For investors in Orchid Chemicals & Pharmaceuticals, the recent price performance of the scrip must have been pretty disappointing. The ways of the market are indeed strange. It is the same market which cheered the scrip from a low of Rs 160 in end September, 1999 to a peak of Rs 400 in less than a month's time. Quite often, scrips do not get the recognition they deserve. In 1999, this was clearly the case. Orchid Chemicals had posted an earnings per share of Rs 19.24 for FY1998.The company has been awarded the Trophy for Excellent Performance in Exports as part of the National Export Awards Programme 1998-99. It had been exporting cephalosporins at the growth rate of 50 per cent per annum. It managed to extract higher price for its product by producing the sterile variety and became one of the world's largest producer of the drug. The sterile variety ensured its market, besides improving the margins.
But bulk drugs had their drawbacks. Global prices were subject to much fluctuation due to competition. And anyway, it was time to broadbase one's strategy.
Orchid promptly decided to diversify into formulations. Orchid has identified four areas of focus in the formulations market - antibiotics, lifestyle drugs, anti-ulcer drugs and anti-viral drugs. Orchid made a foray into formulations.
The company has an R&D division near Chennai. Targetting low-volume, high- value drugs is a conscious strategy. In the beginning, the formulations are targetted at the Indian market. Naturally, the first formulations that have been launched are in the company's core products - cephalosporins.
Injectable cephalosporins, Tax-O-Bid (Cefotaxime), Cefogram (Ceftriaxone) and Orzid (Ceftazidime) had been launched alongside two non-steroid anti-inflammatory, co-prescription drugs, namely Orchidol (Tramadol) and N-lid (Nimesulide). The company hopes to beat the competition pressure on pricing by an innovative presentation and marketing.
The company has introduced more products of late into the market. It is also going about aggresively acquiring plants and building new ones, so that its formulation foray has a firm foundation.
While the growth in the past has been sparkling, the company appears to have now entered a phase of consolidation before the future thrust shows itself. That may be so, but the stock markets keep looking in the short-term. And in that context, there has not been much to write home about in the latest quarterly results.
Orchid registered a 10 percent increase in turnover to Rs 87.84 crore in the first quarter of the financial year 2000-2001 compared to Rs 80.13 crore in the corresponding quarter of 1999-2000. Gross profit, post-interest charges during the quarter registered a 19 percent increase to Rs 17.39 crore, compared to Rs 14.62 crore in the corresponding quarter of last fiscal.
Due to higher charge towards depreciation, the net profit registered a marginal increase to Rs 9.19 crore from Rs 9.08 crore. The equity base of the company has gone up from Rs 17.34 crore to Rs 27.99 crore. Even though the company has some 25 products in the formulations, it will take a while for earnings to catch up with the rise in equity capital. The scrip will find it difficult to hold on to its current price in the bourses in the meanwhile.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.