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Orchid Chemicals & Pharmaceuticals Ltd. - Q3FY08 Results Update
February 8, 2008
Price: Rs259.15
52 wk High / Low: 328 / 176
Market Cap: Rs1706Cr ($432Mn)
BSE Sensex: 17527
Bloomberg: PENL@IN
Rating: Not rated
Company Background
Orchid Chemicals & Pharmaceuticals Ltd. (OCPL) commenced operations in 1994 as a 100% export-orientedundertaking (EOU). It is an integrated manufacturer of active pharmaceutical ingredients (APIs) and finisheddosage forms.
The company has presence in high technology life-saving antibiotics; cephalosporins, betalactams andcarbapenems, with core competencies in sterile injectibles (crystalline and lyophilised), both in API and dosageform levels and complex non-penicillin, non-cephalosporin products.
The company operates 6 manufacturing facilities, 5 located in India and 1 in China. The facilities are US FDA andUK MHRA approved.
Financial highlights
Standalone
Consolidated
Particulars
Growth
Growth
Growth
Net Sales
39.4%
26.2%
26.0%
Expenditure
Total Expenditure
42.7%
26.3%
24.9%
31.9%
25.9%
28.6%
63.7%
51.5%
56.7%
Profit Before Tax
97.5%
173.8%
205.3%
Profit After Tax
91.1%
133.1%
161.5%
EBITDA margin
-1.7%
-0.1%
0.6%
91.0%
133.0%
161.5%
Paid-up Equity Cap
0.0%
0.0%
0.0%
Key Highlights
Strong performance in Q3FY08
The company recorded 39.4% revenue growth and 91.1% earnings growth in Q3FY08.
The robust earnings growth is in spite of lower EBITDA margin (down 170 bps y-o-y, from 31.2% to 29.5%).
Margin impact is due to high raw material prices and escalating staff costs.
Earnings growth is therefore attributable to the sharp decline in interest costs, coupled with forex gains ofRs3.50Cr. Interest costs declined by 26.2% on account of reduced leverage. Interest coverage ratio improvedfrom 2.2x to 4.2x y-o-y.
The company made forex gains of Rs3.50Cr (net of taxes) on account of gains from translation of FCCB loansdue to rupee appreciation.
We rate Q3FY08 as a good quarter for OCPL in terms of new business developments and continuation ofdominant position in the US market, all leading to better revenue and earnings visibility. We estimate revenuegrowth and earnings growth at a CAGR of 26.8% and 36.1% respectively over FY08-10.
Rohan J. Admane, Analyst ([email protected])
Keynote Capitals Research (+9122-30266043)
Nitin A. Khandkar, Head - Research ([email protected])
Keynote Capitals Research is also available on Bloomberg KNTE <GO> Orchid Chemicals & Pharmaceuticals Ltd.
Dominant position in the US market
OCPL’s US generics business constituted 51% of total revenues. The company has adominant position in the Cephalosporins market comprising of Cefepime, Cefoxitinand Cefazolin injections and Cefdinir oral products, in the US. It is the sole genericplayer in the Cefepime market and a key player in Cefoxitin and Cefazolin segments.
During the quarter, the company launched two sterile Cephalosporin injectibles, viz.,Ceftriaxone Sodium and Cefoxitin Sodium.
New products in the pipeline for the US and EU markets
During Q3FY08, OCPL filed another Para-IV FTF (First-To-File). Its cumulative ANDA(Abbreviated New Drug Application) filing count stands at 43, of which 28 are in theCephalosporin segment, 13 in the NPNC (non-penicillin, non-cephalosporin) segmentand 2 in the Betalactam space. The total count of ANDAs approved till date increasedto 23, out of which 22 are in the Cephalosporin Segment and 1 in the NPNC segment.
OCPL submitted its first dossier in the oral NPNC segment in Q3FY08. Its cumulativeMarketing Authorizations (MA) filing count stands to 14 comprising of the EU dossier filingsat 12 in the Cephalosporin segment and 1 each in the NPNC and Betalactam segments.
In an important development, the company’s Chennai facilities for manufacturing sterileCephalosporin and Penicillin injections received the approval of the Medicines ControlCouncil (MCC), South Africa.
Outlook remains positive; though rupee appreciation still a concern
We are positive on OCPL’s outlook due to the strong products pipeline and its deliverycapabilities. We believe the short term triggers would include the launch of Tazobactumand Piperacilin API (market size of $480mn) in the US market in the next quarter.
The company is expected to launch its veterinary product Ceftiofur in next couple ofquarters. Ceftiofur faces very limited competition in the US, due to the complexityinvolved in its manufacture. Besides these developments, in our view, the company’sdeclining leverage is a major positive.
We consider rupee appreciation a major worry, while other major risks are related tostringent regulatory approvals in regulated markets and the company’s marketing capabilities.
Keynote Capitals’s estimates and valuation
Keynote Capitals Research
Keynote Capitals Ltd.
National Stock Exchange of India Ltd. (INB 010930556) Over the Counter Exchange of India Ltd. (INB 200930535) Central Depository Services Ltd. (IN-DP-CDSL-152-2001) Registered Office
Disclaimer
This report has been prepared and issued by Keynote Capitals Ltd, based solely on public information and sources believedto be reliable. Neither the information nor any opinion expressed herein, constitutes an offer, or an invitation to make anoffer, to buy or sell any securities or any options, futures or other derivatives related to such securities. Directors, officers oremployees of Keynote Capitals or its affiliates may have positions in securities covered in this report or in related investments.
An affiliate of Keynote Capitals Ltd. may also perform or seek to perform broking, investment banking and other bankingservices for the company under coverage. Opinions presented herein are liable to change without notice. While due carehas been taken in the preparation of this report, Keynote Capitals Ltd. or any of its directors, officers or employees shall notin any way be responsible for any loss arising from the use thereof. Investors are advised to apply their own judgmentbefore acting on the contents of this report.
Keynote Capitals Research

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