Wockhardt — Q3 FY23 earnings call

Call held 21 Feb 2023

Management summary

Wockhardt is undergoing a strategic transformation, pivoting away from loss-making US manufacturing toward high-margin R&D, biologics, and strategic partnerships. The company has successfully deleveraged its balance sheet and turned EBITDA positive. Management views the current period as a 'turning point' driven by a novel antibiotic pipeline and a major vaccine manufacturing agreement with Serum Institute.

Highlights

  • Revenue grew to ₹699 crores in Q3 FY23, representing a 20% increase over Q1 FY23.

  • EBITDA turned positive for the second consecutive quarter at ₹59 crores, up from ₹39 crores in Q2 FY23.

  • Long-term external debt significantly reduced from ₹3,200 crores to approximately ₹600 crores over five years.

  • External debt-to-equity ratio improved drastically from 0.96 to 0.16.

  • US business restructuring expected to save $12 million in annual losses by shifting to third-party manufacturing.

  • Secured a 15-year contract with Serum Institute for 150 million vaccine doses per year with a 51:49 profit share.

  • Flagship antibiotic WCK 5222 is in Global Phase 3 trials with completion expected in 15-18 months.

  • Promoter commitment increased to ₹700 crores (Quasi-equity) with an additional ₹500 crores converted to equity.

Concerns

  • Clinical Trial Success for WCK 5222

Key financials

  1. Revenue ₹699 Cr +20%QoQ
  2. EBITDA ₹59 Cr +51%QoQ
  3. External Debt ₹600 Cr
  4. Operating Cash Flow ₹95 Cr

What they filed

Q1 FY27: revenue up 35.8%, net profit up 55.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue370 325 355 413 380 +3%430 +32%516 +45%561 +36%
EBITDA49 62 106 131 113 +131%113 +82%161 +52%158 +21%
Net profit-36 -22 40 69 54 +250%28 +227%167 +318%107 +55%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

Share of Revenue
₹546 Cr Total
  • UK Business ₹223 Cr 40.8%
  • India Business ₹175 Cr 32.1%
  • Emerging Markets ₹148 Cr 27.1%

Guidance & targets

Capacity

  • Vaccine Manufacturing Capacity (Serum Deal) Capacity · per year for 15 years · High confidence 150 million doses
    we have received £10 million as a contribution for reserving manufacturing facility for 150 million doses per year of vaccine for 15 years.

    — Dr. Murtaza Khorakiwala, Managing Director

Other

  • WCK 5222 Phase 3 Completion Other · by mid-2024 · Medium confidence 15-18 months
    And we needed to complete it next 12 to 15 months... in next 15-18 months, we should be completing the clinical trial on 5222.

    — Dr. Habil Khorakiwala, Chairman

Debt

  • US Business Loss Reduction Debt · Annualized · High confidence $12 million
    As a result of the entire restructuring of the manufacturing, we intend to save about $12 million in losses which we are currently incurring

    — Dr. Murtaza Khorakiwala, Managing Director

Revenue

  • Biologics Revenue Contribution Revenue · next 2-3 years · Medium confidence 30%

    From 20% today

    I expect that in the next two to three years, its contribution to Wockhardt business will improve from 20% to 30%.

    — Dr. Murtaza Khorakiwala, Managing Director

Market context

  • PBT Positive Status Profitability · by FY25 · Medium confidence Positive
    I think we would see significantly better numbers in the next year and then we will turn completely PBT positive in 2 years from now.

    — Dr. Murtaza Khorakiwala, Managing Director

Risks & concerns

  • Clinical Trial Success for WCK 5222

    high

    The company's future valuation is heavily tied to the success of this Phase 3 trial; management is seeking external funding to mitigate cash flow risk.

    Both acknowledged

  • US Business Challenges

    medium

    The US business has been a significant drain on performance, leading to the shutdown of the Morton Grove facility.

    Management acknowledged

  • Competition in Biosimilars

    medium

    Analysts questioned pricing pressure in emerging markets; management argued their fully integrated model (API to device) provides a cost advantage.

    Analyst downplayed

Areas of evasion (2)

  • Specific revenue guidance for FY24
  • Exact monetization value for WCK 5222

Q&A highlights

3 direct
Funding for WCK 5222 Clinical Trials Direct
The additional investment required for clinical trial will be about USD 30 million. And we intend to not take out the cash flow from our operation, we are looking at alternate funding, debt funding and some monetization of assets

Clarifies the remaining R&D liability and the company's strategy to avoid straining operational cash flows.

Asked by Kishore Aggarwal

Skipping Phase 2 for WCK 5222 Direct
The data which we able to produce on a preclinical and phase one data... were so strong... therefore the regulator have made an exception and granted us straight phase three.

Explains the accelerated regulatory pathway for their lead NCE, reducing time-to-market risk.

Asked by Unidentified

US Business Strategy and Sales Impact Direct
We have identified few products which contributed to more than 80% of our topline... we have really not sacrificed too much of sales. At the same time, we have significantly increased our profitability... we expect that overall margin of our US operation will be about 40%.

Confirms that the exit from US manufacturing (Morton Grove) will not result in a major revenue cliff but will significantly boost margins.

Asked by Unidentified

2 min read 5 chapters

Detailed narrative

Strategic Pivot and US Restructuring

Wockhardt has fundamentally altered its US strategy by shutting down its Morton Grove manufacturing facility near Chicago. The company is adopting an 80-20 formula, identifying high-margin products to be manufactured by third parties, which is expected to save $12 million in annual losses. Management expects the US business to maintain sales while achieving a gross margin of approximately 40% under this new asset-light model.

Deleveraging and Balance Sheet Strength

The company has executed a massive deleveraging exercise, reducing long-term external debt from ₹3,200 crores to ₹600 crores over the last five years. This was supported by promoter infusions, including ₹700 crores in quasi-equity and the conversion of a ₹500 crore promoter loan into equity. The external debt-to-equity ratio now stands at a healthy 0.16, providing significant financial flexibility for future R&D investments.

Serum Institute Partnership as a Growth Engine

A landmark 15-year agreement with the Serum Institute for vaccine manufacturing in the UK is set to become a major revenue driver. Wockhardt received a £10 million upfront contribution for reserving a 150 million dose annual capacity. The deal includes a 51:49 profit share in favor of Wockhardt, with two vaccines already identified for production within the next 12 months following regulatory approvals.

Novel Antibiotic Pipeline (WCK 5222)

The company's flagship NCE, WCK 5222, is currently in Global Phase 3 trials, having skipped Phase 2 due to exceptional safety and efficacy data. Management noted that the drug has already saved three lives in India on a compassionate use basis. The trial requires an additional $30 million in funding, which the company plans to secure through non-operational cash flows, such as asset monetization or debt.

Biologics and Diabetes Portfolio Expansion

Wockhardt is focusing on the $50 billion global diabetes and biologicals market, aiming to increase the segment's revenue contribution from 20% to 30% within three years. The company is a fully integrated player in the insulin and glargine space, from API to devices. It plans to launch 14 new products in India and 25 in the UK during the FY24-25 period to capture further market share.

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