No end to Wockhardt's woes

Wockhardt saw its stock tank 8.87 per cent on Wednesday after the company received an import alert for its Chikalthan plant, near Aurangabad. Given that the company’s Waluj plant is already under scanner, the import alert for the Chkalthan plant that contributed $230 billion to Wockhardt’s FY13 revenues will add to its existing woes, analysts say. It dropped another 1.5% on Thursday to Rs 424 levels.

The only silver lining in this is the US FDA (US Food and Drug Administration) has excluded five products from import alert. However, the anti–hypertensive product which is an important growth driver for the US revenues remains under import alert. Reports suggest that Wockhardt has already initiated several steps to address the observations made by the US FDA and shall put all efforts to resolve the matter at the earliest.

The company is also facing issues with regulatory authorities in the United Kingdom (UK) regarding Waluj and Chikalthana. Besides, its Kadaiya facility in Daman had also come under scanner earlier this month though the company maintains that the financial impact of this will be less than £1 million out of the total annual consolidated revenue of around £18 million from the said facility.

Earnings downgrade

The company, post September’13 quarter results, stated that it is working to resolve these issues at the earliest to limit the financial impact. Though analysts maintained that they do not foresee a resolution to the problem, they now suggest that the latest development will further complicate things for the company.

The import alert for Chikalthana alert has seen analysts tweak their earnings’ estimates for the next few quarters.

Analysts as Sriram Rathi at Anand Rathi had observed that he believes revenue growth and margins would remain subdued in the near–to–medium term due to import alert on Waluj plant and ban on the pain killer – Opioid Dextropropoxyphene (brand Spasmo proxyvon – a Rs 180 crore brand in India) and there could be significant downside to estimates if US FDA issues a warning letter or import alert on this unit. The company has a total of 53 ANDAs pending for approval, of which, 43 are from Waluj and Chikalthana.

 Thus overall, while analysts expected 55.1% decline in earnings during FY14 and a further 11.66% dip in FY15, the event is likely to dent earnings’ estimates further.