I have tried to do the NAV of Wockhardt

I think at current valuation it is quoting at a deep discount to its NAV

 

 

The underlying business is still making healthy profit (EBITDA of 800 crore) and is very much viable

 

The domestic formulations business has been conservatively valued at 4 times the sales as opposed to Piramal business which was sold at 9 times the sales.

 

The forex losses are in excess of 800 crores but these are just the claims from the banks (Barclays etc) as the banks terminated the contracts when the rates were in their favour and I think no way the company is not going to pay the full amount (so there would be a litigation for 400 crores).

 

Other benefits which I have not included are the benefits and breaks which the company will get under the CDR (Debt restructuring)

 

Most of the figures are estimates and have been derived from different sources so have a margin of error of (+) (-) 10%

 

 

Contingent liabilities

1,448.51

1,219.81

1,369.37

93.74

6.30

This doesnt seem to be good trend ...with loans of about 1500 crores.

 

What if these contingencies need to be exercised..wouldnt the company go bankrupt...?

 

Please also go through this BW article

URL for this article :
http://www.businessworld.in/bw/2010_04_03_A_Bumpy_Road_To_Nowhere.html - http://www.businessworld.in:80/bw/2010_04_03_A_Bumpy_Road_To_Nowhere.html

 

A Bumpy Road To Nowhere?

On 31 March, Mumbai-based pharmaceutical company Wockhardt’s bid to claw its way out of a near-impossible situation received a rude jolt. US drug maker Abbott terminated its decision to acquire its nutrition business for $140 million. “Abbott and Wockhardt jointly made this decision because Wockhardt was unable to resolve debt restructuring issues with some of its lenders,” said a terse statement from the US company.  

Things had begun to stabilise for the Rs 3,600-crore Wockhardt. A majority of its lenders agreed in June to a corporate debt restructuring (CDR) process for the hugely indebted company including fresh terms for holders of $110 million worth foreign currency convertible bonds (FCCBs) that it defaulted on in October. Wockhardt agreed to key asset sales — including that of the nutrition business — to raise funds. Controlling stakeholder Habil Khorakiwala sold off most of his hospital business, which was also making demands on the group’s resources, to New Delhi’s Fortis Healthcare. The company began negotiating with banks to settle derivatives contracts that had backfired when currency markets swung the other way. “The management has been able to take all the pressure quite effectively,” says Nimish Mehta, pharma analyst at Vadodara-based MP Advisors. “And it hasn’t sold any of its crown jewels (in the company).”  

But this looks like it could come to nought. Since October, Wockhardt is defending itself in court against a group of unsecured lenders who want it wound up. The lenders, foreign banks and institutions including holders of 40 per cent of FCCBs, are up in arms against the CDR. Seven winding-up petitions have been filed so far, just two have been settled out-of-court, and news reports suggest more could be on the way.  

For a start, the lawsuits have successfully nixed the Abbott deal by blocking it in court and effectively, any other asset sale that Wockhardt wants to conclude in the future. “We are willing to fight for as long as it takes,” says one bondholder, who spoke on condition of anonymity. “We have won judgements in our favour even after five years.” 

The timing could not have been worse. The debt moratorium comes to an end this July. In parallel, analysts reckon that derivatives losses are in the hundreds of crores. In the meantime, the business, which has been fairly resilient, is showing signs of strain. 

Legal Wrangles
Foreign banks and institutions were not party to Wockhardt’s CDR, a voluntary process to restructure debt of troubled companies that banks believe to be viable. The CDR was led by ICICI Bank and included banks such as SBI. The CDR, agreed to on 30 June, put a moratorium on all repayments for a year, sanctioned priority debt, and gave Wockhardt access to working capital loans. It also offered new terms to bondholders which SBI, holding about 60 per cent of the bonds, accepted (see ‘Testing The Bond’).

But the foreign banks and institutions are in no mood to bite. They see the CDR as a lopsided package favourable to secured, domestic lenders.  Barclays Bank, Calyon Bank, and the BNY Corporate Trustee Services (representing the bondholders) have filed separate petitions in the Bombay High Court seeking injunctions. “There is no transparency in the CDR document on how discounts for the FCCB holders and foreign banks were arrived at,” claims a person close to the petitioners. “The discounts on loans and repayment schedules are different for the two sides.”

In addition to extending term loans, Barclays and Calyon also entered into derivative contracts with Wockhardt, which is now disputing the amounts owed. (Barclays declined to comment and Calyon did not respond to an email.) The petitioners objected to the sale of Wockhardt’s nutrition business unless the proceeds, including a non-compete fee meant for Khorakiwala, were deposited in a ‘no-lien’ account. This is to prevent secured lenders being paid off through asset sales leaving the petitioners with little or nothing. The CDR requires Wockhardt to raise money through asset sale. “How can an unsecured creditor ask a secured one to surrender its rights and interests on its security?” asks one person close to Wockhardt, who was present at the hearings. The petitioners also want the court to appoint a provisional liquidator for the company.

Majmudar & Co., representing Wockhardt, and Juris Corp., which is either advising or representing the various petitioners, declined to comment citing the matter as sub-judice. An ICICI spokesperson says the bank “does not comment on client-specific issues”. Khorakiwala did not meet BW for this article. A spokesperson cited the ‘silent period’ before Wockhardt’s results, as the reason. So far Wockhardt has settled only with the Development Bank of Singapore, which was the first to sue in October last year. Since then, its shares had lost 15 per cent at the time of writing while BSE’s Healthcare Index gained 22 per cent.

Lenders to Wockhardt’s overseas subsidiaries were reportedly evaluating going to court too. 

Game Of Bluff?
On 22 February, bondholder QVT, a $9-billion New York-headquartered fund floated what it called an alternative restructuring plan for Wockhardt outside the court proceedings. The plan envisages giving bondholders new bonds that will mandatorily be converted into equity shares (instead of preference shares) in Wockhardt upon maturity. So far, Wockhardt has said nothing. QVT is one of the bondholders that has gone to court. So its new plan, claims the source close to Wockhardt, is an indicator that some of the petitioners still see the company as viable. “Or else why would they want equity,” he asks. The winding-up petition, he believes, is merely a pressure tactic to bring Wockhardt to the negotiating table. After all, he points out, if the company does get liquidated they will still have to queue up behind the secured debtors.

True, it will not be an easy fight for the lenders. For one, the secured lenders have agreed to CDR. Mehta of MP Advisors points out that Indian courts have been reluctant to issue winding-up orders against companies of this size and scale if there is any chance of their revival. The CDR, which has the sanction of the Reserve Bank of India, is meant for just that, he says. “We expect that bondholders will settle (once they get a judgement from the court),” he says. He does not expect Wockhardt to be wound up.  

Recent history does throw up some examples where courts have ruled in favour of unsecured lenders in winding-up petitions. Last September, the Madras High Court admitted such a petition against beleaguered retailer Subhiksha. This March, the Bombay High Court reportedly declared Indage Vintners as a fit case for winding up. In the case of Subhiksha, the CDR process hit a dead end, while in the case of Indage, unsecured creditors reportedly went to court even before the CDR was completed, citing a lack of faith in the process.  

Scratching The Surface
The termination of the Abbott deal has damaged Wockhardt’s fragile recovery plan. The lawsuits could put off future buyers, who are interested in other parts of Wockhardt’s business. 

In the meantime, in addition to servicing term loans, the company needs cash to settle substantial claims on derivatives. Mehta of MP Advisors calculates total derivative liabilities of Rs 1,300 crore including amounts that will be settled at a steep discount or converted into preference shares.  

But it is not just lawsuits standing in the way of Wockhardt’s recovery. For one, analysts are still unsure of exactly how much of derivatives liability will be written off, and at what point. The company has bought time by extending its financial year to 15 months ending 31 March 2010 as it moves to evaluate the extent of its exposure and negotiates with banks to settle. 

Wockhardt’s track record in sharing information on this front is also dubious. In March 2008, the company told the BSE that it will not incur losses “either this time or in the future from hedged positions”. Last quarter alone, it wrote off Rs 235 crore.  

It is this opacity that spooked equity analysts even before the legal tangle. Sarabjit Kour Nangra, vice-president, research at Mumbai-based Angel Broking stopped tracking Wockhardt mid last year and says there is no reason to start now. “There’s too much uncertainty and too little transparency,” she says. For instance, she can’t understand why Wockhardt posted mark-to-market losses last quarter even when companies such as Ranbaxy have recorded gains on the back of a strengthening rupee. 

It could get worse. Wockhardt’s operations are facing challenges. For instance, a French subsidiary faces the threat of patent expiry on a key product representing a chunk of sales. An Irish subsidiary suffered from a price cut by the government. In the last quarter, sales were down by 9 per cent while gross profit was down by 35 per cent partly on account of the sale of its veterinary and German unit, but also owing to pressures in Europe.  

Besides, there is little or no funding for growth plans. As a result, small, but high-potential businesses such as biotechnology are just treading water. “We don’t think the debt restructuring will hamper the base business,” says Mehta. “But you can’t expect the company to grow for the next three to four years.”  

The secured lenders, in the meantime, will also be under pressure if the CDR cannot be made to work. Will this force them to take drastic measures like forcing an ownership or management change? Either way, Wockhardt’s road to recovery promises to be a long and arduous one. With no guarantee that it will get there.

gauri dot kamath at abp dot in

  

 

Hi how do we get the latest financial data on this one.

The last financial report is of 07-08 on the website.

Is the 08-09 or 09-10 reports available anywhere.

On such a complex situation we might need latest financial information.

 

 

 

Do we have to own share in hand to do it?

can u please explain with the scenarios???

i couldnt understand the concept of it...

please

 

Always look at consolidated numbers and ratios. Go to edelweiss.in and you can find the consolidated P/Es and other relevant ratios.