Wockhardt is one of the major beneficiaries of the price revisions announced by NPPA (National Pharmaceutical Pricing Authority). The price of four of its formulations have been hiked from 18 to 26.5 per cent -- namely Proxy Tab (18.2 per cent), Ibuproxyvon (18.4 per cent), Proxyvon (26.5 per cent) and Spasmoproxyvon (24.5 per cent). Of these, the latter three contributed 7.5 per cent or Rs 35 crore to Wockhardt's turnoverin fiscal 1999.

Proxyvon, an analgesic, has a turnover of Rs 12 crore. The brand's price has been raised from Rs 8.48 for a specific kind of strip of 8 capsules to Rs 10.73. The price of anti-spasmodic, Spasmoproxyvon, which has a turnover of Rs 19.8 crore, has been raised by 24.47 per cent to Rs 11.09 for a strip of 8 capsules.

Considering the high growth rates of these formulations, this is likely to give a tremendous impetus to the company's topline. However, this may not result in a phenomenal improvement in profit margins as the company's input cost has been on the rise for last six months. At best, therefore, the price hike is likely to compensate for a higher input cost. However, analysts say the company's bottomline should increase by Rs 5 crore on this account alone.

The de-merger of Wockhardt's non-pharmaceutical business into a separate entity has already led to a re-rating of the stock. The de-merger is based on the recommendations of McKinsey & Co. Post-demerger, Wockhardt will be apharmaceutical company involved in marketing and manufacturing with its 250 scientists and multi-disciplinary research & development organisations.

Wockhardt Europe, Wockhardt Americas Inc, Wallis Laboratories U.K. and the biotech joint venture, Wockhardt Rhein Biopharma, will be part of this organisation. Wockhardt Life Sciences will have mainly three businesses - agri-science business, IV fluids and hospitals.

Under the scheme of de-merger, shareholders will be allotted one share of Wockhardt Life Sciences for every share held. Both companies are expected to be incorporated and functional by January 2000. The de-merger scheme is going to unlock the full Wockhardt value by creating a pharmaceutical company which is globally competitive with a commitment to research and development and a life sciences business which will unlock its full growth potential in the next decade.

On the basis of current performance of businesses, the sales split between Wockhardt and Wockhardt Life Sciences will be in theratio of 73 per cent to 27 per cent. Profit from operations will be split 80 per cent and 20 per cent, respectively. The net worth will get divided in the ratio of 32 per cent for Wockhardt and 68 per cent for Wockhardt Life Sciences. The entire exercise will result in much leaner Wockhardt and greatly improve its performance on the operating front. Analysts expect that the newly formed pharmaceutical company Wockhardt will have a return on net worth of 23 per cent.

At the same time, the 1:1 demerger ratio also ensures that current Wockhardt shareholders can participate in the prospects of the new company. Wockhardt Life Sciences, thanks to its high potential three focus areas - agri science, IV fluids and hospitals -- is expected to grow at 30 per cent.

However, it will take the company at least three years to attain the same level of profitability as Wockhardt. Another factor that has been responsible for the low valuations of Wockhardt in the past is its huge investments in real estate. The company hasalready started looking for buyers for its property assets -- the proceeds of which will be used to repay debt, which would help to improve the return on the capital employed.