Trouble at Wockhardt Limited

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"Managing in such turbulent times would have been very difficult, if not for Wockhardt’s priceless asset - its people"

-Habil Fakhruddin Khorakiwala, Chairman, Wockhardt Limited, 2009.

Wockhardt Limited (Wockhardt) one of the leading pharmaceutical companies in India, was set up by Habil Fakhruddin Khorakiwala (Khorakiwala) in 1960s. Since then, the company grew significantly in terms of revenue, number of products, market share, etc. In the early decades of its incorporation, Wockhardt grew organically by setting up state-of-the-art greenfield manufacturing facilities in various parts of its home country (India) and sales and marketing offices in different countries. According to experts, Wockhardt had world class but low cost manufacturing facilities driven by research. This helped Wockhardt to grow fast in the international market, especially in the European countries.

At the start of the twenty first century, the company decided to grow inorganically and went in for one acquisition after another. The company acquired eight companies in ten years from 1998-2007 (Refer to Exhibit I for details of various acquisitions by Wockhardt). These acquisitions helped Wockhardt grow at a Compound Annual Growth Rate (CAGR) of 26.32% from Rs. 5.6 billion company in 2000 to a Rs. 36.3 billion company by the end of 2008. However, the euphoria over the company’s performance came to an end when it suffered huge losses of Rs. 5.81 billion due to Mark to Market and derivative losses in 2008. This was not all, back to back acquisitions resulted in Wockhardt’s total borrowing moving up substantially from Rs. 499 million in 2002 to Rs. 42.3 billion in 2008 and also increased the debt to equity ratio (Refer to Exhibit II (A) for rising debt to equity ratio of the company). As a result, interest expenses shot up from Rs. 76 million in 2002 to Rs. 3.78 billion in 2008 (Refer to Exhibit II (B) for rising debt and interest burden of the company). Wockhardt reported net losses of Rs. 1.59 billion in 2008 compared to Rs. 3.83 billion of net income in 2007. However, the company’s total income and EBITDA increased by around 34% and 20% in 2008 compared to 2007.

The continuous deterioration in the financial numbers and the global financial crisis (2008) had an adverse effect on the company’s share price. The share price plunged to Rs. 108 in December 2008 from Rs. 417 in December 2007. It further dropped to Rs. 85.50 in March 2009.

According to experts, the major concern for Wockhardt was payment of US$140.59 million for the Foreign Currency Convertible Bonds (FCCBs) which the company had issued in 2004 and which were due in October 2009. In addition to the FCCBs repayment, there was another debt of Rs. 10.48 billion due in 2010 which put a further stress on the company’s finances. To overcome its poor financials, Wockhardt planned to sell off some of its non-core assets. A senior executive of the company said, “The company has taken a decision at the board level to sell off some of the non-operational assets in India or abroad to pay up the liabilities.” However, the company was unable to fetch a good valuation in the then (2008) market conditions, market experts said.

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