Tuesday, 31 December 2013

Equity: Case Study: Wockhardt Limited

Introduction:

Wockhardt Ltd. is a pharmaceutical and biotechnology company headquartered in Mumbai, India. The company has manufacturing plants in India, UK, Ireland, France and US, and subsidiaries in US, UK, Ireland and France. It has market presence in emerging markets such as Russia, Brazil, Mexico, Vietnam, Philippines, Nigeria, Kenya, Ghana, Tanzania, Uganda, Nepal, Myanmar, Sri Lanka, Mauritius, Lebanon and Kuwait.

Market capitalization is approx INR 21,100 crore (US$3.2 billion); employs 7,900 people globally.

Produces formulations, biopharmaceuticals, nutrition products, vaccines and active pharmaceutical ingredients (APIs). Wockhardt Hospitals is a subsidiary of the Wockhardt Group.


Analysis:

Wockhardt's stock has a violent recent past...

Wockhardt Limited is currently plagued by problems with the USFDA, which banned imports from some of its plants citing "Good Manufacturing Practice Violations". Also in trouble with UK regulators.

The stock price dropped faster than a rock as soon as the trouble started around May 2013. (See below).


But many people are convinced Wockhardt will overcome its problems, in view of the efficiency with which it reduced its debt burden in recent years.


TECHNICALS:

(See translucent oval below.)

The 50 day moving average of the stock price appears to have bottomed out.

This will certainly have a positive effect on the 100 day moving average, and the effects are beginning to show.

The price volume trend has picked up. Although volumes dropped after a sudden upward spike in the last few days.

The %Momentum Indicator is lifting.



Fundamentals:

If there is no further bad news, this stock is headed for recovery.

The company's fundamentals are quite good, with low contingent liabilities around ₹ 80 crore as contrasted with contingent liabilities of ₹ 1,000 crore just three years back.

Its current ratio has been rising steadily, its debt-equity ratios have been falling steadily.

Further reading:
1. DSIJ.
2. Moneyworks4me
3. HDFCSEC
4. Fiercepharma


Looks good, but equity is a treacherous terrain. And decisions can go very wrong.

For example:


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