Wockhardt Ltd. – Attractive investment idea in the Indian pharmaceutical space

We initiate coverage on Wockhardt Limited (WOCKPHARMA; WPL) as a BUY with a Price Objective of ` 978 (target 10.0x FY14 P/E). At CMP of ` 688 the stock is trading at 4.1x and 7.9x its estimated earnings for FY2013E & FY2014E representing a potential upside of ~73% over a period of 18 months. With the contingent liability concerns addressed and bulk of FCCBs already repaid, the sale of nutrition business will lead to a substantial increase in cash which could be used to draw down debt or pursue organic / inorganic grow opportunities. Further its portfolio of high margin niche products and impressive FTF launches should provide for strong growth in revenues (12.3% FY11-14 CAGR) to ` 5311.2 crore and earnings (123.6% FY11-14 CAGR) of ` 97.8 /share by FY14.

During the period 2003 through 2008, Wockhardt has traded mostly in line with the 1 Year forward PE multiple of its peers viz: Sun Pharma, Cipla,
Lupin and Glenmark. However, post its derivative losses, Wockhardt’s EPS turned negative. Now that the balance sheet is all cleaned up and all
contingent liabilities addressed, we expect that going forward, Wockhardt will catch up with its peers leading to a substantial re-rating of the stock. This implies that it wont be surprising if Wockhardt’s 1 year forwar price earning multiple were to trade in the mid teens, in line with that of its peers.

Wockhardt Ltd. PE to be re-rated sharply upwards.

For further reference you may refer to http://www.slideshare.net/bolinjkar007/wockhardt-ltd

In addition most the development financial institutions with the exception of LIC (Life Insurance Corporation of India) have virtually exited the counter (or have miniscule holdings). In my opinion the stock has moved into strong hands and smart money continues to accumulate.

Disclaimer: The views expressed in this article are entirely my own and do not reflect the views of my employer. This report is neither an offer nor a solicitation to purchase or sell securities. The information and views expressed herein are believed to be reliable, but no responsibility (or liability) is accepted for errors of fact or opinion. Writers and contributors may be trading in or have positions in the securities mentioned in their articles. Neither https://winningtrades1.wordpress.com or myself accepts any liability arising out of the above information/articles.

Vinit Bolinjkar Head of Research, Ventura Securities Ltd

Tel: | Mobile: 0 9730836363



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