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Wockhardt: From Hero to Zero?

Last year, Wockhardt was being touted as one of the biggest success stories in Indian corporate world. It had defaulted on USD 110 million in overseas bonds in 2009 and had to restructure Rs 1,300 crore in loans. But the pharmaceutical company turned around and came out trumps. Its debt to equity ratio during last year fell below 1, from as high as 5.5 in March 2010, according to a Reuters report. Not surprisingly the stock soared, rising more than three fold in financial year 2012.

But as they say, what goes up also comes down. And Wockhardt, hit by regulatory issues in the UK and US, has really had a hard landing.

On Tuesday, the Mumbai-based company informed stock exchanges that Medicines and Healthcare Products Regulatory Agency, Britain’s drug regulator, revoked a quality compliance certificate for one of its manufacturing plants and will instead issue a restricted certificate, which will allow Wockhardt to only ship critical medicines from that plant, in Kadaiya, Nani Daman.

This is Wockhardt’s third plant to be hit by export regulations so far in 2013. The company, led by Habil Khorakiwala, has 7 plants in India.

Earlier this month, the British drug regulator had revoked a good manufacturing practice certificate issued to the company’s Chikalthana plant and its plant at Waluj, Aurangabad, has already been under the scanner of MHRA and the US Food and Drug Administration (it has banned drug shipments from that plant), for months.

Hit by the regulatory hurdles, investors, who were quick to lap up the stock last year, have been equally swift in dumping it this year. Year-to-date since March-end, Wockhardt shares are down 77 percent.

Another Indian pharma major, Ranbaxy has faced similar regulatory hurdles in recent past. Earlier this year, the company owned by Japan’s Daiichi Sankyo, pleaded guilty to felony charges in the US, related to good manufacturing practises at its Dewas and Paonta Sahib plants in India.

In my personal opinion, its the “chalta hain” attitude of us Indians and the general low standards of cleanliness and facility maintenance that are probably the key reasons why Indian pharma firms have been found wanting by the regulators in UK and US.

“While valuations are supportive, we feel multiples could be under pressure in the near to medium term, driven by uncertainty around remediation timelines, future approvals and US FDA regulatory risk on L1,” Macquarie Equities Research said last week after the incident related to the Chikalthana plant.

It believes that early resolution of the regulatory issues is key, but doesn’t expect it before FY2015-16.  It cut its target price to Rs 480 as it expects the stock to trade at a discount to fair value set at Rs 800.

According to BSE data, most mutual funds, except LIC of India and HDFC MF, have sold their investments in Wockhardt. Clearly, the darling of Dalal Street only a year ago, seems to be wanted no more, at least till the medium-term regulatory picture gets clearer.




I am a business journalist by profession and have close watch on equity markets and developments across FMCG, Retail, real estate, auto and information technology sectors in India. When not writing, I am an avid photographer ( and Arsenal FC fan. I also love train spotting.

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