Wockhardt is a stock which analysts have written off, in April 09, as the company is saddled with the debt of Rs.3,400 crores. However, we had a different view, which was expressed by us in our cover feature on 2-04-09, wherein story said, "Wockhardt- not yet on the death bed". Share at that time, was recommended at Rs.75, saying that it has tremendous value and potential to rise.
The faith in the stock was re-affirmed by us in our second cover, on 25-06-09, in the story "Wockhardt – CDR Pill will give it color of health".
Now we are seeing the effect on stock price, which has moved to Rs.180, due to the various developments having taken place in the company, in last 4 months. To tide over its liquidity crunch, the company has divested its animal health care and nutritional business for over Rs.750 crores and the promoters of the company, today, divested its ownership of 10 hospitals of Wockhardt Hospitals for Rs.909 crores, to Fortis Healthcare. These 10 hospitals are located in Mumbai 2, Kolkata 3 and Bangalore 5, including 2 under construction, having 1902 beds, including 534 beds in 2 Greenfield projects. This includes two JCI accredited hospitals situated at Mulund in Mumbai and Banerghatta Road, Bengaluru.
Wockhardt Hospitals had a total debt of Rs.436 crores, as at 31-12-07, which has learnt to have risen to Rs.500 crores, as on date. So of this sale proceeds, almost entire debt is likely to get paid and discharged, while remaining amount is likely to get used by the promoters to deleverage the balance sheet of Wockhardt.
Paid up equity of Wockhardt Hospital is at Rs. 104.28 crores, with face value of Rs. 10 each. 81.79 % of this is held by Dartmour Holdings Pvt. Ltd., in which Mr. H. F. Khorikawala, holds 97.56 %, while 2.44 % is held by his wife Mrs. Nafisa Khorakiwala. Carol Info Services Ltd., another listed company of the group, holds 9.09 %, while Mr. H. F. Khorakiwala holds another 9.09 % in his personal Capacity.
Earlier, in April 09, many leading print media reported that part of the stake in Wockhardt Hospital is held by Wockhardt, which had leveraged balance sheet of Wockhardt and derailed it. This was clearly stated by us in our 2nd April 09 article that it is not so.
Since CDR of Wockhardt has been approved along with that of Wockhardt Hospitals, and in view of group likely to mobilize close to over Rs.1,600 crores, in both the companies, debt burden would get eased to the extent of 50 % and debt equity ratio of both the companies would come within the accepted norms.
The pressing liability before Wockhardt has been FCCB of $ 110 million, which is falling due for redemption on 25-09-09, with liability of $ 142.54 million. Since these FCCB are ruling at a hefty discount, the same can now be bought back by the promoters, on which saving of close to Rs. 350 crores is likely to be made, with equal amount requiring to buy them back.
See how the company gets transformed in no time? Where existence of a company itself having come in question, now it may have surplus funds with the promoters and the company. Wockhardt Hospitals is seen to be completing the deal by December 09, for which business transfer agreement has been signed with Fortis Healthcare. On receipt of Rs.909 crores and after fully paying off its debt of close to Rs.500 crores, the company will be left with about Rs.400 crores, which will be considered as the promoters' money.
However, in view of the promoters, having a stake of 74.08 % in Wockhardt, it will be difficult for them to raise it beyond 75 %, inspite of they willing to do so, on fear of open offer getting triggered. But, this surplus money is likely to get utilized to bring Wockhardt on its own feet and let him bring back its own glory.
As such, core business of Wockhardt has been intact and it continues to remain 7th largest pharma company in the country. Share having moved to Rs. 177, still has potential to move to Rs. 250 by the year end, with this drastic transformation.
Source: www.premiuminvestments.in (By S P Tulsian)
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