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SENSEX: 39058.83 94.99

NIFTY: 11604.10 15.75

Multi Baggers

SP Tulsian

Investment Advisor

12.00 AM Apr 23rd 2009

Wockhardt

BSE ID : 532300     NSE ID : WOCKPHARMA

RECOMMENDED PRICE 104.70

PEAK FROM RECO 2166.05 1,968.82%

CURRENT PRICE 269.55 157.45%

Globally, pharma companies are most preferred for acquisitions. Company like Wockhardt having presence in all areas including Biotech and CRAMS is a fit case for acquisition even on piece-meal basis. High promoters' stake of 74% is a comforting factor.

Wockhardt

Wockhardt is the sixth largest pharma company of the country with consolidated topline of Rs 3,500 crores annually, with annual cash profit of over Rs 600 crores, without considering derivative and forex losses. Infact, the company posted its best ever financial performance in the first 9 months of the year 2008.

The company acquired 3 overseas pharma companies for about $ 450 million, due to which, it had to resort to borrowings. But the best part is that all these three acquisitions have not seen any erosion in its value, as seen in case of Tata Steel and Hindalco take-over. So no real worry on  acquisitions.

The problem with the company is redemption of FCCB, of Rs 700 crores, falling due in November,09. As these FCCBs are ruling at 70% discount, the whole liability can get discharged for Rs 250 crores, if the company is able to raise this fund from other sources. We have seen company succeeding in raising about Rs 300 crores in last one month and that has boosted the share price from Rs 75 to Rs 94. 

The present equity of the company is quite low at Rs 55 crores, resulting in an equity turnover ratio of 63 times, which is considered very respectable. Even present market capitalization of Rs 1,000 crores of the company is quite low, leaving good scope to appreciate.

The company having a net debt of Rs 3,400 crores is not alarming at all as it can vastly get redeemed with sale of some overseas companies or stake held by the company in Wockhardt Hospitals or other non-core assets.

Once, loan either gets redeemed or rescheduled, there won't be having any other concerns for the company. The issue now is of liquidity and not of solvency. There appear to be buyers of Wockhardt Hospitals stake, but promoters are not desperate to sell it for a song. This means, it holds assets which are readily realizable.

Globally, pharma companies are most preferred for acquisitions. Company like Wockhardt having presence in all areas including Biotech and CRAMS is a fit case for acquisition even on piece-meal basis. High promoters' stake of 74% is a comforting factor.

Market is speculating a derivative loss of Rs 1,000 crores, which may not be so high in reality and part of which has already been provided. AS 11 will also give relief to the company for these provisions.

Hence, share at Rs 104.70, qualifies a risk free buy which can rise to Rs 150 in one year and Rs 300 in three years having potentials of a multibaggar.

Disclaimer: The writer may be deemed to be concerned or interested in the recommendation as he and his clients are invested in this scrip.

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