Forex bets hit Wockhardt bottom line

Despite a substantial rise in both sales and profits, Wockhardt, the debt-ridden drug major, has made a net loss of Rs19.8 crore in the first quarter of 2009, and an overall loss of Rs159.4 crore for year 2008, mainly due to mark-to-market losses.

By comparison, it had a profit of Rs 4.9 cr in the first quarter of 2008 and Rs 382.5 cr for the full year of 2007.

Wockhardt had to mark to market (this refers to the accounting requirement to report the actual market value of the financial instruments owned and traded) foreign exchange losses worth Rs 32 cr in the first quarter and Rs 581 cr for the full year.

The losses would have been higher, had it not been for a dispute it has entered on Rs 490 cr of forex claims from lenders on hedges. “The forex transactions were unilaterally cancelled by the banks and the mark to market losses had arisen on account of counter positions advised by the banks. The Company has obtained a legal opinion that these contracts can be disputed, and accordingly no provision for the same has been made,” said Wockhardt.

“With 73 per cent of our turnover coming from our international operations, in the normal course of the business, it was prudent to hedge our foreign exchange exposure. But due to the meltdown in the global markets and the consequent currency volatility, we had to make provisions for MTM losses, which had a marked impact on our bottom line,” elaborated Wockhardt chairman, Habil Khorakiwala.