ORCHID CHEMICALS & PHARMACEUTICALS LTD - UPDATES

Share price of Orchid Chemicals crashed from a level of Rs.300 to Rs.115 in this calendar year. Overall market crash and not so encouraging second quarter result was a  reason for this down trend .But the most important reason was the uncertainty  related with the redemption of FCCB ,which is due for redemption in February 2012.Now in a filing to stock exchanges , company informed that they  have already tied up funds for FCCB redemption . This is a good news and share price is expected to recover .Those with a long term view may enter @ CMP of Rs.136/-

Orchid Chem, poised for growth

Courtesy :ET


Chennai-based Orchid Chemicals and Pharmaceuticals is at an inflexion point of growth. After selling its lucrative injectable formulations business to Hospira last year, the company has built upon its remaining non-injectable business to grow over and above its pre-sale revenues. Investors can participate in the company’s progress as it forges growth across its various business segments.

BUSINESS

The Rs 1,400-crore Orchid Chemicals is among the top five generic antibiotics manufacturers in the world. It earns 90% revenue from overseas markets. Since inception, Orchid has established a strong foothold in niche therapeutic segments that are relatively uncluttered due to the inherent technical complexity. In December 2009, the company sold its injectable business to US-based pharma major Hospira at Rs 1,900 crore. It used the proceeds to to reduce the debt and redeem foreign currency convertible bonds (FCCBs) to the tune of Rs 110 crore.

As a part of the deal, Orchid also has a 10-year arrangement with Hospira for supplying active pharmaceutical ingredients (API) for the sold injectable products. It has emerged as the single-largest segment with 25% contribution to the topline.

Orchid has also started supplying APIs to other companies. It is among the very few players in the world supplying certain group of anti-biotics like cephalosporins, penecillins etc to regulated markets in the US and Europe.

GROWTH OPPORTUNITIES

After reducing its borrowings, Orchid Chemicals is now getting into formulations business by either buying businesses or in-licensing brands in therapies outside of antibiotics. It recently acquired Karalex Pharma , a US-based generic marketing and sales services company. Karalex has been growing at 20% annually. The company expects strong growth over the next three years in nonpenicillin, non-cephalosporin (NPNC) segment.

For many of these products, Orchid possesses marketing alliances in the US and Europe with prominent players such as Actavis, North Star and Alvogen.

FINANCIALS

For the nine months ended December 2010, the company registered a 20% growth in net sales. Its net profit stood at `97 crore against a year-ago loss of `58 crore. The debt repayment from the Hospira deal proceeds helped to improve margins.Orchid is likely to surpass its guidance of 30% growth in revenue and net profit of Rs 140 crore for FY11. It would invest Rs 400 crore by FY12 in new therapeutic areas of ophthalmology and immuno-suppressants. Orchid’s management expects the contribution of revenue from Hospira deal to remain in the region of 20-25% in the near term.

VALUATIONS

At a market cap of Rs 1,867 crore, the company is valued at one-and-a-half times its last 12 months turnover of Rs 1,385 crore. Its stock is trading at 3.8 times its earnings. These are low valuations for a company that has potential to be a sector outperformer in the coming quarters. The promoter has been steadily increasing its stake in the company reinforcing management’s confidence.

Orchid Pharma CMD wins 'Padma Shri' award

 

 

 

 

 Read with old Report HERE

 

His life and career demonstrate how talented professionals can harness their entrepreneurial energy and utilize the huge opportunity offered by India to establish world-class businesses generating employment and earning valuable foreign exchange for the country. 

 

Chennai-based global Pharma major Orchid Chemicals & Pharmaceuticals Ltd. (Orchid) announced that its Founder – Chairman and Managing Director  K Raghavendra Rao has been awarded the prestigious ‘Padma Shri’ Award by the Government of India for his contribution to the Pharmaceutical Industry.

K Raghavendra Rao - a brief profile 

K Raghavendra Rao, Founder - Chairman & Managing Director of Chennai-based global pharmaceutical major, Orchid Chemicals & Pharmaceuticals Ltd., (Orchid) is a role model of first generation entrepreneurship. His life and career demonstrate how talented professionals can harness their entrepreneurial energy and utilize the huge opportunity offered by India to establish world-class businesses generating employment and earning valuable foreign exchange for the country.  

Born in Chennai, in the year 1958,  Raghavendra Rao had been a brilliant student all through his career. He graduated with a Degree in Commerce from Andhra University with a gold medal for being the topper. He pursued post-graduate studies in Management in the prestigious Indian Institute of Management, Ahmedabad. He also acquired Costing (ICWAI) and Company Secretary (ACS) qualifications while in employment making him a highly qualified professional with multiple competencies. 

Rao established Orchid in 1992 as a 100% export oriented unit (EOU) and grew the Company rapidly into a global pharmaceutical enterprise specializing in life saving medicines. With world-class research and manufacturing facilities covering Active Pharmaceutical Ingredients (APIs) and finished dosage forms as well as infrastructure for New Drug Discovery, Orchid today ranks amongst the top pharmaceutical companies in India. 

By developing Orchid as the largest pharmaceutical corporation in the State of Tamil Nadu,  Rao firmly placed Tamil Nadu in the national and international pharmaceutical canvas.  

Raghavendra Rao is a recipient of several awards and recognitions for his personal and professional accomplishments and Orchid, for its business performance.  Rao received prestigious national awards for his entrepreneurship, two of the leading 

awards being the India Young Business Achiever Award in 1997 and Ernst & Young Entrepreneur of the Year Award in Manufacturing in 1999. Orchid won several awards for its export performance, environmental friendly operations, energy efficiency and corporate social responsibility (CSR). Orchid Trust established with the initiative of  Rao, contributed to significant social development through schools and healthcare facilities. 

Orchid’s CSR initiatives were recognised by the Loyola Institute with the Mother Teresa Award for the Best Corporate Citizen in 2001.  Rao was also conferred the Doctor of Letters (Honoris Causa) by the SASTRA University in 2007 for his entrepreneurial achievements and contribution to the growth of the Indian pharmaceutical industry. 

Courtesy :IIFL

 

An old story

 

Courtesy - domain-b

Consider the following scenario: Bill Gates, fresh out of Harvard, incidentally without graduating, has already decided on creating Microsoft. However, hard-pressed for funding, he decides to raise funds from the open market and lists Microsoft right at its inception. To survive in the nascent computer industry, he decides to liquidate most of his personal stake in the company to raise money, and manages to increase its revenues twenty-five times within a decade. However, IBM, the reigning emperor of the computer world, is not happy with the emergence of a pretender to the throne. Nor is it enthralled by the fact that though it enjoys a monopoly on computer hardware, it does not yet have a killer software product. And so, it plans a sneaky counter-attack.
It creates an entity, lets say Takeover Inc, specifically for taking over Microsoft, which waits and watches for the right opportunity. As soon as it finds that there is a general economic downturn and Bill Gates has a lot of debt, it strikes! Share prices are low due to the fall in stock markets worldwide, and Takeover buys a lot of Microsoft shares cheap. Eventually, it convinces institutional investors in Microsoft that the kind of money IBM can offer for their shares is much more they can hope to get in the next few years by staying on with Gates.
They agree and sell out. IBM becomes the new owner of Microsoft and shunts out Bill Gates. End of Microsoft. End of Bill Gates. End of Windows.
Many Mac users will say that wouldn't necessarily be a bad thing, but all criticisms of frequent hang-ups and blue screens of death notwithstanding, Windows still runs more than 90 per cent of the world's computers. And without Bill Gates and his Windows, computers wouldn't be as ubiquitous as they are today. In fact IBM chairman Thomas Watson had once predicted "I think there's a world market for about five computers."
A possible alternate history, though quite a bit dramatised. However, something similar is playing out right now in India, and in quite a different sector of pharmaceuticals. Just replace the names - Kailasam Raghavendra Rao for Bill Gates, Orchid Chemicals & Pharmaceuticals for Microsoft, Ranbaxy for IBM, cephalosporin for Windows and Solrex for Takeover Inc, and you have a perfect match.
Like Bill Gates,  K Raghavendra Rao is a a first-generation entrepreneur whose Orchid Chemicals & Pharmaceuticals grew in the early years on the strength of its product  cephalosporin, not unlike the ascent of Microsoft as Windows became the de facto personal computer operating system. Similarly, Ranbaxy is the biggest kid on the block, just like IBM had been in Microsoft's youth. And although IBM never made a serious play for Microsoft, Ranbaxy seems from its recent open market acquisitions of Orchid's stocks, very interested in its rival.
How did this all come to pass?
The story began in 1993 with the setting up of  Orchid Chemicals & Pharmaceuticals, by  IIM-Ahmedabad alumnus K Raghavendra Rao who chucked up a lucrative corporate career to strike out on his own. Though a first generation entrepreneur, he persevered and took the company to a constant-growth curve; from a Rs30-crore company in 1993, Orchid Chemicals & Pharmaceuticals recorded a turnover in excess of Rs1,000 crore in 2008.
Rao expanded his company's product portfolio. From a single product, the antibiotic  cephalosporin, its current range includes a variety of medicines in oral and injectable forms. From bulk actives Orchid invested in forward integration into finished dosages, and then moved from lesser regulated markets like China to the developed, and highly regulated, US and Japanese markets.
In the bargain the promoter picked up laurels like the Ernst and Young Business Achiever award and was felicitated by former President Dr.Shankar Dayal Sharma and former Prime Minister Atal Bihari Vajpayee for his contributions to the pharmaceuticals industry and a rare presidential visit from President APJ Abdul Kalam during his tenure as president in 2005 (See: Orchid Chemicals hosts presidential visit at its formulations complex)
Rao came from a middle-class background and getting into business was quite an alien experience. All this time, his personal ownership in the company never reached a controlling stake, unlike other Indian promoters. The last time he decided to increase his stake in the company was in March-June 2007, when Rao chose to hike his stake in the company from 17 per cent to 24 per cent after pledging his personal shares with Indiabulls and Religare, a Ranbaxy group brokerage house, to maintain the faith of investors in the company.
Sunk by the Bear Stearns crisis
The story of Orchid is, in many ways, a story of the ongoing sub-prime crisis. Even as Bear Stearns, one of the oldest names of Wall Street, went into bankruptcy recently, it sold shares it held worldwide in a futile rearguard action. Unfortunately for Orchid, one million of its own shares were among those sold by the beleaguered bank in March, resulting in a decline in Orchid's share price from a 52-week high of Rs328 to Rs200 by mid-March.
The fall of the dominoes had started. Margin calls were triggered by the firms which had provided margin funding - Indiabulls and Religare - and Rao was forced to offload seven per cent of his holding to meet their demands. On 17 March, the Orchid share tanked by 38 per cent to around Rs110, and hit its 52-week low of Rs106.50 on 24 March, leaving it a vulnerable takeover target.
This is where Solrex, apparently an investment firm said to be controlled by Malvinder and Shivinder Singh of Ranbaxy, made  an appearance. As late as the end of the last fiscal on 31 March, it did not have any significant holding in Orchid, later revealed to be 4.6 per cent. However, since this was below the 5 per cent mark, Solrex was not required to make the information of its shareholding public.
However, it found in the low share price a perfect buying opportunity, and picked up an additional 3.4 per cent stake from the open market on 3 April. Since the cumulative 8 per cent mandated a disclosure, the information was made public by Solrex. Solrex continued mopping up Orchid shares, and after deals made on 8th April and 12th April, is now the owner of an estimated 14.7 per cent of  Orchid Chemicals & Pharmaceuticals. This figure is quite close to the 15 per cent stake that would necessitate an open offer to other shareholders as per Indian law, if the company decides to launch an acquisition.
Of course, the share price hasn't languished all these weeks. It has risen spectacularly since the news of Ranbaxy's interest came in and is now trading in the Rs245 range. In fact, Solrex's latest deals were struck at this price at the stock exchanges on Friday. However, analysts opine that even after this increase in recent times, the stock trades at an attractive PE ratio of 18.44.
Considering the enormous advantages that Ranbaxy can accrue from such an acquisition, odds are on that Ranbaxy mounts a hostile takeover bid for Orchid through Solrex, notwithstanding its management's assertations to the contrary.
What does Ranbaxy stand to gain from such an acquisition? A lot, apparently.
For one, it gets expertise in a field in which it didn't have any – high-end antibiotics. Additionally, it gets a lot of capacity addition in the cephalosporin space, where Orchid is India's biggest and amongst the world's top five manufacturers. Orchid is already notching up impressive sales abroad, and even with this ongoing share drama, the company has found time to expand its footprint in to Japan last week (See: Orchid Chemicals announces Japanese subsidiary). Orchid's product range can also function as an appropriate feeder for Ranbaxy's healthcare subsidiary Fortis. 
Another very important benefit that Ranbaxy will obtain by acquiring Orchid is access to assets and technologies that have been approved by regulatory authorities across the world, including the US FDA (Food and Drug Administration), the UK MHRA (Medicines and Healthcare products Regulatory Agency). This is especially significant in the light that as much as 75 per cent of Ranbaxy's revenue comes from exports, and recently it has had several face-offs with the FDA.
With several pre-approved products, the acquisition of Orchid can enable Ranbaxy consolidate its position in the overseas market.
How can Rao prevent his company from being swallowed by the giant?
One option is to increase his own stake in his company, for which he will require funds. Also, if the other institutional investors, who collectively hold a 38 per cent stake, decide to stand by him and refuse to sell out to Solrex, he stands a good chance of riding out this storm.
For the first alternative, Rao can convert 5 million warrants in his ownership to an additional 7.6 per cent equity stake. This option was unattractive till three days ago, but a 34 per cent rise in the company's share price since Monday has made the conversion price of Rs202.58 per share look cheap. However, even for this, Rao needs to rustle up some Rs.90 crore.
As for the second option, he has already received support from the largest shareholder Life Insurance Corporation of India (LIC), which hold a 7.8-per cent stake, and has expressly opposed a hostile takeover by any party as a matter of policy. However, the other big investors, notably DSP Merrill Lynch (5.3 per cent), Harpline (4.5 per cent), Macquarie Bank (4.1 per cent), Credit Suisse (3.3 per cent) and Fidelity (2.7 per cent) are yet to decide on their stakes in Orchid Chemicals & Pharmaceuticals.
Now, a third option has come to the fore – join hands with another player in the pharmaceuticals industry. Ranbaxy has already diversified from its forte in manufacturing to service through its subsidiary Fortis, which took a stake in Chennai-based Malar hospitals last year, right in Apollo Hospitals' backyard. Apollo's founder and chairman Dr Prathap C Reddy is not one to take a challenge lying down, and sources indicate that he may be in talks with Rao to counter Ranbaxy's unbidden interest in ORchid. However, this hasn't been officially confirmed.
Matters right now are at the moment of climax – will the David defeat the Goliath, or will history be rewritten in the Indian pharmaceuticals industry? Answers may well emerge this week itself.

 

 

 

 

RESULT UPDATES

1) ORCHID CHEMICALS

I have recommended a BUY on Orchid Chemicals at Rs.161/- ( old reports are  HERE and HERE) ,which is currently trading at Rs.301/- .Company posted excellent result for the qtr ended Dec.2010.Sales is Rs.478 Cr v/s Rs.360 Cr and NP is Rs.57 Cr v/s a loss of Rs.19 Cr . It is expected to perform better in coming years too. One can HOLD at current level and a 10 % correction from current level may take as an opportunity to BUY it for long term

2) GEI INDUSTRIAL SYSTEMS LTD

I have recommended a BUY on GEI INDUSTRIAL SYSTEMS at Rs120/-( old report HERE ) which is currently quoting at Rs190/-. Company posted good result for the qtr ended December 2010  with sales moved up from Rs.62 Cr to Rs.110 Cr and net profit from Rs.4 Cr to Rs.8.6 Cr .One can HOLD at current level. Keep a close watch on new order additions and movement of the price of raw materials.

ORCHID CHEMICALS - UPDATE

I have recommended a BUY on Orchid Chemicals @ Rs.161/-.Currently it is trading @Rs.232 .Long term investors can still HOLD and short-medium term investors may book partial profit at current level.
Old Reports can be accessed below:

ORCHID CHEM -1

ORCHID CHEM -2

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/-.

ORCHID CHEMICALS AND PHARMACEUTICALS Ltd -BUY

Orchid Chemicals and Pharmaceuticals is a 1300 + Cr pharma company based in
Chennai promoted by  Mr.K Raghavendra Rao
Orchid is the largest manufacturer of
Cephalosporin in India and one of the top
five in the world.Company has strong presence
in API and formulation segment.It is very strong
in R&D and has a special R&D wing in the name
of Orchid Research Laboratories with more than
130 scientists.Orchid's plants are approved by
various foreign agencies like US FDA and the
company is one of the largest exporter from India.
Last year was a disaster for orchid mainly
because of its huge debt burden and foreign
currency loss.Inorder to de-leverage ,company last
year sold its generic injectable finished dosage
business to 'HOSPIRA' and repaid loans worth
Rs.1400 Cr using part of this realisation .
Using part of the balance fund ,Orchid recently
aquired a company named Karalex Pharma .
This aquisition will be a boost for its marketing
efforts in US over next few years.company's bad times
are almost over and it is expected to post better
perfomance in the years to come.Orchid is expected
to post a turnover of Rs.1270 Cr and a net
profit of Rs.85 + Crore in current financial year .
Company recently declared a dividend
of Rs.10/- each (100%) too.  Moreover after the reduction in debt
Orchid is a perfect takeover target due to its large size ,
quality of operations ,well established R&D and comparatively
low promoter stake At current market price of Rs.161 /- ,
Orchid is a decent BUY.