Wockhardt: UK, India sales boost profits

Addressing USFDA-related issues crucial for future growth

Wockhardt’s June quarter performance enthused markets as the stock closed 3.5 per cent up at Rs 1,652.25 a share on the BSE. Though some help came from the low base of last year when profits fell by 90 per cent on the US Food and Drug Administration (USFDA) ban, Wockhardt's operational performance for the June quarter is noteworthy.



Higher other income and exchange gains helped consolidated net profit come to Rs 114 crore, against Rs 20 crore a year ago and operating margin at Rs 167.26 crore grew 165 per cent year-on-year (y-o-y) and 23 per cent sequentially. Consolidated sales at Rs 1,141 crore grew 15 per cent y-o-y and 5.7 per cent, sequentially.

It was the domestic and UK markets that drove Wockhardt's June quarter numbers. Domestic markets (a third of sales) grew 27 per cent. Driven by contract manufacturing sales, the UK market grew 47 per cent as the region contributed 31 per cent to revenue. The Chikalthana facility had received approval from the UK regulatory authorities at the end of 2014, and helped on this front. While contract manufacturing might continue driving UK sales for another quarter, exports of products from Chikalthana are expected to increase by then.


 

 

Sales in emerging markets, though having a smaller share of 8.5 per cent in overall revenue, grew 47 per cent.

The drag came from the US. At $36 million (down 21 per cent y-o-y), US contributes only 20 per cent to revenue. Key to stronger growth remains FDA clearance of its manufacturing facilities. With UK clearance, the Street had become bullish on the faster resolution of FDA issues. But the product recalls in April made the Street nervous, pulling down the stock by 30 per cent in a fortnight. The company had recalled all  remaining batches in the US market manufactured prior to FDA’s import alerts.



Many of Wockhardt’s facilities have been inspected by the FDA in the past five months. While its Baddi unit in Himachal has not received any adverse observations, the company has clarified to the FDA on remedial measures at Waluj. For Chikalthana, it is to reply shortly. As for the new Shendra unit in Aurangabad, FDA’s nod is awaited. However, no clear timeline seems visible for final clearances and resumption of exports from these units.

Some benefits from product launches from Wockhardt's Morton Groove facility that had been cleared by USFDA are likely. One ANDA approval has also been received. Wockhardt is also looking into third party manufacturing options, benefits of which can accrue in the second half of FY16.

In this backdrop, the events related to US will have to be watched carefully and any positive newsflow will play a crucial role in boosting investor sentiment.