Investors appear pleased with Wockhardt Ltd’s results—the December quarter marked the company’s return to profits—but some analysts are wondering if its performance is a flash in the pan: The pharma firm reported a net profit of Rs142 crore, compared with a loss of Rs181 crore in the year-ago period, and a loss of Rs97 crore in the previous quarter.
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Wockhardt’s income from operations rose by 7% over the year-ago period to Rs951 crore. This shows no change from the September quarter. The company’s US business grew by 97% (74% in the preceding quarter) as its sales rose on the back of generic product launches. A ramp-up in sales could be one reason for the higher growth. In India, its sales of branded products rose by 18%, while its generics business saw sales rise by 20%. Sales growth in the UK was up by 10%.
The company does not give a region-wise break-up of sales, but the relatively low overall sales growth may be due to lower sales in the rest of Europe.
Though sales rose in single digits, Wockhardt cut costs significantly. Material costs fell by 3.2% in the December quarter over the year-ago period. Overall expenses fell by 6.4% and its margins rose by nearly 10 percentage points over the year-ago period, and by two percentage points sequentially. The company appears to be restructuring its operations to lower its cost structure. This may last a few quarters more, before the high base effect kicks in.
Profit before exceptional items and other income was Rs135 crore in the December quarter, compared with Rs112 crore in the previous quarter. The current quarter saw an exceptional item of income of Rs17 crore adding to its profits. But in the previous quarter, an exceptional item of expense caused a loss. This is a volatile number and the relevant figure to consider is the profit before exceptional items.
The stock has risen by about 9% since its results were declared. The company is on a stronger footing, with immediate debt-related problems resolved. Growth in some key markets, too, appears robust. Investors need to be wary about any one-off events hitting profits in future quarters, and the base effect catching up with rising sales and falling costs.
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