Buy - Orchid Chem, The stock is showing positive bias for the short term. HDFC Sec

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QUERY CORNER - L and T Finance, Sintex, Nakoda, Bank of India, Glodyne, Orchid Chem:: Business Line

 

Investment Focus - Orchid Pharma: Sell :: Business Line

Sizzling Stocks: Tech Mahindra, Orchid Chemicals & Pharmaceuticals ::Business Line

Orchid Chemicals- BUY-Target Price `178 :Angel Research

Angel Broking - Orchid Chemicals - RU4QFY2012 - Result Updates - PDF link

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Orchid Chemicals - RU4QFY2012

Buy Orchid Chemicals :: 2QFY2012 Result Update :: Angel Broking

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Orchid Chemicals (Orchid) reported in-line numbers for 2QFY2012. Going
forward, for FY2012, management has guided 25% revenue growth to
US$500mn, EBITDA margin at ~24% and EPS of `30 on current equity.
The company plans to raise `1,000cr primarily to repay FCCBs due in February
2012; the balance amount would be used to repay debt and pursue organic and
inorganic opportunities. We maintain our Buy view on the stock.
In-line set of numbers: For the quarter, on a consolidated level, Orchid reported
net sales of `459cr (`413cr), up 24.6% yoy. The company’s gross margin dipped
by 240bp yoy to 50.9%; however, OPM expanded by 3.8% to 21.2%, much
lower than expectation of 17.4%. The rise in operating profit was on account of
muted rise in other expenses, which dipped by 6.8% yoy during the quarter.
Further, higher interest expenses during the quarter led to a dip in net profit,
which came in at `20.7cr vs. our expectation of `39cr.
Outlook and valuation: We expect Orchid to post net sales of `2,143cr with
EBITDA margin of 21.8% in FY2012E. The stock is currently trading at 6.1x
FY2012E and 4.7x FY2013E earnings. We maintain our Buy rating on the stock
with a revised target price of `270

Orchid Pharma- Muted quarter – Plant reopening key:: Macquarie Research,

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Orchid Pharma
Muted quarter – Plant reopening key
Event
 OCP announced its 1Q FY12 results. Consolidated net sales were Rs4.5bn
(up 36% YoY), EBITDA was Rs900m (up 7.4% YoY) and PAT was Rs169m.
Results were below estimate due to the 27-day planned shutdown of the
Aurangabad plant (for plant validation). Maintain Outperform.
 OCP has corrected ~25% since the cephalosporin API manufacturing facility,
located in Alathur (Chennai), was issued a Closure Notice by the Tamil Nadu
Pollution Control Board (TNPCB), citing some non-compliance with regards to
the disposal of solid waste. In our view, timely re-opening of the plant will be
critical (OCP guiding to 1H August) for OCP’s FY12 guidance to be achieved.
Impact
 Hospira contract remains the main driver; contribution 20% in 1Q FY12:
Given the limited competition for the products under contract (carbapenem,
Tazo Pip and ADD-Vantage), this is a significant growth driver, with EBITDA
margin above 30%. Given the Aurangabad plant is where Penens and Tazopip is manufactured, the 27-day planned shut-down impacted the reported
margins for the first quarter. The upcoming launch of Imipenem by HSP and
the supply of bulk for Hospira’s patented device, “Add Vantage,” should
further boost growth over the medium-term, in our view.
 Early resolution of TNPCB issues for Alathur plant critical: Almost ~40%
of the sales of the company come from this facility. We have now assumed
an end-August opening vs OCP guidance of 1H August. In our view, speed
with which OCP can resolve the issues with the TNPCB is going to be critical.
 Maintaining FY12 guidance: OCP continues to guide for FY12 net sales at
US$500m (25% growth), EBITDA margin at 25% and PAT at Rs2.1bn. Last
year OCP achieved 23% of its PAT guidance in 1H FY11 and 77% in 2H
FY12.
Earnings and target price revision
 We are revising our FY12/13E EPS to Rs22.4/28.2 from Rs24.7/29.5 to adjust
for the impact of closure of cephalosporin plant (30 to 40 days).Our base-case
scenario now assumes potential opening of the plant by end-August. Our TP
is revised to Rs340 (@ 8x EV/EBITDA; was earlier Rs415).
Price catalyst
 12-month price target: Rs340.00 based on an EV/EBITDA methodology.
 Catalyst: Cephalosporin plant reopening post resolution of PCB issues raised.
Action and recommendation
 Valuations look attractive, with OCP trading at a PER of 7.6x FY12E earnings.
We maintain our OP rating but see near-term pressure continuing on the
stock due to the outstanding TNPCB issues and the weak quarterly results.
 Extended delay in the resumption of the Cephalosporin plant could impact our
earnings estimates significantly and remains the key risk on the name

TNPCB issues closure notice to Orchid Chemical’s unit :: Angel Broking,

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TNPCB issues closure notice to Orchid Chemical’s unit
Just a few weeks after clearing an USFDA inspection, Orchid Chemicals &
Pharmaceuticals’ Cephalosporin API manufacturing facility in Alathur (Chennai) has been
issued a closure notice by the Tamil Nadu Pollution Control Board (TNPCB) over
non-compliance issue relating to disposal of solid waste. The Alathur facility has been
manufacturing a range of oral and sterile Cephalosporin APIs (it is an antibiotic used to
treat infection and inflammation) since 1994. The facility caters to developed markets such
as the US, Europe and Japan. The Company is in active dialogue with the TNPCB officials
and is confident of resolving the issues and bringing the plant to a fully operational stage
at the earliest. We maintain Buy on the stock with a target price of `373.

Orchid Pharma Beats FY11 guidance ::Macquarie Research

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Orchid Pharma
Beats FY11 guidance
Event
 OCP reported FY11 sales of Rs17.2b (up 33% YoY), EBITDA of Rs4.2b and
PAT of Rs1.56b. The EBITDA margin was 23.5%. Adjusting for the asset sale
to Hospira in FY10, sales growth was ~60% YoY. Results were well ahead of
our estimates and company guidance. OCP announced that a fund-raising
resolution of a maximum Rs10bn (including equity and debt) has been
considered by the board primarily for upcoming FCCB repayment. We
maintain our OP rating. Lack of financial discipline or higher than anticipated
equity dilution remain key risks to our investment thesis.

Result Reviews Orchid 4QFY2011:: Angel Broking

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Orchid
Orchid Chemicals (Orchid) reported strong set of numbers for 4QFY2011. Net sales came
in at `528cr (`305cr), an increase of 73.0% yoy, higher than our estimates of `369cr.
Gross margin came in at 46.3% for the quarter. This translated into OPM of 22.9% in
comparison to an operating loss in the same quarter last year. Orchid reported a drop of
48% yoy and 5.9% yoy in interest cost as well as depreciation cost in the quarter under
review, which boosted the bottom line. Net profit came in at `58.7cr (`398cr) due to
extraordinary items of `897cr in 4QFY2010. Adjusted net profit during the period was
`63.3cr as compared to loss of `500cr in the same quarter last year, higher than our
estimate of `62cr.
For the full year, net sales reported growth of 32.2% yoy to `1,717cr. OPM came in at
20.5% for the full year. Net profit dropped by 54% yoy mainly due to extraordinary items in
4QFY2010. Adjusted net profit came in at `154.2cr compared to loss of `553.6cr in
FY2010. The stock is currently trading at 10.6x FY2012E and 8.0x FY2013E earnings and
is under review.

Result Preview - Bajaj Auto, Orchid Chemicals:: Angel Broking,

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Result Preview
Bajaj Auto
Bajaj Auto is slated to announce its 4QFY2011 results. We expect the company’s top line
to grow by 24% yoy to `4,073cr, led by 17% yoy growth in volumes and an increase in
average net realisation. On the operating front, EBITDA margin is expected to decline by
340bp yoy to 19.5% due to higher raw-material costs. However, the bottom line is
expected to witness 19% yoy growth to `630cr. The stock rating is under review.

Orchid
Orchid Chemicals and Pharmaceuticals Ltd. (Orchid) is scheduled to announce its
4QFY2011 results. We expect the company to report net sales of `369cr. OPM is expected
to come in at 30.1% for the quarter. Net profit is expected at `54.6cr. We currently have a
Buy rating on the stock with a target price of `369.

Macquarie Research, Orchid Pharmaceuticals- Roadshow Takeaways :target price of Rs415.

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Orchid Pharmaceuticals
Roadshow Takeaways
Event
 We present key takeaways from the recently concluded non-deal road-show
where we hosted a meeting with senior management of OCP for over 40
investors. We found interest among investors high given the emerging visibility
of earnings driven by product-specific contracts with Hospira and other players
across geographies. Financing for FCCB redemption in FY12 was one of the
primary concerns highlighted by investors.

Stock Strategy: Consider going long in Punj Lloyd, Orchid Chemicals: Business Line

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Punj Lloyd: After remaining at the receiving end for quite some time and touching its 52-week low at Rs 58, the Punj Lloyd stock is showing signs of resilience. It finds a near-term resistance at Rs 76 and the next one at Rs 93 and has support at Rs 62.5.

One more conclusive close above Rs 68 could trigger fresh buying in the stock. This could take the stock towards Rs 92 and even to Rs 107.

F&O pointers: The Punj Lloyd futures (market lot: 2000) saw a fresh accumulation of open interest in April futures.

While it also witnessed a healthy rollover of 88 per cent, it was lower than the three-month average of 90 per cent.

However, trading in options suggest little upside for the stock, as both 70 and 75 calls witnessed huge accumulation. Puts weren't active enough to discern any view.

Strategy: Traders can consider going long on Punj Lloyd futures if the stock moves past Rs 68. In that event, traders can keep the stop loss at Rs 68 on a closing day basis (spot price). Traders can consider exiting from the stock at Rs 76. If the stock maintains momentum, traders can also consider holding the long by shifting the stop-loss to Rs 92. Traders with appetite to take risk could hold Punj Lloyd futures till expiry with a tight stop-loss at Rs 62.5.

Orchid Chemicals: The outlook for Orchid Chemicals remains neutral as the stock is moving in a narrow band between Rs 270 and Rs 340. Only a break from this level could set a clear trend for the stock. The immediate-term outlook remains positive, as the stock could touch the upper band of Rs 340.

A forceful close above Rs 340 could set the stock in a fresh round of bull rally that could help it pierce its all-time high level of about Rs 380. It finds an immediate support at Rs 307.

F&O pointers: The Orchid Chemicals futures (market lot: 2000) added fresh long on Friday. It also witnessed a healthy rollover of about 90 per cent. Options are not active.

However, cues from option trading indicate limited upside, as 320-strike and 340-strike calls witnessed heavy accumulation of open interests.

Strategy: Traders can consider going long in Orchid Chemical futures with a tight stop-loss at Rs 307.

Follow-up: Last week, we had advised traders to consider going long in Bharti Airtel and writing (selling) a 210 call on LIC Housing Finance. While the former moved in line with our expectations, the latter would have resulted in heavy losses, as the stock moved up sharply

52-WEEK BLOCKBUSTER: ORCHID CHEMICALS: Business Line

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Orchid Chemicals & Pharmaceuticals has come a long way since the sale of its injectables formulation business to Hospira for $400 million (about Rs 1,870 crore) in 2009-10. While the decision was unwelcome then, especially since it was parting with its growth engine, that it used the sale proceeds judiciously, has helped. It repaid about Rs 1,400 crore of loans, significantly de-leveraging its balance sheet. The result — debt-equity ratio, which had climbed from 1.3 to 4.4, is now at a more comfortable 1.5 level. In June 2010, it acquired the US-based generics marketing company, Karalex Pharma, to get the much-needed front-end presence there.

The 10-year agreement that it had struck with Hospira following the business sale had also helped. The agreement let Orchid supply active pharmaceutical ingredients (APIs), required for producing the injectables, to Hospira. This helped it keep the utilisation levels at its manufacturing capacities optimal, and in turn expanded its margins. In the just-ended quarter, Orchid reported a 26.6 per cent EBITDA margin. The management expects to sustain this performance, helped by limited competition for the products under contract (carbapenem, Tazo Pip and ADD-Vantage), in addition to the upcoming launch of Imipenem by Hospira.

Interestingly, over the last few months, FIIs holding in the company has increased to 12-13 per cent from about five per cent

Orchid --Visible growth:: Macquarie Research,

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Orchid
Visible growth
Event
 OCP is a vertically integrated global pharmaceutical company
with operations mainly in Cephlosporins, penicillins/betalactam and
Carbapenems. OCP employs more than 4,000 people, of which over 700
are scientists, technologists and other professionals. It is the largest
manufacturer-exporter of cephalosporin products in India and a leader in
penicillins/betalactam and carbapenems. It has strength in molecular
modelling, medicinal chemistry, analytical chemistry and process R&D. Its
long-term exclusive agreement with Hospira to supply APIs will be a key
growth driver, according to management.

Buy Orchid Chemicals Target Rs. 332 – 3QFY2011 Update :: Angel Broking

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Orchid Chemicals – 3QFY2011 Result Update

Angel Broking recommends a Buy on Orchid Chemicals with a Target Price of Rs. 332.

Orchid Chemicals (Orchid) reported strong set of numbers for 3QFY2011. For

FY2011, the company has maintained its guidance of top-line growth of 23% to

`1,600cr, EBITDA margins at 22% and EPS of `20. The company plans to incur

`200cr capex in FY2011. We have revised our estimates upwards and

recommend Buy on the stock.

Orchid Chemicals -3QFY2011 Result Review: Angel Broking,

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Orchid
Orchid Chemicals (Orchid) reported strong set of numbers for 3QFY2011. Net sales came in
at `462.5cr (`337cr), an increase of 37.3% yoy. On the segmental performance front, the
global API business grew by strong 203% to `339.3cr (`111.8cr), led by supply
arrangements with Hospira and other major customers. However, there was a dip in the
global formulations division (inclusive of India) to `91.9cr (`198.9cr). Gross margins came
in lower at 51.6% (60.5%) on the back of higher contribution of API sales in the overall sales
mix, which during 3QFY2011 was at 73% vis-à-vis 33% during the last corresponding
period. However, OPM increased to 24% (14.4%), aided by the drop in other expenses,
which fell by 27.5%. During the quarter, Orchid reported declines in interest cost and
depreciation cost to `27.1cr (`53.8cr) and `32.2cr (`39.2cr), respectively, the key factors
that boosted the bottom line. Net profit during the quarter stood at `56.6cr as compared to
loss of `18.9cr in the same quarter last year. The stock is currently under review

Macquarie :: Orchid Pharmaceuticals- 3Q provides comfort for FY11 guidance

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Orchid Pharmaceuticals
3Q provides comfort for FY11 guidance
Event
 OCP reported 3Q FY11 sales of Rs4.8bn (up 33% YoY, 19% QoQ), EBITDA
of Rs1.3bn (up 76% YoY, 75% QoQ) and PAT of Rs566m (up 226% QoQ).
The EBITDA margin was 26.6%. Results were well ahead of our estimates.
 The key highlight is the margin expansion, which, according to management,
is sustainable at the current capacity utilization and product mix. We reiterate
our Outperform rating, with a revised target price of Rs415 (38% upside
potential) vs Rs395 previously.

3QFY2011 Result Previews : Infotech, Orchid Chem, HCL, bajaj auto, Angel Broking,

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3QFY2011 Result Previews
Bajaj Auto
Bajaj Auto is slated to announce its 3QFY2011 results. We expect the company’s top line to
grow by 25% yoy to `3,951cr on account of 17% yoy growth in volumes. On the operating
front, EBITDA margin is expected to decline by 202bp yoy to 19.9% due to higher rawmaterial
costs. However, the bottom line is expected to witness 25% yoy growth to `596cr.
The stock rating is under review.