Wockhardt Ltd has made use of the windfall from the sale of its nutrition business to make one-time adjustments in its balance sheet, which may have otherwise caused a big dent in its results. The company earned Rs.1,280 crore from the sale to Danone, resulting in a gain of Rs.1,187 crore.
But it also recorded an impairment expense of Rs.621 crore pertaining to an investment in its French subsidiary, and a change in its criteria for recognizing product development expenses resulted in a one-time charge of Rs.437 crore. After other adjustments, exceptional income during the September quarter was only Rs.39 crore.
Wockhardt’s core pharmaceutical business continues to do well, with sales rising by 28.9% year-on-year (y-o-y) to Rs.1,347 crore, but they were flat on a sequential basis. Its domestic business disappointed, with sales rising by just 4% y-o-y, which the company attributes to a field-force restructuring, and it anticipates sales to normalize in the second half and grow by 12-15%.
Its international business contributed to about 80% of sales, and rose by 37% y-o-y. The rupee’s depreciation played some role in this growth. In the US, for example, sales rose by 47% in rupee terms, and by 22% in dollar terms. The company has been keeping up a steady pace of product launches, with four new products in the September quarter.
It launched the authorized generic of a $98 million Parkinson’s drug, Comtan, on 1 October, which will contribute to sales and profit in the second half. The company expects to launch about 10 new products every year in the US market, and expects that sales growth in the market will sustain as a result. In Europe, it did well in Ireland, while the UK saw relatively slower growth in local currency terms. In France, however, its sales declined by 36%.
Wockhardt’s profitability during the quarter improved, but the management said that some of this is because of the effect of currency movements on its inventory values, though the product mix, too, has resulted in better margins. While margins widened sequentially by 5.5 percentage points to 38.4%, the company pointed to the first-half margin figure of 35.7% as being a more realistic number.
Still, that is a healthy improvement in its margins, which stood at 29.4% during 2011-12.
Wockhardt is stepping up its investments in research and development, and said it could increase by 50-100 basis points annually. It has a leaner balance sheet now, and has cash of Rs.1,938 crore on its books. That money can be used to pay down debt, or fund its growth plans.
One basis point is one-hundredth of a percentage point.
The Wockhardt stock has risen seven-fold from its 52-week low of Rs.251 on 6 January. Even now, it trades at 12 times its annualized 2012-13 earnings per share, while its profits are rising at a much faster clip. In the first half of 2012-13, its adjusted net profit more than doubled. That pace of profit growth, of course, will slow, as the base effect kicks in. Still, if Wockhardt can keep its earning before interest, taxes, depreciation and amortization (Ebitda) margins at the first half-levels, and sales growth at current rates, it would rank as a good performance. On Thursday, the share rose by 4.6%, reacting to its results.