No need to throw stones

After my posting on ORCHID CHEMICALS ,I have received few mails stating that Orchid is a company like Satyam Computer and its promoter Mr Raghavendra Rao is similar to Mr Raju of Satyam.I have a different opinion on it and it is a continuation of my earlier post on Orchid Chemicals.
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I think Mr. Raghavendra Rao does not committed any fraud.

When we recollect the past, Mr Rao was a first generation

entrepreneur with lot of idea but without deep pockets.

Since he doesn’t have enough money ,he forced to dilute

equity in favor of others (mainly for various FII’s )  and also

raised fund through FCCB’s. Using these funds company

created top class facilities for manufacturing. After these fund

raising exercise Mr.Rao’s stake in percentage terms come

down drastically in the company.

In order to increase his share holding in

the company Mr Rao wants to purchase shares from open

market .For this purpose he pledged his existing shares with

India bulls and Religare and bought money from them  for

market purchase of shares of his own company  .

Unfortunately at this time the subprime crisis worsened and

one of the share holder BSMA forced to offload their entire

stake in the open market. Such a huge sell off led to a sharp

drop in its share price which led to margin calls by India Bulls

and Religare , Mr Rao could not meet his obligation and even

forced to sell already bought shares .All these unfortunate events

led to a sharp fall in share price of Orchid from Rs.240/- level to

just Rs.56/- in 2009.On the other hand ,in the past two years

due to unfavorable volatility in exchange value of rupee company

also suffered loss in foreign exchange and FCCB   front .To save his

company,Rao had no other option than selling part of  his company

itself for escaping from debt trap.That’s why he sold the  injectable
business to ‘HOSPIRA’ last

year .But he didn’t took the amount personally and the entire amount

came to the company itself .Company realized an amount close

to 1900 Cr  and used Rs.1400 Cr out of it for repayment of loan

.Balance amount is with the company for further acquisitions and

repayment of  FCCB . It take the first move in this direction by

acquiring US-based generic marketing company Karalex Pharma

in this month. Orchid also declared a dividend of 100% for this FY.

Sell off of  the  injectables business is expected to result a revenue

loss of  $ 90 mn for Orchid ,but I strongly believes that Orchid will

compensate it through it new products and by increasing the volume

of existing products in two year time. Moreover  Mr Rao already

indicated that he is going to increase the promoter stake through

creeping acquisition and which is already visible in latest share

holding pattern. This is the real story , and I believes that it is

entirely different from ‘Satyam Saga’ . So there is no reason for

comparing both these companies and throwing stones to a

promoter like Mr.Raghavendra Rao. Some unfortunate things

happened in the past and Mr Rao may have learned valuable

lessons from past happenings and in my opinion he is capable of 

steering the company to new heights.

When there was a crash in share prices ,both Ranbaxy and

Serum Institute of India (a Poonawala Group Company) bought

huge quantity shares of Orchid  from the open market  itself is a

testimony for the quality of the company and its products.

So I believes that if there is any problems like the previous one

occurred due to higher  percentage of pledged shares  there will

be many takers for this 1300 Cr company .In nutshell Orchid is a

‘Class ‘company  for investment  if you have sufficient patience

with a three year target of  Rs.400/-.