Wockhardt: Green signal from UK, US nod still awaited
Growth in the UK, domestic markets positives; US clearance key to higher earnings growth
 "Wockhardt: Green signal from UK, US nod still awaited")
Wockhardt got a regulatory boost after the UK’s Medicines and Healthcare Products Regulatory Agency (MHRA) cleared the former’s Maharashtra-based Chikalthana facility, lifting the import restrictions completely. The full clearance from the MHRA after inspections at the unit came after a gap of about two years.
This led the stock, which had already gained two per cent on Tuesday, to rise another 0.7 per cent on Wednesday closing at Rs 1,702.5 apiece. MHRA’s clearance was anticipated as the exports from the unit had already been partially resumed. The company’s UK sales are also seeing good traction and complete clearance comes as a respite given its major facilities are still facing import restrictions from the US regulator.
During the quarter-ended September 2015, the company’s European operations (including France) contributed 41 per cent to the total revenues. The growth in the European markets is being driven by the UK even as France falls and Irish sales are flat. UK Operations (including acquired Pinewood’s UK business) contributed Rs 432 crore in the September quarter, compared to Rs 230 crore during the year-ago quarter. One might now expect even faster growth as the company scales up its exports to the UK.
This led the stock, which had already gained two per cent on Tuesday, to rise another 0.7 per cent on Wednesday closing at Rs 1,702.5 apiece. MHRA’s clearance was anticipated as the exports from the unit had already been partially resumed. The company’s UK sales are also seeing good traction and complete clearance comes as a respite given its major facilities are still facing import restrictions from the US regulator.
During the quarter-ended September 2015, the company’s European operations (including France) contributed 41 per cent to the total revenues. The growth in the European markets is being driven by the UK even as France falls and Irish sales are flat. UK Operations (including acquired Pinewood’s UK business) contributed Rs 432 crore in the September quarter, compared to Rs 230 crore during the year-ago quarter. One might now expect even faster growth as the company scales up its exports to the UK.
While the company’s domestic sales are also growing at a fast clip, contributing 32 per cent to overall revenues, it is the US sales that will drive earnings growth. In the domestic market, the company’s sales growth at 30.1 has been the highest in the sector; it has grown at double the sector’s growth in September. However, the US sales remain subdued after import alerts issued by the US Food and Drug Administration (FDA) since November 2013. The geography contributed Rs 522 crore in the September 2013 quarter accounting for 43 per cent of global revenues in that quarter. After the import alert, revenues had declined to Rs 228 crore or 24 per cent of revenues, in the September 2014 quarter. While revenues in the September 2015 quarter were stable at Rs 232 crore, as a percentage, it fell further to 19 per cent.
After the resolution of UK MHRA issues, the Street will now start factoring in for faster resolution of issues related to the US FDA, too. The company’s efforts are towards full compliance and are believed to be progressing well; however, timeline for complete resolution is not clear. Analysts at Macquarie have target price of Rs 1,700 a share, based on the assumption that the company’s new facility at Shendra, Aurangabad will get US FDA clearance and start supplies in FY17. Also, in case Chikalthana is cleared by FY16-end or early-FY17, it would translate into an earnings per share of Rs 125 (company regaining 50 per cent of lost sales in the US) and would, thus, lead to a target price of Rs 2,500.