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Thursday, August 26, 2010

Stock to buy : Wockhardt

Here is a stock to buy as long term investment. This is a turnaround story which appears to be a value stock and this stock investment has a potential to give you good returns.

Stock to buy : WockhardtWockhardt Limited (WL) is a subsidiary of Khorakwala Holdings and Investments Private Limited. The geographical segments of the Company are India, the United States/Western Europe and Rest of the World. The Company’s subsidiaries includes Wockhardt Biopharm Limited, Vinton Healthcare Limited, Wockhardt Infrastructure Development Limited, Wockhardt UK Holdings Limited, CP Pharmaceuticals Limited, Wallis Group Limited, The Wallis Laboratory Limited, Wallis Licensing Limited, Wockhardt UK Limited, Wockhardt France (Holdings) S.A.S., Girex S.A.S., Niverpharma S.A.S., Laboratoires Negma S.A.S., DMH S.A.S., Phytex S.A.S., Scomedia S.A.S. and Mazal Pharmaceutique S.A.R.L.

This company had faced big financial distress in year 2008-2009 due to it's big forex losses. The company is still not out of this problem yet. But it is going through the restructuring process under which company recently sold off it's land in Mumbai fir Rs. 200 crores. Company is also selling it's non strategic assets to meet financial needs.

Wockhardt is a pioneer in Insulin business. After restructuring of business, it is expected to carry a debt of Rs. 3500 crores. It's enterprise value is expected to be around Rs. 8500 crores. At current stock price of Rs. 238 market caps is approx. 2600 crores. This clearly shows the discount at which Wockhardt stock trades in stock market. Compared to other pharma stocks like Ranbaxy, this is a stock trading at 50 - 60 % discount.

If the restructuring goes as per company's plans, EPS for FY 11 would be around Rs. 11. Two - three years from today, company could be posting EPS at least Rs. 20. Wockhardt was a consistent dividend paying stock till it got in trouble in 2008 due to overseas acquisitions and forex losses.

The stock has recently run up a lot. If it corrects and goes below 200 levels, on can buy stocks at those levels.

The only worry is, restructuring could take some time. With valuations and all facts discussed, it is visible that stock is a turnaround story and carries potential to at least double in 2 - 3 years. It is definitely a stock to buy for long term.

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