'This is the worst crisis in our lifetime'

Habil Khorakiwala, executive chairman of Wockhardt, says he has seen many ups and downs in his business since he inherited drug trading firm Worli Chemicals many decades ago and transformed it into India's sixth largest drug company.

"But the credit turmoil that the world is seeing now is clearly the worst in history," he says. He should know, as his company finds itself in trouble over a Rs 3,400 crore (Rs 34 billion) debt burden.

Sitting in his plush ninth floor office at the Wockhardt headquarters at the Bandra Kurla complex, Khorakiwala, 66, talks to Shyamal Majumdar and P B Jayakumar on the reasons for seeking corporate debt restructuring, and the road ahead.

Excerpts:

Your debt burden has grown to alarming levels. What went wrong?

Let me clear the air, it is a temporary issue for us. There are many other companies which went for acquisitions and are now in trouble.

If you ask me whether the acquisition strategy was wrong, please remember no one anticipated the global meltdown and the consequent credit issues. This is the worst crisis in our lifetime.

The mindset of people was different earlier and India going global was the driving force.

The pharmaceutical business is like any other business and can't escape liquidity issues.

A combination of factors caught us unawares and aggravated the problems, as banks squeezed credit and we lost due to significant currency fluctuations. We need some time to get out of this and that was why we decided to go for debt restructuring.

We hope this will also take care of our immediate payment issues, including foreign currency convertible bonds and working capital requirements.

This may stop us from large capital expansion or acquisitions, but will give us enough elbow room to reorganise and maintain the growth momentum and bring down the debt burden, say, to a debt equity ratio of 1.5:1 (from 2.3 times).

Did you go overboard on aggressive overseas acquisitions?

All our acquisitions are doing well.

Pinewood in Ireland has improved market share by 5 per cent after we acquired it and had double-digit growth during last year.

The Morton Grove acquisition in the US helped us post 222 per cent growth in that market in the nine months till the September quarter.

Negma Laboratories of France helped us to become the largest Indian company operating in Europe and it has also started contributing to profits.

So I don't think our acquisition strategy was wrong.

You have talked about divestment of stake in Wockhardt Hospitals, sale of non-core businesses and restructuring of subsidiaries. Isn't time running out?

I can't comment on specifics, but we are working on multiple strategies. You will see the results shortly.

The immediate goal is to get out of the CDR (if accepted by banks), say, in one or two years.

The minority stake sale in Wockhardt Hospitals and restructuring of subsidiaries or other assets will act as a back-up or as an insurance plan for our working capital requirements and the proposed CDR plans. We are talking to multiple partners for Wockhardt Hospitals for selling a stake and will conclude the deal within a few weeks.

If you look at Wockhardt as a pharmaceutical company, it was one of the best performing companies in the first nine months of 2008, excluding foreign currency losses.

We are outperforming the market growth in all geographies and had cash profits of Rs 750 crore (Rs 7.5 billion). The growth in the US was over 200 per cent and we got 23 marketing approvals in 2008. Europe is also doing well.

Our domestic growth was over 12 per cent. The US and Europe contribute to over 75 per cent of our revenues and this will continue in future.

We are not operating with wafer-thin margins. Products registered for the US and Europe are niche products with high margins. Further, the real value of our investments in biotech research will unlock in the coming years, as these products are readying for global launch.

So what exactly led to the problems?

Our performance and sales have shown tremendous growth. The loss we have suffered is due to various factors like mark-to-market losses, banks tightening their line of credit, the impact of the global slowdown and the ongoing war of depreciating currencies.

The losses were also due to Wockhardt's long-term hedging instruments that were bought to reduce the interest costs for the company's loans.

Will you unlock value of your other assets through divestment?

At this point of time, it will be foolish. Where is the right valuation?

Photograph, courtesy: Wockhardt