Turnaround Story of Wockhardt Limited|Finance|Case Study|Case Studies

Turnaround Story of Wockhardt Limited

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Case Details:

Case Code : FINC086
Case Length : 23 pages
Period : 1959-2012
Pub. Date : 2013
Teaching Note : Not Available
Organization : Wockhardt Limited
Industry : Pharmaceutical
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Wockhardt has been a perfect story of fall, despair and fight back."

-HDFC Securities , December 2012.

In February 2013, Wockhardt Limited (Wockhardt or company), the global pharmaceutical company based in India, reported more than 101% growth in net profit (Rs. 4.3 million) in Q3FY13 over the same period of the previous year. Sales grew by 25.8% from 11.41 billion in Q3FY12 to Rs. 14.35 billion in Q3FY13. The higher EBIDTA margin (38%) and PAT margin (29.8%) put the company among the top three most profitable pharmaceutical companies in India. In the first nine months of FY13, the company had launched 63 products worldwide and its earnings per share were Rs. 115.

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The results came as a surprise to various stakeholders of Wockhardt as the company had been forced to go in for Corporate Debt Restructuring (CDR) in April 2009, due to Rs. 5.81 billion of Mark to Market and derivative losses and over Rs. 42.35 billion of total borrowings vis--vis Rs. 11.61 billion of net worth at the end of the financial year 2008, and still in the process of CDR.

However, under the leadership of Habil Fakhruddin Khorakiwala (Habil), Chairman of Wockhardt, and Dr. Murtaza H Khorakiwala (Murtaza), Managing Director, the company quickly restructured itself and showed signs of coming out from CDR in FY13. In the second quarter of FY13, the company was able to complete the sale of its non-core nutrition business for Rs. 12.8 billion to Danone SA (Danone). Wockhardt also generated more than Rs. 8 billion in free cash flows from its operations in the first nine months of FY13 thanks to the high margins and superior growth (45% over Q3FY12) in its main market (the US, which contributed 50% in 3QFY13). The non-core business sale and higher free cash flows from operations pushed up cash in hand to around Rs. 20 billion at the end of December 2012 compared to about Rs. 7 billion on March 31, 2012. The net debt to equity ratio fell to below 0.5% in February 2013 from 1.9% in March 2012.

While making the third quarter investor presentation for FY13, Murtaza said, “We will be exiting the CDR shortly and we have taken steps in that direction. The total debt during the current year – we have paid off Rs. 1600 crores (Rs. 16 billion) of debt in the current year.” However, in February 2013, Wockhardt had about Rs. 23 billion of gross debt.

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