.2100, made in 2013 to the CMP of Rs.212.40.

Technically speaking the scrip is ready for a bounce from the current levels. The medium term investors can buy the share for targets of Rs.341/406; considering that the company is likely to get compensated for its Sputnik fiasco, by the vaccine  made through collaboration with Serum Institute. It is also coming up with a few new medicines to bulwark its diabetic portfolio. 

Moreover, a couple of antibiotics are in the final stage of trials and will be ready for global markets within a couple of years. The company is also looking to strengthen its presence in the African continent. Wockhardt’s emerging market presence spreads across South-East Asia, Far–East Asia, Africa, Russia, CIS and Latin America countries.

The stock at the CMP is available at a dirt cheap price. This is a risk free investment at the current price.