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Wednesday, August 10, 2011

Orchid Chemicals & Pharmaceuticals Ltd:-Buy/sell/,growth prospects and recommendation,news and results,target price/analysis,outlook,multibagger

Scripscan:Orchid Chemicals & Pharmaceuticals Ltd

Story:Orchid is an integrated pharmaceutical company engaged in developing and manufacturing active pharmaceutical ingredients (APIs), finished dosage forms and drug discovery.The company has two API manufacturing units (at Alathur near Chennai and at Aurangabad, near Mumbai) and three manufacturing sites for dosage forms (at Irungattukottai and Alathur in Chennai).It also has two R&D centres in Chennai.Orchid plans to focus on developing formulations (finished products) for new geographies. It is also expected to look at licensing opportunities for new brands and expanding marketing reach in those regions.Currently, the company derives 70% of its revenues from active ingredients or bulk drugs and the rest from formulations.It is working to move this to a 50:50 proportion over the next two years for which the company has set an annual investment target of Rs200 crore.The company has lowered its debt levels significantly through the sale of injectible business to Hospira thus bringing the D/E ratio to 1.6x in FY11 from 4.1x in FY09. It also has improved its working capital management by lowering its receivable days from 200 in FY10 to 105 in FY11.Theres strong earnings visibility over the next two years and new product launches as reasons for my optimism on the stock.There is one issue with Orchid though.Orchid’s entrepreneurial founder KR Rao, the son of a railway clerk, has always been too interested in the stock price of the company. This is widely known among brokers and investment bankers which is why the stock never got its true valuation.Its expected to post 28rs earnings for fy12 which gives it a discounting of 6 odd times.Theres some scope of capital appreciation in orchid in the longer run.Hold on to it and add more if it dips further.

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