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Orchid chemical ru4 qfy2010-270510
1. 4QFY2010 Result Update I Pharmaceutical
May 27, 2010
Orchid Chemicals NEUTRAL
CMP Rs134
Performance Highlights Target Price -
Orchid Chemicals (Orchid) posted subdued 4QFY2010 performance on a Investment Period -
Standalone basis marred by Inventory and Debtors write-offs and high
one-time expense. Net Sales came in at Rs285.7cr, up 19.1% and below our Stock Info
expectation in spite of the Tazo+Pip exclusivity. Orchid reported Operating
Sector Pharmaceutical
Loss of Rs17.2cr even after excluding the one-off of Rs390cr. As a result, Net
Loss stood at Rs508.1cr excluding the gains of Rs886.5cr from sale of Market Cap (Rs cr) 942
injectable business to Hospira. On the positive front, the company announced
Beta 1.2
a special dividend of Rs10/share, which could act as a near-term support
(Dividend yield of 7.5%). The company has given an aggressive guidance of 52 WK High / Low 239/78
US$320mn on the Top-line front, implying a growth of 84.0% yoy (excluding
contribution of the injectable business in FY2010) and OPM of 20% for Avg. Daily Volume 683045
FY2011. Post the sharp correction of 27% in the stock price during the last six Face Value (Rs) 10
months, we recommend a Neutral on the stock.
Disappointment continues: For 4QFY2010, Orchid reported Net Sales of BSE Sensex 16,666
Rs285.7cr (Rs239.8cr), up 19.1% and below our expectation in spite of the Nifty 5,003
Tazo+Pip exclusivity. The company garnered a mere US $40mn on Tazo+Pip
during the exclusivity period translating into 25% market share, which is much Reuters Code ORCD.BO
below our estimates. The company reported Operating Loss of Rs407.2cr for Bloomberg Code OCP@IN
the quarter due to one-time charges of Rs390cr pertaining to inventory and
debtors write-off, exchange losses, labour settlement expenses and consultancy Shareholding Pattern (%)
charges. Excluding the one-off, Operating Loss stood at Rs17.2cr on higher
Promoters 26.0
R&D and Other expenses. The company closed the Hospira deal during the
quarter pertaining to sale of its injectable business resulting in Net gain of MF/Banks/Indian FIs 45.6
Rs886.5cr. As a result, Net Profit came in at Rs382.3cr. Excluding the gain, the
FII/NRIs/OCBs 11.7
company reported Net Loss of Rs508.1cr
Outlook and Valuation: Orchid FY2010 results were disappointing especially Indian Public 16.7
on the Operating front marred by Inventory and Debtors write off to the tune of
Abs. (%) 3m 1yr 3yr
Rs235cr. Even post the write-off on the Debtors front, receivable days at 188 is
on the higher side. On the Debt front, subsequent to the repayment of Sensex 1.4 18.1 16.2
Rs1,400cr in 4QFY2010, the company’s Debt/Equity is still higher than the
Industry average at 1.3x as on FY2010. We expect Orchid’s Net Sales to post a Orchid (16.5) 2.8 (48.6)
CAGR of 10.4% to Rs1,584cr over FY2010-12E and EPS to touch Rs14.1 in
FY2012E. On the bourses, in the last six months the stock has witnessed a
sharp correction of 27% and is currently trading at fair valuations of 14.8x and
9.5x FY2011E and FY2012E Earnings. Hence, we recommend a Neutral on the
stock.
Key Financials (Consolidated)
Y/E March (Rs cr) FY2009 FY2010E FY2011E FY2012E
Net Sales 1,260 1,299 1,174 1,584
% chg 0.5 3.1 (9.6) 34.9
Recurring Net Profit (33.0) (553.6) 63.6 99.2
% chg - - - 56.0
Recurring EPS(Rs) - - 9.0 14.1
EBITDA Margin (%) 11.9 - 17.2 18.0
P/E (x) - - 14.8 9.5 Sarabjit Kour Nangra
RoE (%) - - 5.1 8.6 Tel: 022 – 4040 3800 Ext: 343
E-mail: sarabjit@angeltrade.com
RoCE (%) 0.5 - 3.5 6.4
P/BV (x) 1.7 0.8 0.8 0.9
Sushant Dalmia
EV/Sales (x) 2.8 1.5 1.6 1.3 Tel: 022 – 4040 3800 Ext: 320
EV/EBITDA (x) 23.4 - 9.4 7.4 E-mail: sushant.dalmia@angeltrade.com
Source: Company, Angel Research.
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. Orchid Chemicals I 4QFY2010 Result Update
Exhibit 1: 4QFY2010 Performance (Standalone)
Y/E March (Rs cr) 4QFY10 4QFY09 % chg FY10 FY09 % chg
Net Sales 285.7 239.8 19.1 1,205.2 1,156.8 4.2
Other Income 9.6 9.5 0.8 45.9 57.5 (20.2)
Total Income 295.3 249.3 18.4 1251.1 1214.3 3.0
PBIDT (407.2) (7.6) - (217.0) 231.2 -
Operating Margin (%) - - - - 20.0 -
Interest 79.4 55.7 42.4 241.2 155.2 55.5
Depreciation & Amortisation 36.5 33.6 8.8 151.1 130.0 16.3
PBT & Exceptional Items (513.5) (87.4) - (563.4) 3.6 -
Exceptional Items 890.3 131.1 - 894.7 (40.4) -
Profit Before Tax 376.8 43.7 763.1 331.3 (36.8) -
Provision for Taxation (5.5) 17.2 (131.8) 0.0 15.3 -
Net Profit 382.3 26.5 1344.5 331.3 (52.2) -
EPS (Rs) 54.3 4.1
Source: Company, Angel Research
Key Highlights
Takeaways from the Concall
For FY2010, Debt stood at Rs1,200cr, Inventory at Rs400cr and Debtors at
Rs670cr.
For FY2011, the company has guided for Top-line of US $320mn
(Rs1,472cr), which implies yoy growth of 84.0% (excluding contribution of
injectable business in FY2010) factoring in supply of API for Tazo+Pip and
Penems (approval awaited) to Hospira. Orchid expects EBITDA Margin of 20%.
The company expects Interest and Depreciation costs to be in the range of
Rs100-110cr each for the year.
Orchid has declared one-time special dividend of Rs10/share (Dividend yield of
7.5%).
The company is scouting for marketing acquisition in the US to build its own
marketing front-end.
On the Alvogen deal, the company expects to commence supply of products by
FY2012. Long term, the deal has the potential of US $80-100mn post all the
products commence shipment.
May 27, 2010 2
3. Orchid Chemicals I 4QFY2010 Result Update
Outlook and Valuation
Orchid’s FY2010 results were disappointing especially on the Operating front
marred by Inventory and Debtors write off to the tune of Rs235cr. Even post the
write-off on the Debtors front, receivable days at 188 is on the higher side. On the
Debt front, subsequent to the repayment of Rs1,400cr in 4QFY2010, the company’s
Debt/Equity is still higher than the Industry average at 1.3x as on FY2010. However,
on the positive front, the company has commenced supply of Tazo+Pip API to
Hospira and expects to begin supply of Penems API to Hospira and one more player
by end of 1QFY2011.
We have marginally tweaked our Sales and OPM estimates to factor in supply of
Penem products to one more player other than Hospira. However, our FY2011
estimates on the Top-line and Operating fronts are lower than the company’s
guidance by 20% and 31% respectively as we would wait for couple of more
quarters to see how the Hospira deal and base business (ex-injectables) pan out. We
estimate Net Sales to post a CAGR of 10.4% to Rs1,584cr over FY2010-12E and
EPS to touch Rs14.1 in FY2012E. On the bourses, during the last six months, the
stock witnessed a sharp correction of 27% and is currently trading at fair valuations
of 14.8x and 9.5x FY2011E and FY2012E Earnings, respectively. Hence, we
recommend a Neutral on the stock.
Exhibit 2: One-year Forward EV/Sales Band
7,000
6,000
5,000
4x
EV (Rs cr)
4,000
3x
3,000
2x
2,000
1x
1,000
0
Apr-05
Dec-05
Apr-06
Dec-06
Apr-07
Dec-07
Apr-08
Dec-08
Apr-09
Dec-09
Apr-10
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Source: C-line, Angel Research
May 27, 2010 3
4. Orchid Chemicals I 4QFY2010 Result Update
Profit & Loss Statement (Indian GAAP, Consolidated) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Net Sales 926 1,253 1,260 1,299 1,174 1,584
Other operating income 32 45 33 45 42 44
Total operating income 959 1,298 1,293 1,343 1,216 1,628
% chg 2.5 35.4 (0.4) 3.9 (9.5) 33.9
Total Expenditure 697 961 1,110 1,500 972 1,299
Net Raw Materials 354 479 586 840 493 673
Other Mfg costs 102 155 149 - 141 174
Personnel 92 117 137 174 135 174
Other 149 210 238 486 203 277
EBITDA 229 292 150 (201) 202 285
% chg 14.1 27.5 (48.8) (234.5) (200.4) 41.2
(% of Net Sales) 24.7 23.3 11.9 (15.5) 17.2 18.0
Depreciation& Amortisation 85 101 134 155 108 114
EBIT 144 192 16 (356) 94 171
% chg 24.4 32.9 (91.8) (2,370.8) (126.4) 82.3
(% of Net Sales) 15.6 15.3 1.2 (27.4) 8.0 10.8
Interest & other Charges 99 82 156 242 80 107
Other Income 15 74 90 0 16 15
(% of PBT) 16.7 32.4 - - 22.5 12.5
Share in profit of Associates - - - - - -
Recurring PBT 93 229 (18) (554) 72 123
% chg (58.8) 146.8 (107.8) 3,003.7 - 71.9
Extraordinary Expense/(Inc.) - - 15.9 (892.9) - -
PBT (reported) 93 229 (34) 339 72 123
Tax 14.0 53.2 15.2 - 8.1 24.0
(% of PBT) 15.1 23.3 0.0 0.0 11.3 19.5
PAT (reported) 79 175 (49) 339 64 99
Add: Share of earnings of
- - - - - -
associate
Less: Minority interest (MI) - 0 - - - -
Prior period items - - - - - -
PAT after MI (reported) 79 175 (49) 339 64 99
ADJ. PAT 79 175 (33) (554) 64 99
% chg 37 123 - - - 56
(% of Net Sales) 8.5 14.0 - - 5.4 6.3
Basic EPS (Rs) 11.9 26.6 - 48.2 9.0 14.1
Adj Fully Diluted EPS (Rs) 11.9 26.6 - - 9.0 14.1
% chg 106 123 - - - 56
May 27, 2010 4
5. Orchid Chemicals I 4QFY2010 Result Update
Balance Sheet (Consolidated) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
SOURCES OF FUNDS
Equity Share Capital 66 66 70 70 70 70
Reserves& Surplus 419 599 480 1,163 1,175 1,001
Shareholders Funds 485 665 550 1,234 1,246 1,072
Minority Interest - - - - - -
Total Loans 1,649 1,971 2,616 1,303 1,359 1,429
Deferred Tax Liability 92 115 128 106 108 118
Total Liabilities 2,226 2,750 3,295 2,643 2,714 2,619
APPLICATION OF FUNDS
Gross Block 1,490 2,003 2,601 2,064 2,218 2,327
Less: Acc. Depreciation 458 558 688 642 750 864
Net Block 1,032 1,445 1,913 1,421 1,468 1,463
Capital Work-in-Progress 553 620 547 397 347 347
Goodwill 73 95 95 95 95 95
Investments 0 1 1 1 1 1
Current Assets 1,232 1,323 1,595 1,669 1,524 1,555
Cash 119 31 53 279 412 254
Loans & Advances 119 105 102 326 151 171
Other 995 1,187 1,441 1,064 962 1,130
Current liabilities 665 734 856 940 721 841
Net Current Assets 568 590 740 729 803 714
Mis. Exp. not written off - - - - - -
Total Assets 2,226 2,750 3,295 2,643 2,714 2,619
Cash Flow Statement (Consolidated) (Rs cr)
Y/E March FY2007 FY2008 FY2009 FY2010E FY2011E FY2012E
Profit before tax 93 229 (34) (545) 72 123
Depreciation 85 101 134 155 108 114
(Inc)/Dec in Working Capital (184) (118) (117) 216 58 (68)
Less: Other income
Direct taxes paid (1) (32) (3) - (6) (15)
Cash Flow from Operations (8) 179 (20) (175) 232 154
(Inc.)/Dec.in Fixed Assets (477) (545) (477) 81 (105) (109)
(Inc.)/Dec. in Investments - (1) - 1,748 - -
Other income
Cash Flow from Investing (477) (545) (477) 1,829 (105) (109)
Issue of Equity 11 1 110 - - -
Inc./(Dec.) in loans 620 392 546 (1,313) 19 (190)
Dividend Paid (Incl. Tax) (23) (23) (23) (82) (14) (14)
Others (13) (90) (115) (32) - -
Cash Flow from Financing 595 279 518 (1,428) 5 (204)
Inc./(Dec.) in Cash 110 (88) 21 227 132 (158)
Opening Cash balances 9 119 31 53 279 412
Closing Cash balances 119 31 53 279 412 254
May 27, 2010 5
7. Orchid Chemicals I 4QFY2010 Result Update
Research Team Tel: 022- 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Orchid Chemical
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.
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May 27, 2010 7
