Exclusive: Wockhardt now exploring brand portfolio sales to reduce debt

Pharma tycoon Habil Khorakiwala-led Wockhardt is not taking any chances and is working on alternate options to raise funds and reduce debt. The company plans to sell a minority stake in its domestic formulations business, and this is a precautionary move in case the private equity funds do not fructify.

The Mumbai-headquartered firm is now reaching out to strategic suitors and is exploring the sale of select brand portfolios, two sources familiar with ongoing negotiations told Moneycontrol.

"Most private equity funds are keen on a majority stake in the domestic formulation business as compared to the minority stake which is currently on offer. As an additional fundraising avenue, the company is now open to sell some of its select brand portfolios and strategic players have been approached. But both options are on the table and it depends which one works out eventually for the company," said one of the sources cited above.

"The business has value and therefore there will definitely be buyers for divisions like respiratory and gastro-intestinal, which have good brands and can easily fetch 2x or 2.5x revenues in terms of valuations. The sale of both these divisions, for instance, could raise around Rs 1,000 crore which could provide some temporary relief to the company," added a second source. Investment bank Moelis is the advisor to Wockhardt.

According to data from pharmaceutical market research firm AIOCD-AWACS, Wockhardt's gastro-intestinal, vitamins and minerals and respiratory segments recorded annual sales of Rs 242 crore, Rs 219 crore and Rs 216 crore, respectively. Neuro-CNS, pain and antibiotic segments followed with annual sales of Rs 144 crore, Rs 122 crore and Rs 110 crore, respectively.

Wockhardt has a total debt burden of Rs 3,737 crore as of March 31, 2018, and its current market cap is Rs 4,142 crore. The company's losses narrowed to Rs 14 crore in the fourth quarter ended March 2019, on account of cost reduction. It posted a net loss of Rs 155 crore during the same period in the previous year. Sales for Q4FY19 fell 4 percent to Rs 979 crore compared to Rs 1,018 crore in the year-ago period.

On March 29, 2019, India Ratings & Research had highlighted a significant refinancing risk for the company in FY20. "Although adverse market conditions and refinancing structure are likely to determine the timeline and cost of refinancing, the management is evaluating refinancing options for the large upcoming debt repayments (FY20: Rs 823 crore; FY21: Rs 823 crore) through an international bond or a qualified institutional placement/term loans and other capital infusion options in India.

"Furthermore, Wockhardt’s debt/market capitalisation has increased sharply on account of a sharp correction in the stock price over 9MFY19. Also, additional financial support from the promoters through the issuance of redeemable preference shares of Rs 2.5 billion as per a board resolution dated December 2018 and proposed term loans may provide liquidity back-up till 1HFY20. The agency expects that shortfalls in debt servicing if any are likely to be met by the promoters through timely fund infusions. Hence, a sharp operational turnaround in FY20 and/or continued promoter support is a key rating sensitive factor," the agency said.

Moneycontrol is awaiting a response to an email query sent to Wockhardt and Moelis. When contacted on phone, Wockhardt's Chairman Habil Khorakiwala said "no comments".