Nothing exciting about Wockhardt stock as yet

US sales continue to decline, pressuring profit and dampening the Street sentiment

The Wockhardt stock continues to trend lower; it hit a 52-week low of Rs 682.6 on Tuesday. Though the stock has lagged behind Sensex since the start of 2016, the recent trend is due to its weak September quarter performance, where net profit was down 82 per cent year over year. 

A year ago, the Street had turned optimistic on the company's US business in anticipation of faster resolution of US regulatory issues and US clearance of its facilities that have been under import alert by the US since 2013. The optimism was supported by UK regulator lifting all restrictions on shipments from Chikalthana facility in Maharashtra after a gap of about two years. As a result, the stock scaled to a high of Rs 1,748.5 in December 2015.

But, Wockhardt's fortunes did not see any turnaround after that. In fact, the company has seen negative news over the past few months. In July 2016, the company said its three facilities in Chikalthana and Waluj, both in Maharashtra, had got US inspection report with observations. The company did not specify the observations, but said the US import alert continues. Afterwards, in August, the US announced import alerts for a facility at Ankleshwar in Gujarat. With this setback, Street euphoria evaporated.

With US business under pressure, the Street was hoping UK sales to drive growth. But, the UK's decision to leave the European Union led to a weaker pound, diluting the company's UK revenues. Worse, Wockhardt is among companies being enquired on collusion (secret agreement) in price hikes in the US market. Though analysts believe it is tough to prove that companies colluded in price hikes, the development adds to uncertainty.

With exports to the US falling, the company continues reporting declining numbers. September quarter results were significantly weaker than a year ago. Revenues declined 13.6 per cent year over year while operating profit saw a bigger impact, halving at Rs 100 crore from Rs 199 crore in the year-ago quarter. The US business now contributes only 17 per cent to global sales (about 10 per cent to total revenues), compared to 45 per cent in FY14. The UK sales (25 per cent of overall revenues) grew eight per cent year over year. Clearly, any recovery for the company will come only from lifting of import alerts. With uncertainty on their removal, the pressure shows on the stock.