‘Brace For Volatility’ As Headwinds Widen Losses For Wockhardt, Says Maquarie

Investors should “brace for volatility” for Wockhardt Ltd., as the timeline for the U.S. Food and Drug Administration (FDA) correcting its import alerts against the drug maker is uncertain, according to Abhishek Singhal, an analyst at Macquarie Group.

“We do not believe the current margins are reflective of the inherent potential of this business, given the operating leverage driven by U.S. ramp-up and better asset utilisation. The U.S. FDA timeline for facility clearance remains key,” he told BloombergQuint.

The company's Chikalthana, Waluj, Shendra (near Aurangabad, Maharashtra) and Morton Grove (Chicago, U.S.) facilities remain under the the regulator's scanner with import alerts, observations and warnings.

These headwinds have widened the drugmaker's loss to Rs 174 crore, the biggest net loss in 20 months, in the January-March quarter.

At the same time, Wockhardt has invested Rs 2,572.6 crore ($400 million) in research and development of products for the U.S. pipeline, over the last five years.

The benefits of these investments could boost the company's performance. However, corrections with the American drug regulator continue to stand in the way for the time being, Singhal added.

Macquarie has reduced its estimates on the company's earnings before interest, tax, depreciation and amortisation (EBITDA) by 47 percent for the current financial year due to a delayed pipeline of approvals. These approvals are now expected in financial year 2018-19, where the EBITDA estimate has been reduced by 3 percent.