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Wockhardt Limited was the fifth largest pharmaceutical company in India before it got into financial trouble in 2008. The company moved to the corporate debt restructuring cell in the first half of 2009 to get out of the trouble that was rooted in a mounting debt burden and huge losses in complex currency derivatives. After two years of continuous losses, Wockhardt was able to come back in the third quarter of 2010. However, its hurdles and legal dispute continued till late 2012. To come out of the crises, Wockhardt under the leadership of Habil Fakhruddin Khorakiwala, its Chairman, sold its noncore businesses, cut down costs, and kept a distance from derivatives. This ultimately revived the company, resulting in the fastest turnaround in Indian corporate history. The case study helps the students to analyze the turnaround of Wockhardt. It also discusses the importance of leadership in the turnaround of any company.


In 2013, Wockhardt was a Rs. 46.14 billion Indian multinational pharmaceutical and biotechnology company. It was a research-based healthcare company with exposure in pharmaceuticals, biotechnology, and hospitals. By the end of FY12, Wockhardt had 12 manufacturing plants and 3 research centers worldwide with 7900 Wockhardt Associates in 21 different countries around the world. Till September 2012, company had filed 1,667 patents and had got a grant on 169 patents. However, Wockhardt was a very small concern in the early 1960s. In 1959, Murtaza's grandfather, Fakhruddin T. Khorakiwala (Fakhruddin), had acquired Worli Chemical Works (WCW) which manufactured medicines for common ailments. After returning from the US, Fakhruddin's son, Habil, took charge of WCW and renamed it Wockhardt', which meant work hard in German. When Habil took over Wockhardt in 1966, it was a 0.4 million company with 20 employees. This proved to be a turning point for the company. It began to grow significantly in terms of revenue, number of products, market share. etc. In the early decades, Wockhardt grew organically by setting up state-of-the-art greenfield manufacturing facilities in various parts of India, its home country, and sales and marketing offices in various parts of the globe. According to experts, Wockhardt's world class but low cost manufacturing facilities and its strong base in research had helped the company grow rapidly in the international market, especially in the European countries. In 1991, the promoters of the company incorporated First Hospitals & Heart Institute Limited (FHHIL) to start a super specialty hospitals chain in India. In December 1992, the company went in for a public issue. In February 1994, Wockhardt issued US$75 million worth of Global Depository Receipts (GDRs), thereby becoming the first Indian pharmaceutical company to issue GDRs. In 1995, Wockhardt acquired RR Medi Pharma Limited based in Tamil Nadu in South India . This acquisition helped the company to reduce the cost of transporting bulky intravenous fluid to the southern parts of the country. In 1998, Wockhardt acquired two companies, one in India and the other in the UK. In India, the company acquired a controlling stake in Merind Limited (Merind) from the Tata group for Rs. 470 million. Habil said, By taking over Merind, Wockhardt became the fifth largest pharma company in the country. In the UK, Wockhardt acquired Wallis

Laboratories (Wallis) for US$5 million. According to experts, company used Wallis as a manufacturing facility for European markets. These two acquisitions increased the turnover of the company significantly. Habil said that the sales growth in the future would come largely from organic growth, partly aided by domestic and international acquisitions.

Declining Phase In January 2008, WHL came up with an Initial Public Offer (IPO) of about 25 million equity shares. It planned to use the proceedings of the IPO for its expansion plans (Rs. 5.69 billion) and for prepayment of short term loans (Rs. 2.85 billion ). However, the IPO failed to garner funds and was called off by the promoters as it got poor investor response even after a reduction in the price band from Rs. 280-310 to Rs. 225-360 and extension of the closing date (of IPO) by two days. On February 9, 2008, Livemint reported that the company was looking for other ways to raise funds including private placement. Wockhardt Under Corporate Debt Restructuring On March 31, 2009, in a statement to the Bombay Stock Exchange (BSE), Wockhardt decided to refer itself to the CDR cell through ICICI Bank Limited (ICICI) to resturctured its mounting debts of over Rs. 38 billion . In a letter (mentioned earlier) Habil said, "It (CDR) allows us non-payment towards our loans for some time, thereby giving us a huge flexibility in generating our own liquidity. Huzaifa Khorakiwala (Huzaifa), Executive Director, Wockhardt, and Habils elder son, said, Its a natural progression in the lifetime of a dynamic organization to continuously further the interests of all its stakeholders." Liquidating Assets In an attempt to get rid of non-core assets, the company sold its German subsidiary Esparma GmbH to Mova GmbH for around Rs. 1.2 billion and signed an agreement with Vtoquinol SA to sell its animal health business in India for an estimated Rs. 1.7 to1.8 billion. , In August 2009, Wockhardt sold its ten hospitals to Fortis Healthcare Ltd. for Rs. 9.09 billion (Rs. 0.052 million per bed). Default on FCCBs Payment Consequences In October 2009, Wockhardt had defaulted on repayment of US$74 million worth of FCCBs. On October 31, 2009, the company reported Rs. 542 million of net loss in the quarter that ended on September 30, 2009.

In February 2011, after eight quarters of continuous losses, Wockhardt reported a positive result for the December quarter. The company reported a Rs. 1.4 billion profit compared to a Rs. 1.8 billion loss in same period of the previous year. The company also witnessed a 7% growth in sales from Rs. 8.9 billion in the December quarter of 2009 to Rs. 9.5 billion in the December quarter of 2010. launches. The companys UK market grew by 10%. On the other hand, the company was able to reduce the overall expenses by 6.4% and increase margins by about 10% compared to the same period of the previous year... Wockhardt Acquisation Spree Through Leverge - Growth Phase In May 2004, Wockhardt acquired Esparma GmbH (Esparma), a German company, for US$11 million, funded through internal accruals. Esparma had a significant presence in urology, neurology. and diabetology, which was in line with Workhardts therapeutic strengths. Wockhardt acquired only Esparmas brand, businesses, and sales and marketing organization not its manufacturing facility However, Wockhardt decided to use the manufacturing facility for two years before production shifted to the companys own facility in the UK and India... Another Attempt to Sell Nutrition Business On August 2, 2011, Danone signed an agreement to purchase Wockhardts nutrition business including brands and related business operations from Carol Info Services Limited (Carol Info) for about 250 million or about US$ 356.3 million or about Rs. 16 billion. , Wockhardt and its subsidiary would get about Rs. 12.8 billion and Carol Info about Rs. 3.2 billion. The deal size was more than double the deal with Abbott in 2009. On August 3, Wockhardt filed an application in court to get legal clearance on the sale of the nutrition business which was mandatory because the company was facing a winding up petition... Surprising Financing Performance On November 12, 2011, Wockhardt reported a Rs. 1.3 billon net profit in the second quarter ended on September 30, 2011, compared to the Rs. 967 million net losses in the same period a year ago. On February 13, 2012, the company reported its third quarter results. The net profit had increased by 50% to Rs. 2.1 billion in Q3FY12 from Rs. 1.4 billion in Q3FY11. In the same period, sales also increased by 20% to Rs. 11.4 billion from Rs. 9.5 billion...

Sale of Nutrition Business - Pay to Exit CDR In July 2012, Wockhardt completed the sale of its nutrition business to Danone for a consideration of Rs. 12.8 billion. On August 6, 2012, the company announced its Q1FY13 results. The company reported 95% growth in net profit to Rs. 3.8 billion from Rs. 1.9 billion in Q1FY12. By August 21, 2012, Wockhardt had paid off its US$73 million of dues to bondholders as per the schedule set by the court. However, in the final payment of US$32.9 million, a dispute arose between the bondholders and the company. According to the bondholders, the actual final payment was US$35.1 million (US$32.9 million + US$2.2 million toward redemption premium and interest). On this difference, Wockhardt filed a petition in the court against the bondholders....

Wockhardt posts a smart turnaround

BS Reporter | Mumbai August 7, 2012 The smile usually doesnt leave Habil Khorakiwalas face. But the cheer in that smile had gone missing in last four years, as his pharma company, Wockhardt, plunged into one crisis after another. on Monday, the cheer came back, with the firm posting a spectacular 95 per cent growth in net profit in the June quarter. Wockhardt is also set to exit the corporate debt restructuring programme it entered in 2009 when its debt touched Rs 3,800 crore. But following a series of sale of non-core assets, the pharma majors debt-equity ratio has come down from a high of 5:1 to below 1. That is a distant memory from April 2008 when Wockhardt reported its first ever loss, due to a mark-to-market loss of Rs 581 crore. The market has been quick to recognise the smart turnaround: the share price of the company had nosedived to Rs 96 during the end of 2008 from Rs 419 on January 1, 2008. The stock price went down further to Rs 68 on March 12, 2009. On Monday, the stock price ended at Rs 1,085. Khorakiwala said on Monday debt worth about Rs 1,300 crore has been structured through CDR already. However, he refused to disclose the exact amount of the remaining debt. The fund, which Wockhardt had received after the nutrition business sale to Danone last week, will be used to repay the debt. During the first quarter, Wockhardts consolidated net profit went up to Rs 378 core from Rs 194 crore in the similar period for last year. Net sales also grew 35 per cent to Rs 1,426 crore from Rs 1,053 crore. The companys US business recorded a growth of 78 per cent during the quarter. Wockhardt has also repaid almost all its pending foreign currency convertible bonds (FCCB). About Rs 200 crore, the last tranche of FCCB due, will be paid before August 31 as directed by the Bombay High Court. Recently, French food multinational Danone completed its acquisition of Wockhardts nutrition business for Rs 1,280 crore. Wockhardt was awaiting for a clearance from the Bombay High Court after it got

engaged in a litigation with bondholders, after defaulting on the repayment of its $110 million FCCB in 2009. Wockhardt had agreed to pay the bondholders after the Bombay High Court directed debt-ridden company to clear its payments by August 31.


The successful turnaround of the Wockhardt was a remarkable achievement for the management of the company, especially for the 70-plus Habil, who got FCs Businessman of the Year 2012 award in December 2012. Y K Hamied, Cipla Chairman, said, "Hats off to Habil. What he has done in the past one year has been super remarkable. By the looks of it, it will keep on improving." Wockhardt has defied the doomsayers who wrote it off and bounced back. It has put its finances in order and regained the confidence of investors, who have sent its shares surging 364% in the year-to-date, compared with a 19.98% rise in BSE Ltds benchmark Sensex. The companys stock ended down 3.88% to Rs.1,282.75 apiece, while, the Sensex closed up 0.42% at 18,542.3 on Monday. After receiving Rs.1,280 crore from the sale of its nutrition business to French food company Danone SA, the company has sufficient cash to retire short-term liabilities. The sale was completed in July. No surprise, then, that chairman Habil Khorakiwala is in good spirits. The company has a cash balance of about Rs.2,000 crore now that came from divestment of our nutrition business and the profit that we made during the last few quarters, Khorakiwala said on the sidelines of the companys 13th annual general meeting in Mumbai on Thursday. It is enough to settle all pending dues including the remaining liabilities on bonds, and loans. Wockhardt has written to its bankers, with which it had to enter a corporate debt restructuring (CDR) agreement in 2009 to advance its exit to as early as December. CDR is a financial restructuring process for troubled companies, which eases conditions on debt repayments but also limits the powers of the management to take operational and strategic decisions. In Wockhardts case, the CDR plan, through lead banker ICICI Bank Ltd, allowed for most of its Rs.3,800 crore debt to be recast, and was to last until March 2018. And Wockhardt has reduced its debt-to-equity ratio from a dangerous 5.5 in 2010 to less than 1 as of 30 August. Ours was one of the few examples of a very successful CDR process i n the country, where the liabilities had been settled well ahead of the expected time, said Khorakiwala. Investors have shown their appreciation. The companys shares have moved from Rs.275.7 on 2 January to Rs.1,282.75 on Monday. The stock rally is mainly triggered by the high performance in the last few

quarters owing to growing business in the US and India, and the nutrition deal that helped the company to come out of the FCCB (foreign currency convertible bonds) debacle. And the second factor is certainly the successful CDR, said Ranjit Kapadia, senior vice- president (institutional research) at Centrum Broking Ltd.


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