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ShareAs we get acclimatised to the unprecedented global economic calamity, leading Indian drug companies are taking it on their chins. One such big name is Wockhardt.
According to news reports, Wockhardt is considering selling its Irish unit, Pinewood, and even Negma Labs of France to pay the FCCBs that come up for redemption in October 2009. The amount that Wockhardt immediately needs is around Rs 600 crore.
It's a pity Wockhardt is considering selling the companies it fancied so much at the time of acquiring. In 2006, it was a close race for Pinewood as Wockhardt was pitted alongside some of the biggest generic companies. The business was seen as the next leap to consolidate the company's European presence and so Wockhardt spent $150 million in acquiring it.
Moreover, as Dr Reddy's had lapped up Germany's Betapharm in a mega $460 million deal in 2005 and Ranbaxy acquired Terapia of Romania for $324 million in 2006, it had become almost imperative for Wockhardt to react and do a sizeable deal in Europe.
By tradition, too, Wockhardt had been a stronger player in Europe as it was the first to acquire Wallis of UK in the late nineties and then CP Pharma in the next few years. In 2004, it went on to buy Esparma in Germany, much before other companies could sense an opportunity there. As Wockhardt chairman Habil Khorakiwala had observed in one of the company's AGMs, to capture value, an opportunity has to be sensed before others realise the potential.
Now that things have turned for the worse, not just Wockhardt but many other Indian companies will need to recalculate their projections and alter strategies. Though, the mandates may be out for selling the two companies, it may not be very easy for the investment bankers to realise much value for either of the two companies. When Pinewood was bought out, it had sales of $70 million with an Ebitda margin of 20%. Pinewood was still growing at 20% for the last five years at the back of more than 200 products in the market.
While the ground situation may not have changed much operationally at Pinewood, Wockhardt may be hard pressed to find a buyer who can put a similar value on the current profit position of Pinewood. Liquidity is not coming easy and financiers are asking for too many riders for their return on investments. Barely a year ago, the same set of bankers structured deals and were ready to bend backwards to fund companies looking at outbound acquisitions.
Therefore, Pinewood may evoke interest from companies that have deep pockets and plan diversification into generics. Sanofi is named to be among the front runners for the deal, but it may be too premature to toss the names of potential bidders at this stage.
Unlike, Pinewood, not many think that Negma was a deal that fitted Wockhardt's business interests well. At $265 million for sales of $150 million, Negma may have looked attractive at 1.8 times the sales value but that's where the rationale ends.
In 2007, the markets were on the rise and few bothered to gauge possible adversities.
Negma's product pipeline includes three patented products in osteoarthritis and hypertension drugs of which the patented osteoarthritis drug forms the bulk of Negma's revenues. According to unconfirmed reports that patented drug may be reaching its expiry and thus make Negma prone to competition and even less attractive for potential suitors.
Analysts say even with these adversities, Wockhardt's business looks good. Its international businesses are growing and it has improved its rankings even in the domestic market, and can do better. The only calculation where Habil Khorakiwala and his core management team may have gone wrong could be in overleveraging the balance sheet.
With debt that is twice its equity at Rs 2,800 crore, Wockhardt may have seriously erred on its future cash flows. Not just Wockhardt, the lure to fund acquisitions through FCCBs had also attracted Ranbaxy, which raised over $440 million. Without Daiichi Sankyo pumping in a billion dollars into Ranbaxy, Khorakiwala's fate may well have been that of Ranbaxy's Malvinder Singh.
But for the present, Wockhardt has notified the stock exchanges that it will raise Rs 500 crore through a preferential allotment of shares and also increase its authorised share capital. Hopefully, that will help save the situation and get Wockhardt out of the woods.
Pillman is an executive closely linked to the global pharma industry.
