Mumbai: High financing costs and a loss on account of exchange rate fluctuations that made the company’s foreign currency borrowings more expensive have eroded by around 77% to Rs61.1 crore the net profit of the country’s sixth largest drug maker Wockhardt Ltd in the July-September quarter of the current fiscal compared with the same period last year. The company ended the quarter with sales of Rs923.5 crore, 25.11% higher than the corresponding quarter of 2007.
A Wockhardt executive who did not wish to be named said high interest cost of Rs48.6 crore on certain borrowings, and a loss of Rs55.3 crore due to exchange rate fluctuation on foreign currency debts were responsible for the fall in profit.
In 2004, Wockhardt had issued 1,10,000 zero coupon foreign currency convertible bonds of $1,000 (Rs48,800) each, redeemable on maturity at 129.578% of the principal amount, if there is no conversion on or before September 2009. The rupee has since fallen significantly against the dollar trading at a six-year low of Rs49.09. Redeeming each of these bonds at $1,295.78 will be an expensive proposition.
In 2004, the average exchange rate was Rs45.29. In a note, Wockhardt said it is evaluating options to raise equity funds to repay the bonds.
Kirit Gogri, a sector analyst with Mumbai-based equity research firm Quant Capital said the company’s profitability, despite an impressive-looking growth in sales, has been disappointing even before accounting for the borrowing cost.
At close on the Bombay Stock Exchange on Tuesday, shares were Rs145.95, up less than 1%. Wockhardt’s shares are down 65.03% since January. The company, which suffered a mark-to-market loss of Rs10.4 crore in the first quarter, has shown another loss of Rs1.1 crore in the second quarter.Wockhardt was one of the highest losers on account of derivatives during 2007-08 in the country with a total loss of Rs27.9 crore.