Habil Khorakiwala of Wockhardt resigned as MD. Further, the company's results are delayed due to potential restructuring. Where does this leave shareholders? Moneycontrol explores.

While Khorakiwala has resigned as MD, he will continue as an Executive Chairman of the company. His son, Murtaza H Khorakiwala has been appointed as an Additional Director & MD, subject to approval.

The company was scheduled to declare results yesterday. However, Wockhardt said that due to potential restructuring, audit of the company could not be completed. Annual audit for the year ended 2008 will be completed by April 25, 2009. Wockhardt said that it will refer the company to the Corporate Debt Restructuring (CDR)  cell for financial restructuring through ICICI Bank.

Financial analysis: Debt ridden
Wockhardt's debt equity ratio stands at 2.3x as on December 31. Wockhardt's net debt stands at Rs3,400 crore as on December 31, 2008.

Wockhardt has high net debt of roughly $600 million implying 180Per cent net gearing. The company has high exposure to forex rates. Significant portion of the company's debt has been denominated in foreign currency. Debt to market cap ratio is approximately 300Per cent. Wockhardt will convert Foreign Currency Convertible Bonds (FCCB) of  $110 million in October 2009 at conversion price of Rs629.8 per share.

Wockhardt's base business is growing at 20 Per cent plus rate. The company has maintained the operating profit margin of over 20 Per cent in CY08. The company has strong products portfolio and has made some big ticket acquisitions in the past.

Wockhardt has acquired French company called Negma Laboratories and US based Morton Grove for under $ 38 million. The company has made several other aqquisitions like Wallis in UK, CP Pharmaceuticals in UK, Esparma in Germany and Pinewood in Ireland.

The promoters of the company have pledged 43 Per cent of their total 74Per cent stake in the company.

Experts' take
PN Vijay says that he is not too surprised because Wockhardt has been a maverick company. One didn't agree with their massive diversification. They started well about ten years ago but they lost it in between after building assets which they couldn't manage. The assets were on sale and then they did FCCB (Foreign Currency Convertible Bond) and everything which they shouldn't be doing which is very unlike pharmaceutical companies. Pharma companies in India are use to multinational, strong cash flows, lower leveraging and this was out of the pack so it deserves the treatment it's getting.

Udayan Mukherjee says that first biggest takeaway from Wockhardt episode is that this is an eye opener that do not let companies hide their forex. For, Wockhardt the problem is a forex problem because that is where part of the problem has started. He feels that invetsors should not let companies put their bad news under a carpet and say okay one will disclose in four quarters because in four quarters one will have many more Wockhardts popping up in your face.

Also the Wockhardt's Rs3,500 crore debt is now spoken about quite a bit. What is not getting spoken about is $110 million FCCB which is debt now because they did the FCCB at a convertible price of more than Rs 600, so another Rs 600 crore of debt will get loaded on to Wockhardt and that is a problem which will happen with a lot of companies who have these large side FCCBs which are pending which will turn to debt and that might lead to a lot of heartburn.

Archi Damania, CNBC TV18 says that Wockhardt is referring itself to corporate debt restructuring cell and they will be doing this through ICICI Bank. This was impending because Wockhardt has a very high debt of Rs 3,400 crore as on December 31, 2008. Its debt-equity ratio is also very high; its debt is almost twice its equity and if you look at its debt to market capitalisation, it is now 300Per cent. About $110 million of FCCB has come into conversion in October 2009, at a price of Rs 600 per share, which obviously wouldn't be converted at this price so they would have to arrange for cash for that payback as well.

All these concerns first started showing up in the Q1 of 2008, when it first came to surface that Wockhardt had not disclosed its forex losses for a few quarters. We have also learnt that Mr Habil Khorakiwala has resigned as the Managing Director of the Company and his son Murtaza Khorakiwala  will be appointed as Additional Director and Managing Director which is subject to shareholder approval.

The Q4 results were also supposed to come out today which did not come out and the company has stated the reason that due to potential restructuring of audit, the audit could not be completed. They said the audit for the full calendar year 2008 will be completed by April 25, which is when one will see the results of Wockhardt.