Orchid Chem still at attractive price

CNBC-TV18’s Executive Editor, Udayan Mukherjee - The story of Orchid Chemicals is getting interesting as it’s not 8%, it’s more than 11% stake buyout by Solrex through open market in the company. Solrex Pharmaceuticals is a Ranbaxy Group Company, they are not very far away from that open offer. It will be another day of mopping up from the market and you get almost 15% if that’s what the game is.
 
It’s nicely staged for almost a hostile takeover bid. But in our countries those things don’t happen. If there was one sitting duck out there it was Orchid Chemicals, which has 17% promoter holding, 83% public float, so anybody can walk-in and take a chunk and then you have a bit of an unplanned blip by the promoter, a mistake by the promoter. A sell-off which takes the stock to probably third of its fair value that’s mouthwatering. I am actually quite happy that Ranbaxy has made such a move.
 
K Raghavendra Rao (MD of Orchid Chemicals) is a good technocrat, self made man, first generation entrepreneur. So it’s sad to see an entrepreneur getting into this kind of a liquidity problem and not being able to shroud up his holding to a safe limit. But these things should happen and the more they happen, the more our market evolves the fact that many of our really low promoters float. It’s an attractive company, which is going at an attractive price outcome another group or another company in the same peer set and makes a bid for it.
 
So Orchid Chemicals is still trading at a fairly attractive price at Rs 200, even if they mop up a little bit more and get to 15%. I think there is still enough value for Ranbaxy to go out and make an aggressive open offer which could be still 30-40% more than the current market price and try and rest control of the company.

I don’t think the promoter (of Orchid Chem) is in any liquidity shape to go out and augment his holding right now. The shareholders of Orchid Chemicals might be in a mood to sell if we just look at what’s been going on with the institutional shareholders. I think Macquarie’s sold quite a bit of stock in the last few days.
 
Those guys seem to be wanting to get out and if there is one man standing to mop up that stock then why would they not tender. So I think there is making of a truly, interesting, hostile bid out here. I don’t know whether Ranbaxy will push the envelope so far. But I think the makings are all there.

There is enough float out there, the price is attractive, there is cushion to make an open offer premium to the current market price. We just need the Ranbaxy guys to go out and do it, of course, feel bad for the promoter of Orchid Chemicals but such is the game.