Excerpts from the interview
Hard work pays off for Wockhardt: Habil Khorakiwala,
Chairman, Wockhardt
Habil Khorakiwala, 70, chairman of generic drug maker Wockhardt, says
that the company's near-death experience has taught him lessons that he hopes
will last generations.
"We have decided not to touch derivative instruments. Some bankers still come to us with such products. I tell them, I don't want to risk my organisation in my lifetime or in my children's lifetime," says the septuagenarian chairman, much chastened after foreign exchange losses three years ago that almost drove his company into bankruptcy.
As a result pharma multinationals were hovering around for easy pickings, hoping to scoop up a firm that happens to be one of the fastest growing generic drug makers in India.
In April 2008, Khorakiwala, who founded Wockhardtin the early sixties, the company was then known as Worli Chemical Works, announced its first ever loss, due to a mark to market loss of Rs 581 crore on account of the huge devaluation of the rupee even as in the same year sales grew 35% to Rs 3,593 crore.
On Friday, when ET met him, a day after he completed a Rs 1,280-crore deal with Danone for Wockhardt's nutrition business, a confident Khorakiwala spoke candidly of his past troubles which are now behind him. Over the last two years, Wockhardt's debt-equity ratio has come down significantly from a high of 5.5:1 to 1.9:1, which will be below 1 after the money comes in from Danone.
The stock has seen an exponential rise, jumping almost 200% in the last one year a sign, analysts say, investors have started re-rating the company.
Acknowledging the role of his immediate family and his top management team for standing by him as he struggled to steer the company back into profitability, Khorakhiwala is certain that the turnaround is complete as a series of sales of non-core assets that included hospitals and the nutrition business helped pare debt even as core operations improved.
Generics, the core business, has consistently delivered, even during its troubled years post 2008.
Its Ebitda margins over last three years have thus showed a consistent rise. In 2011-12, it was about 31%, while in the previous year it was 24%. In 2009-10, it was 18%.
Wockhardt has about 70% of its sales accruing from overseas, mostly the US. Hedging is par for the course for companies with forex exposure. TCS, Infosys hedge as a matter of routine.
"We deliberated. We have a large portion of our business coming from overseas. It is neutral for us and we are not managing currencies. You burn your hands once then it takes time to recover," he says. A business runs on its inner core and inner strength, he says and for Wockhardt the only challenge was the "financial challenge", and therefore could be resolved.
"We never had a business challenge. We remained very focused," Khorakiwala said.
BDO Haribhakti Group chairman Shailesh Haribhakti says Khorakiwala always maintained his equanimity."Habil Khorakiwala was calm and composed in our first meeting in early 2009. He clearly understood the problem and told us that the only way to come out of the crisis is by improving operating performance and getting rid of non-core assets. This is what he did and today Wockhardt is a great turn-around story," says Haribhakti.
During the troubled years, its stakeholders held faith. The suppliers allowed Khorakhiwala more leeway, extending his credit while he ensured that all his employees got their salaries on time.
"Not once did any of our employees get their salaries reduced or delayed by even a day," Khorakiwala says. To plug the loopholes in the finance team, which almost wiped his company, Khorakiwala took some tough measures including changing the finance team.
During those difficult days, all eyes were on costs. "We reduced the operational costs everywhere," he says. It was not by belt tightening alone. "Wherever there were inefficiencies, people themselves took action." Thus, Wockhardt managed to prune costs in the manufacturing area by 10-15%, by pruning one layer of people from the five layers tuned into the manufacturing arena.
For a year, Wockhardt decided to freeze hiring and costs were pruned in sales and marketing organisation. "If you see my balance sheet of last three years and see the balance sheet before the crisis, you'll see a reduction in expenses today," says Khorakhiwala.
"Khorakiwala is an extremely sharp person. He has piercing insights about business. He is also a very tough person, because it is not easy to run a company when you have debtors hounding you every day. He could have cracked up and sold the company, but he didn't. Khorakiwala has taken risks and that has paid," said Sujay Shetty, head of Life Sciences at PwC.
Khorakiwala says his organisation was reinvented, as people found a way to manage with fewer resources. Around the same time as the foreign exchange losses exploded in its face, the R&D wing was working on a range of products in several areas.
Fortunately, some of these products in the pipeline have started to materialise. Metoprolol, the cardiac drug got the nod from USFDA. In anticipation of the nod, Khorakiwala took a huge bet by building an inventory and thus could at once supply to US drugstores when it received a nod from the regulator.
"We created inventory in advance before we got the approval. So when the opportunity came, we took the advantage. It was a risk but the upside was significant," he added. "We took a call, including keeping R&D and drug discovery processes (that cost money) intact. It's a big call. Usually that (R&D spends) is the big casualty," when companies are in trouble.
The company's corporate debt restructuring was painful after some creditors, notably hedge fund QVT which had invested in its foreign currency convertible bonds, dragged them to court.
The value of shares had fallen and the bondholders wanted the money back. The company offered shares, which was rebuffed. Had they taken it they would have been rich now, says the chairman of the company which has seen the stock price gain over 250% this year. Wockhardt is paying QVT and others in installments.
The US business is growing at a brisk pace. In the US, Wockhardt in 2011-12 notched up revenues of $370 million as against $230 million in 2010-11. In 2009-10, sales in the US was just $120 million.
"We have decided not to touch derivative instruments. Some bankers still come to us with such products. I tell them, I don't want to risk my organisation in my lifetime or in my children's lifetime," says the septuagenarian chairman, much chastened after foreign exchange losses three years ago that almost drove his company into bankruptcy.
As a result pharma multinationals were hovering around for easy pickings, hoping to scoop up a firm that happens to be one of the fastest growing generic drug makers in India.
In April 2008, Khorakiwala, who founded Wockhardtin the early sixties, the company was then known as Worli Chemical Works, announced its first ever loss, due to a mark to market loss of Rs 581 crore on account of the huge devaluation of the rupee even as in the same year sales grew 35% to Rs 3,593 crore.
On Friday, when ET met him, a day after he completed a Rs 1,280-crore deal with Danone for Wockhardt's nutrition business, a confident Khorakiwala spoke candidly of his past troubles which are now behind him. Over the last two years, Wockhardt's debt-equity ratio has come down significantly from a high of 5.5:1 to 1.9:1, which will be below 1 after the money comes in from Danone.
The stock has seen an exponential rise, jumping almost 200% in the last one year a sign, analysts say, investors have started re-rating the company.
Acknowledging the role of his immediate family and his top management team for standing by him as he struggled to steer the company back into profitability, Khorakhiwala is certain that the turnaround is complete as a series of sales of non-core assets that included hospitals and the nutrition business helped pare debt even as core operations improved.
Generics, the core business, has consistently delivered, even during its troubled years post 2008.
Its Ebitda margins over last three years have thus showed a consistent rise. In 2011-12, it was about 31%, while in the previous year it was 24%. In 2009-10, it was 18%.
Wockhardt has about 70% of its sales accruing from overseas, mostly the US. Hedging is par for the course for companies with forex exposure. TCS, Infosys hedge as a matter of routine.
"We deliberated. We have a large portion of our business coming from overseas. It is neutral for us and we are not managing currencies. You burn your hands once then it takes time to recover," he says. A business runs on its inner core and inner strength, he says and for Wockhardt the only challenge was the "financial challenge", and therefore could be resolved.
"We never had a business challenge. We remained very focused," Khorakiwala said.
BDO Haribhakti Group chairman Shailesh Haribhakti says Khorakiwala always maintained his equanimity."Habil Khorakiwala was calm and composed in our first meeting in early 2009. He clearly understood the problem and told us that the only way to come out of the crisis is by improving operating performance and getting rid of non-core assets. This is what he did and today Wockhardt is a great turn-around story," says Haribhakti.
During the troubled years, its stakeholders held faith. The suppliers allowed Khorakhiwala more leeway, extending his credit while he ensured that all his employees got their salaries on time.
"Not once did any of our employees get their salaries reduced or delayed by even a day," Khorakiwala says. To plug the loopholes in the finance team, which almost wiped his company, Khorakiwala took some tough measures including changing the finance team.
During those difficult days, all eyes were on costs. "We reduced the operational costs everywhere," he says. It was not by belt tightening alone. "Wherever there were inefficiencies, people themselves took action." Thus, Wockhardt managed to prune costs in the manufacturing area by 10-15%, by pruning one layer of people from the five layers tuned into the manufacturing arena.
For a year, Wockhardt decided to freeze hiring and costs were pruned in sales and marketing organisation. "If you see my balance sheet of last three years and see the balance sheet before the crisis, you'll see a reduction in expenses today," says Khorakhiwala.
"Khorakiwala is an extremely sharp person. He has piercing insights about business. He is also a very tough person, because it is not easy to run a company when you have debtors hounding you every day. He could have cracked up and sold the company, but he didn't. Khorakiwala has taken risks and that has paid," said Sujay Shetty, head of Life Sciences at PwC.
Khorakiwala says his organisation was reinvented, as people found a way to manage with fewer resources. Around the same time as the foreign exchange losses exploded in its face, the R&D wing was working on a range of products in several areas.
Fortunately, some of these products in the pipeline have started to materialise. Metoprolol, the cardiac drug got the nod from USFDA. In anticipation of the nod, Khorakiwala took a huge bet by building an inventory and thus could at once supply to US drugstores when it received a nod from the regulator.
"We created inventory in advance before we got the approval. So when the opportunity came, we took the advantage. It was a risk but the upside was significant," he added. "We took a call, including keeping R&D and drug discovery processes (that cost money) intact. It's a big call. Usually that (R&D spends) is the big casualty," when companies are in trouble.
The company's corporate debt restructuring was painful after some creditors, notably hedge fund QVT which had invested in its foreign currency convertible bonds, dragged them to court.
The value of shares had fallen and the bondholders wanted the money back. The company offered shares, which was rebuffed. Had they taken it they would have been rich now, says the chairman of the company which has seen the stock price gain over 250% this year. Wockhardt is paying QVT and others in installments.
The US business is growing at a brisk pace. In the US, Wockhardt in 2011-12 notched up revenues of $370 million as against $230 million in 2010-11. In 2009-10, sales in the US was just $120 million.
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