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Wockhardt in good form; investors still unimpressed

Wockhardt in good form; investors still unimpressed
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First Published: Tue, Aug 09 2011. 10 37 PM IST
Updated: Tue, Aug 09 2011. 10 37 PM IST
Wockhardt Ltd’s sales growth and profitability improved significantly in the June quarter. The pharmaceutical company’s performance has been gradually improving, as management focus shifts from surviving its debt- and derivative-related problems to growing the business.
In the US market, the company’s sales rose 131% year-on-year (y-o-y) on the back of some key generic launches. It received four more approvals to launch generic drugs in the US during the June quarter. As a result, sales momentum should remain healthy in the next few quarters.
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Its India business did well, too, with sales rising by about 24%, which is much better than what some of its larger competitors have achieved. The company attributes its growth to better reach and new products.
A key region for Wockhardt is Europe. Its UK business’ sales rose by 17%, led by exports and pharmacy sales. In fiscal 2010, Europe contributed about half to Wockhardt’s sales, US accounted for a fifth, India a fourth, while other countries contributed the rest. If the company’s overall growth was only 14.3%, despite its other key markets doing so well, other countries in Europe appear to have pulled down growth. Overall figures for Europe are not available.
Wockhardt’s operating profit margins rose by about 10 percentage points y-o-y. This is chiefly explained by the business emerging from the financial crisis it faced. But what is significant is a 130 basis points quarter-on-quarter improvement in operating profit margins, indicating a sustained improvement in profitability. Staff costs and material costs fell, though research and other expenses rose, helping margins improve.
The performance of its European business is a concern, but other regions are compensating adequately as of now. Once the nutrition business sale is concluded, the proceeds will be used to lower debt.
Wockhardt’s financial performance shows a significant improvement from where it was a year ago. But investors appear to be saying it’s all in the price now. Its share price fell by about 6% on Tuesday, after its results were announced. The key risk to the company is if Europe’s economic woes begin to have a material impact on its overall performance.
Graphics by: Yogesh Kumar/Mint
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First Published: Tue, Aug 09 2011. 10 37 PM IST