Buy Wockhardt between Rs 1125 & Rs 1210. Stoploss at Rs 1030 :: HDFC Sec, report

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Outlook: Amtek Auto, Wockhardt, Hindustan Zinc, L T Finance, Everest Industries, EID Parry :: Business Line :: Business Line

Technicals: Amtek Auto, Wockhardt, Hindustan Zinc, L T Finance, Everest Industries, EID Parry :: Business Line

Wockhardt (WCKH.BO) Alert: Warning Letter Issues Not Trivial Warning Letter Issues Not Trivial :: Citi Research

Wockhardt (WCKH.BO)
Alert: Warning Letter Issues Not Trivial
Warning Letter Issues Not Trivial – A first read of the Warning Letter for
Wockhardt's Waluj facility indicates that the issues are not trivial in nature. We
maintain our view that it could take around two years or so for full resolution
although the company may be able to contain the financial impact through some
mitigation initiatives outlined earlier. We do not see further risk to our estimates and
valuations appear very attractive, leading us to retain our Buy rating while
acknowledging that upside may be limited till there is some sign of progress on
either resolution or the mitigation initiatives outlined by management.
Warning Letter First Read – As expected, the FDA has issued a Warning Letter
(WL) to Wockhardt’s Waluj facility and it is now available on the USFDA website
(link here). Deficiencies highlighted include:
1. Efforts to delay, deny or limit FDA inspection of the facility - some examples cited.
2. Failure to prepare batch production & control records for each batch of product.
3. Inadequate lab records - did not contain all data from all tests conducted in order
to make sure that the product complies to established specifications & standards.
4. Failure to record and justify any deviations from required laboratory control
mechanisms + the investigation towards the deviations was not comprehensive
enough to determine the extent and impact of the problem.
5. Inadequate training / experience for each person involved with the production
process to perform the function(s) properly - advises Wockhardt to develop a
robust CGMP training program to ensure the same.
6. Failure to provide adequate washing and toilet facilities in working areas as well
as documented evidence that updated cleaning procedures and studies
demonstrate effectiveness.
The WL advises Wockhardt to engage an independent CGMP expert to undertake
comprehensive inspection of the facilities, method, and controls used to
manufacture drugs, and determine whether the facilities, method, and controls used
to manufacture drugs are in compliance with CGMP requirements.
No Added Financial Implication – as we have already built in that complete
resolution could take around two years (as with Aurobindo's & Claris' facilities in the
past). Our estimates do not factor in any upside from the various measures initiated
by the Management to minimize the impact from the Import Alert.
Please refer to our past research on this issue for more details: 1) FDA Overhang
Queers the Pitch; 2) Worst Case on Waluj; Cut TP to Rs1,620; 3) Management
Call Takeaways – Worst Priced In; 4) It Gets Worse at Waluj – UK MHRA Import
A

FDA recommends Wockhardt to hire data integrity consultant :: Credit Suisse,

● Wockhardt’s warning letter details are now disclosed. Overall, the
FDA has cited six observations and even suggested Wockhardt
hire a third-party auditor with experience in detecting data integrity
problems. It is unusual for the FDA to suggest hiring a CGMP
expert and data integrity consultant in a warning letter.
● The FDA has cited several instances where the investigators were
not given complete information or late information. The FDA has
questioned Wockhardt’s practice of performing undocumented
trial runs and noted instances where content of unofficial batch
records and official batch records did not match.
● The investigators found that some of the instruments had the audit
trail functions disabled and noted that “The lack of reliability and
accuracy of data generated by your firm’s laboratory is a serious
CGMP deficiency that raises concerns with all data generated by
your firm”…“These findings include repeat citations from the
January 2012 inspection…”.
● Wockhardt has earlier mentioned that import alert on Waluj facility
impacts sales by $100 mn and half of the pending applications.
Inspection of second US facility is scheduled in July-13 or Aug-13.
FDA released Wockhardt’s warning letter details
We provide key takeaways from FDA’s warning letter on Wockhardt’s
Waluj facility. Overall, the FDA has cited six observations and even
suggested Wockhardt hire a third-party auditor with experience in
detecting data integrity problems. It is unusual for the FDA to suggest
the hiring of a CGMP expert and data integrity consultant.
The FDA has mentioned that the data integrity consultant should
“Identify any historical period(s) during which inaccurate data occurred
at your facilities”….”Use organisational charts and SOPs to identify
the specific managers in place when the inaccurate data reporting
was occurring and determine the extent of top and middle
management involvement in or awareness of data manipulation”.
Observation #1: “Wockhardt repeatedly delayed, denied, limited
an inspection or refused to permit the FDA inspection”
The FDA has cited several instances in the warning letter where the
FDA investigator was not given complete information or the
information provided was late which impacted the inspection. In one of
the instances FDA mentions that “The Production Head
acknowledged that he had provided inaccurate information in the
previous instances”.
Observation #2: “Wockhardt failed to prepare batch production
and control records for each batch of drug product that include
documentation of the accomplishment of each significant step in
the manufacture, processing, packing, or holding of the batch”
The FDA investigators found unofficial batch records torn in half in a
waste area. These records contained data indicating that some
batches failed to meet the in-process visual inspection specifications
while the official batch records for these batches state that these
batches had met the specifications. The FDA further states that
“Wockhardt’s affidavit confirms that your firm uses unofficial visual
inspection to remove the defective units from the production line
without appropriate documentation and investigation”. “This raises
serious concerns regarding the integrity, reliability and accuracy of the
data generated and available at your facility”.
Observation #3: “Wockhardt failed to ensure that laboratory
records included complete data derived from all tests necessary
to assure compliance with established specifications and
standards”
The FDA investigators identified the practice of performing trial
sample analysis prior to collecting the official analytical data. These
trial runs were not recorded in the equipment use log, and sample
preparation data associated with these analyses was destroyed,
preventing any calculation or analysis of the resulting data. The FDA
has questioned this practice “…unacceptable practice of performing
undocumented “trial” runs at your facility…”.
Observation #4: “Wockhardt failed to record and justify any
deviations from required laboratory control mechanisms”
FDA investigators found that some of the instruments had the audit
trail functions disabled and noted that “there is no assurance that the
data generated using these instruments is accurate”. The FDA further
noted that “The lack of reliability and accuracy of data generated by
your firm’s laboratory is a serious CGMP deficiency that raises
concerns with all data generated by your firm….These findings include
repeat citations from the January 2012 inspection and indicate that
your quality control unit is not exercising its responsibilities and may
not have the appropriate authority or ability to carry out its
responsibilities…”
Observation #5: “Wockhardt failed to ensure that each person
engaged in the manufacture, processing, packing, or holding of a
drug product has the education, training, and/or experience, to
enable that person to perform the assigned functions”
The FDA authorities found a few incomplete training questionnaire
records where the trainee and trainer names were left blank on the
questionnaires, but were pre-filled with the answers.
Observation #6: “Wockhardt failed to provide adequate washing
and toilet facilities to working areas”
“..We are concerned that your firm has been cited for inadequate
cleaning and sanitary conditions during previous inspections, and that
your responses to these citations promised corrective actions;
however, our inspections continue to reveal problems in this area of
CGMP”.

Wockhardt Waluj UK import alert – no sales hit: Macquarie Research,

Event
 WPL said that it has received an import alert from the UK MHRA for its
manufacturing plant at Waluj. This means all products from this facility (both
the oral and injectable block) will be blocked from entry into the UK market
until the manufacturing issues are resolved.This is the same facility that was
hit by a US import alert in May-2013.
 Sales to the UK market from the Waluj plant in FY13 were around ~UK£6-
8m. Given the products are already available to be shipped from alternative
sites (which are UK MHRA compliant), WPL expects this UK MHRA import
alert on Waluj to have a negligible impact on its financials.
 We maintain our OP rating but cut our TP to Rs1,440 (from Rs1,680) as we
expect news-flow to weigh on valuation multiples in the near-term until the
regulatory issues at Waluj are resolved. We see near-term volatility existing
on the stock due to this import alert.
Impact
 Early resolution of US import alert critical: Before this UK MHRA import
alert, in May-13 the US FDA had put an import alert on the same Waluj
facility. WPL was guiding to the potential loss of US$100m in annual sales
(v/s our estimate of US$135m) due to the US import alert at the facility. Half of
the pending 46 ANDAs with the US FDA are from the Waluj facility (of which
12 were filed recently & hence near-term approval was not anticipated).
 Remedial measures being pursued by WPL (site transfer of high-value
products or segregating compliant Oral block into a separate facility), if
successful, could provide upside risk. We think the speed with which WPL can
resolve these regulatory issues is going to be critical (unlikely in FY14).
Earnings and target price revision
 No change to our earnings estimate as WPL has approvals to ship products
from alternative sites. However, we expect the news-flow to weigh on
valuation multiples near-term given the regulatory uncertainty and hence cut
our TP to Rs1,440 @12x FY14E P/E (v/s Rs1,680 @14x FY14E P/E).
Price catalyst
 12-month price target: Rs1,440.00 based on a PER methodology.
 Catalyst: Resolution of regulatory issues, niche launches
Action and recommendation
 We do acknowledge that the regulatory action is a negative surprise causing
near-term pressure. However, valuations are attractive, with WPL trading at
~7.5x FY14E PER, despite industry high return ratios (ROE and ROIC of
>40%), a strengthened balance sheet (D/E<.5x) and strong FCF generation
>US$150m in FY14. Maintain Outperform.

Technicals: Bajaj Auto, Wockhardt, Coal India, Shree Renuka Sugars, Swaraj Engines, Oracle Financial :: Business Line

Technicals-Wockhardt, cadila, Financial Technologies, Royal Orchid Hotels, Tinplate, Bombay Dyeing, CMC :: Business Line :: Business Line

Wockhardt, cadila, Financial Technologies, Royal Orchid Hotels, Tinplate, Bombay Dyeing, CMC :: Business Line

Technicals:: Rolta, Goodyear, Punj Lloyd, Wockhardt, Gateway Distriparks ::Business Line

Technical Query Corner: IDFC, Jyoti Structures, M and M Financial, power grid, Tata Steel, Wockhardt:: Business Line

WOCKHARDT LTD. BUY -Target Price ` 978 : Ventura

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We initiate coverage on Wockhardt Limited (Wockhardt) as a BUY with a Price Objective of ` 978 (target 10.0x FY14 P/E). At CMP of ` 565 the stock is trading at 3.4x and 5.8x its estimated earnings for FY2013E & FY2014E representing a potential upside of ~73% over a period of 18 months. With the contingent liability concerns addressed and bulk of FCCBs already repaid, the sale of nutrition business will lead to a substantial increase in cash which could be used to draw down debt or pursue organic / inorganic grow opportunities. Further its portfolio of high margin niche products and impressive FTF launches should provide for strong growth in revenues (12.3% FY11-14 CAGR) to ` 5311.2 crore and earnings (123.6% FY11-14 CAGR) of ` 97.8 /share by FY14. During the period 2003 through 2008, Wockhardt has traded mostly in line with the 1 Year forward PE multiple of its peers viz: Sun Pharma, Cipla, Lupin and Glenmark. However, post its derivative losses, Wockhardt’s EPS turned negative. Now that the balance sheet is all cleaned up and all contingent liabilities addressed, we expect that going forward, Wockhardt will catch up with its peers leading to a substantial re-rating of the stock

Technicals: Wockhardt, BOC, Steel Exchange, Hindalco, Dishman Pharma, Reliance Mediaworks ::Business Line

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Please discuss the medium- and long-term outlooks of Wockhardt and BOC India Ltd.

Anil Kumar Ray

Wockhardt (Rs 582.3): This stock is on steroids since the beginning of this calendar. It reversed from the trough at Rs 251 in the first week of January and did not look back thereafter. It has shattered its long-term resistance at Rs 550 and is currently trading at a new life-time high.

It is obvious that long-term up move is in progress over the last two months. But the need for caution arises from the fact that the index is close to its long-term peak. The zone between Rs 550 and Rs 600 is a potential minefield. Strong move above Rs 600 is required to signal that the stock will now go on to Rs 653. Long-term outlook will stay positive as long as the stock trades above Rs 380.

Investors with short- to medium-term view can take some money off the table and hold the rest with stop at Rs 450.

 

Sizzling Stocks - Wockhardt, ABB: Business Line,

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Wockhardt (Rs 336.6)

The stock, which was decimated in December 2011, found support at its long-term base level at around Rs 250 during the first week of this month. However, it changed its direction triggered by positive divergence in the daily relative strength index. The stock skyrocketed 23 per cent accompanied by good volume, conclusively breaking through its key long-term resistance level at Rs 313 in the previous week.

With this rally, the stock appears to have resumed its long-term uptrend that has been in place since bottoming out in March 2009.

Nevertheless, the presence of significant long-term resistance at Rs 375 raises eyebrow. An emphatic jump above this resistance will lift the stock northwards to subsequent key level of Rs 450 in the medium-term.

Key resistance above Rs 450 are positioned at Rs 473 and Rs 513.

But, failure to move above Rs 375 will pull the stock down to Rs 313 and then to Rs 290 in the medium-term.

ABB (Rs 705.8)

After constantly testing the long-term resistance band between Rs 880 and Rs 900 from April 2011, the stock reversed lower in September 2011.

Since then, it was on a medium-term downtrend until it found support at Rs 541 in mid-December 2011.

Thereafter, the stock bounced up reversing its trend and has been on a short-term uptrend. Last week, it zoomed 21 per cent with good volume support, penetrating resistance at Rs 663.

Retracing almost 50 per cent Fibonacci retracement level of its prior downtrend, the stock is facing resistance at Rs 718. After testing this resistance, a strong jump above it will take the stock higher to Rs 765 and then to Rs 800 in the weeks ahead.

Failure to move above Rs 718 will drag the stock down to Rs 663 initially and then to Rs 625 levels.

Wockhardt -Reasons to Buy - IndiaER reader viewpoint

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Investment Rationale
Reasons to Buy
• The biotechnology story
• EU and US – Key growth drivers
• Capitalising on Pinewood
• The French connection
• The 'India story'
Reasons not to Buy
• High debt equity ratio
• Volatile currency movements
• Competition lurks
• Rest of the World fails to perform

QUERY CORNER: Long-term uptrend in Tata Motors: Business Line

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Please give the technical view of Titan Industries.

R. Jain

Titan Industries (Rs 3,911.1): In our review of this stock in January, we had indicated that the stock was in a very strong uptrend and that the medium-term correction that began last November could halt in the zone between Rs 2,900 and Rs 3,000. We had given Rs 2,850 as the stop-loss for short-term investors and Rs 2,000 as the stop-loss for long-term investors.

The stock reversed higher from the low of Rs 2,943 formed in February after declining 30 per cent from its peak. As explained earlier, sideways move between Rs 2,950 and Rs 4,250 will be positive from a long-term perspective ushering in a rally to Rs 4,250 and beyond that to Rs 5,150 over the ensuing months. Investors with short- to medium-term perspective can book some profit if the stock stutters around the previous peak around Rs 4,250.