Stock Idea - Wockhardt

Recommendation: Buy

CMP = Rs 344

Price target: Rs 552

Result highlights:

• Wockhardt's Q4CY2007 and CY2007 performance have been marginally above our expectations, with the topline growth of 44.8% and 53.5% in Q4CY2007 and CY2007 respectively and the profit growth of 22.7% and 27.9% in Q4CY2007 and CY2007 respectively. The robust growth was largely driven by the consolidation of Negma and Morton Grove acquisitions made during the year. On a like-to-like basis, the organic growth stood at ~6% during Q4CY2007 and at ~13% during CY2007.
• Despite a robust revenue growth and significant margin expansion, the net profit growth was restricted due to a significant jump in the interest costs on account of an increase in the debt burden to fund acquisitions.
• With three major acquisitions in the USA, France and Ireland over the past two years, Wockhardt has created a global footprint for itself and has become the largest Indian company in Europe. The company aims to consolidate its acquisitions and extract value from them over the next two years. Wockhardt's ability to create value from acquisitions is evident in the turnaround and operational improvements effected in Dumex, Pinewood and Morton Grove.
• Wockhardt has created a bio-pharmaceutical portfolio of four-five products and plans to initially focus on the global insulin opportunity, which is worth $10 billion. The company has already filed an IND with the US FDA for its generic insulin, which has been approved, and is also working on filing an IND in Europe. Wockhardt is aiming to enter the US and European markets with its generic insulin by 2010.
• At the current market price of Rs 344, the stock is available at 8.7x its CY2008E and 7.5x its CY2009E earnings on a fully diluted basis.
• I maintain strong Buy recommendation on the stock with a price target of Rs 552 over next 3 months.