WOCKHARDT Company Analysis

AAMIR AZAD2ND SEMMBA(Pharm.) NIPER

Flow of PresentationCompany Profile

Top Brands and Research & Development

Rapid Expansion Strategy

Debt Burden & Crisis Phase

Corporate Debt Restructuring & Future Prospects

Wockhardt: A Brief Insight

• Wockhardt Ltd. is a pharmaceutical and biotechnology company headquartered in Mumbai, India.

•  It produces formulations, biopharmaceuticals, nutrition products, vaccines and APIs.

• The company employs over 7,000 people globally.• Wockhardt was founded by Habil Khorakiwala in

the early 1960s•  It is a global company with a more than half of its

revenue coming from Europe• Wockhardt is the first company outside of the US

and Europe to manufacture recombinant human insulin

Source: HDFC Securities. Aug 03,2007

Wockhardt: A Brief Insight..• The company has 11 manufacturing facilities

in India, UK and Ireland.• It has also built India’s largest biotech

complex at Aurangabad (Maharashtra) costing over 400 cr. It has research & development facilities at the Biotech Park.

• ORG-IMS Rankings of Wockhardt

Top Selling Brands

• Wockhardt has strong presence in biopharmaceuticals, nutrition products and vaccine segment.

• Protinex . It is the market leader and the largest prescribed brand in its category

• Farex, is the third-largest selling infant nutrition formula in the cereals' categories

• It has a strong presence in infant nutrition with Dexolac, Nusobee and Firstfood brands

Top Brands..

Diabetalogy

Wosulin (Recombinant Insulin )

Mopaday (Oral Ant diabetic) Erythropoietin)

Glimaday (Oral Ant diabetic)

Cough Therapy

Zedex

Bro-Zedex

Viscodyne

Neuro-Psychiatry

Spasmo-Proxyvon

Libotryp

Tryptomer

Research and Development

• During the period January 2009 to March 2010, Wockhardt received 22 ANDA approvals and launched eight new products

• Product basket – 87• It gained approvals for more than 47 US

DMFs, 10 Certificate of Suitability of European Pharmacopeia and seven Active Substance Master Files.

• Currently anti- infectives molecules like WCK2349, WCK 4873, WCK4086 and WCK771 are in the various stages of pre-clinical and clinical trials.

Acquisition Spree…

• 1998- Wallis Laboratory, UK. It was among the first to sense the opportunity in European generics market.

• 1998- Merind, India • 2003- CP Pharma for $18mn. Through this

acquisition Wockhardt became one of the top 10 generic companies in UK

• Due to CP Pharma’s significant presence in the hospital segment, Wockhardt became the number two player in this segment

Acquisition Spree…

• 2004- The company entered Europe’s largest pharmaceutical market Germany. Acquired Esparma for $11 million

• June 2006- Acquired Dumex from Royal Numico along with its 2 fast growing brands Protinex and Farex

• Oct. 2006- Acquired Pinewood Laboratories . Established its presence in Ireland. largest branded generic company in Ireland. Deal size was $150mn

• March 2007- Entered France. Acquired Negma. Deal size was $265mn. Negma is the fourth largest integrated pharmaceutical company in France. It has 172 product patents

Acquisition & JV Spree…

• Nov. 2007- Morton Grove Pharmaceuticals of US for $ 38 Million

• Brazil- Set up its own subsidiary called Wockhardt Farmaceutica do Brasil Ltd.

• Mexico- Entered into a JV with Representaciones E Investigaciones Medicas

• South Africa- Entered into a JV with Pharmadynamics to market biotech products

• Wockhardt Cyprus Ltd• Wockhardt EU Operations (Swiss) AG

Raising Funds For Acquisitions

• Wockhardt has a working capital loan of around Rs 300 crore though a consortium(Group Of Companies)

• Rs 300 crore loan from ICICI Bank• Rs 750 crore loan from SBI• IPO of Wockhardt Hospitals was called off in

Feb 2008 due to under-subscription • Plans were chalked out to raise 800 crore rs

from this IPO• External commercial borrowings worth $250

million was taken by subsidiary Wockhardt EU Operations (Swiss) AG

Raising Funds For Acquisitions

• The foreign lenders include-• Calyon Bank• Barclays Bank  • HSBC • Deutsche Bank • Citi Bank• Singapore-based DBS Bank•  Wockhardt also undertook LBO financing for

both Pinewood and Negma worth approximately $200 million.

FCCB… Lethal Debt

• Board meeting of Q2, 2004 - Wockhardt launched its maiden FCCB issue of US $ 110 Mn

• Maturity Period-5 years i.e. Sept.25, 2009 • Conversion price- 629 rs• 5 year, zero coupon bond with a 50 per cent

premium and a yield of 5.25 per cent compounded semi-annually

• Singapore-based hedge fund QVT, Sun Pharma Global, an arm of Sun Pharma were major FCCBs Holders.

• Sun Pharma Global holds about $20 million in FCCBs

FCCB Unlocked…

• Foreign Currency Convertible Bond (FCCB) - Mix between debt and equity instruments

• A quasi-debt instrument attractive to both investors and issuers

• Investors receive the safety of guaranteed payments on the bond and are also able to take advantage of any large price appreciation in the company's stock

• All transactions in foreign currency

Source: SPJIMR

FCCB Unlocked...Benefits for Investors

Benefits for Issuing Company

To bring down their exposure in one country by diversifying their portfolio

Easy way to “dollarize” balance sheet

If share prices goes up, benefits from capital appreciation

Low overseas interest rates

Assured of fixed return and capital protection

Can be raised within a month whereas other debt take much long time

Investors buy FCCBs not for debt but for lure of equity

Relatively strong rupee will benefit the issuing company

Source: SPJIMR

Shooting in the foot… FCCB

• Conversion price- 629 rs• Current market price of INR 89.85• Debt equity ratio of 2.69:1• Current debt of INR 3400 crores – more than

3 times market capitalization of INR 850 crores

• Unconverted portion of FCCBs: $ 108.5 Mn• Interest payable for unconverted FCCBs: $

32 Mn• Total amount due on maturity date (Sept 25,

2009): $140.5 Mn

Data as on: Dec31, 2008

Impact of Recession 2008…•  Recession led to the depreciation of rupee.•  Rupee depreciated by about 20 per cent

since April 2008 and breached the psychological mark of Rs 50 in nov.2009.

• It led to huge Forex derivative loss also known as Mark-to-Market loss.

• Forex derivative losses for Indian Companies was nearly $3 bn

• Biocon suffered loss of 26 crore in June quarter 2008

• MindTree Consulting suffered a loss of 13 crore in june quarter

Debt Crisis at the Doorstep…

• Forex derivative losses of $300 Mn which must be paid within the next 6 months

• Large foreign banks are claiming Rs 489.52 crore from Wockhardt

• Reported PAT for Dec. 2008 was -348.6 cr., in Dec.2009 was -794.21 cr. and in March 2010 it was -1000.66 cr.

• In 2008 Wockhardt did not pay dividend for the first time since it got listed

Tackling the Debt Monster…

• Chairman and MD Habil Khorakiwala resigned paving the way for his son Murtaza to take over the leadership of the company in April 2009.

• In April 2010  Zahabiya Khorakiwala was appointed executive director of Wockhardt Hospitals

• This step was taken to bring back the element of trust with investors

• The company managed to get a few of its lenders to agree on giving up some of their recovery claims and reschedule repayments.

Corporate Debt Restructuring...

• Wockhardt approached the CDR cell of ICICI Bank in April 2009

•  Indian banks have bought Wockhardt's FCCBs from foreign investors, as part of the drug major's corporate debt restructuring (CDR) programme 

• It was first time that FCCBs were part of a debt restructuring process involving an Indian company. 

• Main aim of CDR is to restructure its liabilities that typically include lower interest rates and a longer, easier payment schedule to reduce the debt burden.

The Last Resort…

Corporate Debt Restructuring...

• Banks in India rescheduled its 1,200 crore secured debt as part of the CDR process and approved a 500 crore loan to settle derivatives claims.

• SBI has given a funding of Rs 100 crore as part of the CDR process

• The company had made public its plans to mop up Rs 790 crore through divestment of its non-core business by 2015

• Wockhardt Hospitals sold 8 hospital it had built and 2 properties for hospitals in a Rs 909-crore deal to Fortis Healthcare

• Wockhardt Hospitals is now debt-free

Corporate Debt Restructuring...

• Issue of INR 500 crores worth of preference shares at a face value of INR 5 approved in January 2009

• Authorized share capital increased to INR 175 crores from the existing INR 125 crores

• Embarks on a divestment plan with a strategic partner for non core businesses and activities. Licensing out biotech drugs under development to a partner

Foreign Investors creating Hurdles

• large foreign banks have distanced themselves from the corporate debt restructuring (CDR) exercise.

• Under pressure of foreign investors Wockhardt called off the nutritional business agreement signed with Abbott Laboratories in July 2009

• The deal was valued at about Rs 630 crore.• Singapore-based hedge fund QVT, which was

set to reach an agreement with Wockhardt on the issue of FCCB, has backtracked and now supports Sun Pharma for winding-up petition before the Bombay High Court.

Latest Happenings…

• Bombay High Court had granted ad-interim relief to Wockhardt by staying the admission of a winding up petition filed against it by its FCCB holders.

• Wockhardt has agreed to deposit in court Rs 115 crore by May 3, 2011, as per direction of the Bombay high court

March 23,2011

Predicting the Future…

• Wockhardt Hospitals has already emerged out of debt-crisis after selling 8 hospitals and 2 properties to Fortis

•  Wockhardt is trying to generate money by exiting some of its non-core businesses. The units that were on block include the company's veterinary arm and foreign subsidiary Pinewood, German subsidiary Esparma

• Intense Corporate Debt Restructuring is under process

Predicting the Future…

Chairman’s Speech at 11th Annual General Meeting on Sep.20,2010:

• FCCBs issue has been resolved with 75% of holders

• EU loan restructuring is near completion• Launch of Metoprolol ER in US. A billion dollar

market potential with only 3 players operating in it.

• Brokers are also optimistic that Wockhardt will tide over the debt crisis and will be on the track of growth in future

Thank you