Buy Orchid Chemical; target of Rs 373: Angel Broking

“Orchid Chemicals (Orchid) reported below-expectation numbers for 1QFY2012. Going forward for FY2012, management has guided 25% revenue growth to US$500mn, EBITDA margin at ~24% and EPS of Rs30 on current equity. The company plans to raise Rs1,000cr primarily to repay the FCCBs due in February 2012, and the balance amount to be used to repay debt and pursue organic and inorganic opportunities.”

“For the quarter, on a consolidated level, Orchid reported net sales of Rs413cr (Rs337cr), up 22.5% yoy. The company’s gross margin expanded by 62bp yoy to 48.6%, while OPM dipped by 4.7% to 13%, much lower than expectation of 22.1%. The squeeze in operating profit was on account of the substantial rise in other expenses, which rose by 50.4% during the quarter. Further, a high increase in the company’s interest expenses during the quarter led to a dip in net profit, which came in at Rs16.7cr vs. our expectation of Rs50cr.”

We expect Orchid to post net sales of Rs2,143cr, with EBITDA margin of 21.8% in FY2012E. The stock is currently trading at 9.9x FY2012E and 7.6x FY2013E earnings. We maintain our Buy rating on the stock with a revised target price of Rs373,” says Angel Broking research report.

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