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Wockhardt’s US stress weighs on performance

LiveMint logoLiveMint 26-05-2014 Ravi Ananthanarayanan

Wockhardt Ltd’s results show a further decline in sales due to the impact on revenues from an earlier import ban by the US Food and Drug Administration (FDA) at one of its facilities making medicines for the US market.

In May, the US FDA had issued an import alert on its Waluj plant and in November, it issued an import alert on the company’s Chikalthana plant. The impact of the Chikalthana import ban was felt in the March quarter.

It had cautioned investors to expect this after it announced its December quarter results. In the March quarter, sales declined by 31% from the year-ago period to `1,039 crore and by 16% sequentially.

Since the company’s US business contributed 45% to revenue in 2013-14, a decline in sales in that market pulls down growth. US sales are estimated to have declined by 54.8% from the year-ago period and by 28% sequentially. The company has not given quarterly growth figures. If we take growth in the nine months ended 31 December and compared that with full-year growth figures, then countries such as the UK and Ireland have seen a deceleration. India maintained expansion at the same rate.

Wockhardt said it hopes to resolve its pending issues with the FDA in the current fiscal year and resume shipments in 2015-16. Till then, it is also filing applications for generic drugs from a new facility, which is being readied for approval. This is likely to take time. Meanwhile, it will continue to face the impact of slowing sales growth in key markets.

While revenue is declining, expenditure continues to increase as the company needs to invest in research to ensure it has a good pipeline of drugs to launch. There are also the additional costs being incurred for remediation of its facilities. In 2013-14, research and development expenses rose by 29% compared with a decline in sales of 14%.

During the quarter, operating profit margin declined by 7.7 percentage points to 11.7%. Profit before tax, exceptional items and foreign exchange impact was `80.3 crore during the quarter, compared with `182 crore in the preceding three months.

The company is likely to feel the strain of its regulatory issues in 2014-15 as well. If matters progress in the right direction during the current fiscal year, the next financial year should be better for business. On Tuesday, the company’s investor conference call should give details on progress on the regulatory front and what to expect in the current fiscal year.

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