WockhardtPharma major, Wockhardt, has been in the news for a while. This was after a flurry of events. Its chairman Habil Khorakiwala resigned elevating his son, Murtuza Khorakiwala to the post of Managing Director.

The Company also went in for a CDR (corporate debt restructuring). If that was not enough, Wockhardt also postponed the announcement of its results for the quarter and the year ended December 31, 2008. That is expected on April 25 after the process of auditing its accounts is completed.

The background

Wockhardt is the seventh largest pharma company in India with an annual turnover of Rs 2653 crore. It has five research centres and 15 world-class manufacturing plants dotting various countries. All these are compliant with international regulatory standards such as the USFDA (Unites States Food and Drug Administration), Medicines and Healthcare Products Regulatory Agency (MHRA) or any of the other global regulatory bodies. It has end-to-end integrated capabilities for its products which start off with the manufacture of the oral and sterile APIs (Active Pharmaceutical Ingredients) and fixed dosage formulations across various therapeutic areas.

Wockhardt’s global footprint is across key markets like USA, UK, France, and Germany. It also has subsidiaries in US, UK, France and Germany making it the largest pharma company in Europe. Since 2006, the company has been on an overseas acquisition spree.

Among them were the buyouts of Ireland-based Pinewood Labs in 2006, Negma Laboratories in France and the US-based Morton Grove Pharma in 2007. These ambitious debt-funded acquisitions have led to high-leverage assets that are not performing. Besides, the pharma business in the European market is facing pricing pressure as the market is movimg from a branded generics to an unbranded one.

With its international operations not very profitable, the company’s strong domestic branded formulations is likely to be the major growth driver over the next few years. The strategy of in-licensing niche global products for sale in India is likely to work well for them.

What went wrong?

High levels of gearing, foreign loans, interest payments and pricing pressure have not worked well for Wockhardt. This kind of leverage is not normal for a company belonging to a defensive sector like pharma which is less capital intensive and largely a cash generator. Added to this, the IPO of Wockhardt Hospitals was called off in 2008. Today, Wockhardt is burdened with a debt of Rs 3,400 crore on its balance sheet. With a market capitalisation of a mere Rs 834 crore and a choppy global financial market, a restructuring debt exercise for Wockhardt may not be very easy.

“In view of the adverse market condition, liquidity constraints and debt burden, the Board decided to make a reference to the CDR cell through ICICI Bank for financial restructuring of the debts of the company through CDR mechanism,” is what the press release from the company states.

How the company will restructure this debt is unknown. A mail sent to the company went unanswered. Of the debt, $110 million (Rs 550 crore) of FCCBs are coming up for repayment later in October this year. Besides, the founders of Wockhardt have pledged 53.94% of the total number of outstanding shares of the company, according to a company filing with the BSE.

“Besides restructuring debt, Wockhardt has three businesses — domestic, exports and biotech. With cash rich MNCs interested in a lot of these businesses, it may make sense to divest some of these,” says Sarabjit Kour Nangra, VP- Research, Angel Broking. Media reports point to the fact that Wockhardt is looking to selling a stake in Wockhardt Hospital. That could be one more option. All in all, there is clearly a long drawn battle for Wockhardt in the time to come.