Sharekhan Research has maintained buy rating on Orchid Chemicals with revised target price of Rs 375.

Share khan research report on Orchid Chemicals:

Key points

Orchid's revenues are likely to get a big boost in FY2008, with at least three major new products.Tazobactum + Piperacillin (market size of USD 480 million), Cefdinir (market size of over USD 600 million) and Cefepime (market size of USD 190 million).slated for launch. We expect these products to collectively generate USD 35.8 million and USD 47.5 million in revenues in FY2008 and FY2009 respectively.  From manufacture of sterile Cephalosporins, Orchid is now venturing into the non-antibiotic space. It has already filed ten abbreviated new drug applications (ANDAs) with the US Food and Drug Administration (US FDA) and received one product approval for Terbinafine tablets. We expect additional product approvals to trickle through in FY2008 and FY2009, thereby boosting revenues in FY2009. For our estimates, we have factored in upside only from the Terbinafine launch, since Orchid has not disclosed for which products it has filed ANDAs in this space. Further product approvals in the non-antibiotic space will provide an upside to our numbers.  Orchid's much awaited entry into Europe seems at an arm's length now. With all the prerequisites in place, Orchid seems all set to launch Tazo-Pip formulation in Europe. Tazo-Pip will be a big opportunity for Orchid in Europe as the company will be one amongst the three manufacturers of the product in the market. We expect the European business to generate USD 14.0 million in FY2008 and USD 26.2 million in FY2009.

Valuation & view

With FY2007 over, Orchid's lean phase seems to be getting over. Orchid has been investing steadily in building its product pipeline to expand its presence in the regulated markets of the USA and Europe. Going forward, especially from FY2008 onwards, we believe the company will grow by leaps and bounds, with its big launches in the USA and entry into Europe. With the new FCCB issue, the company has also cleaned up its balance sheet, which was a cause for huge concern for investors in the past. The reduced debt level will generate substantial savings in interest costs, which will boost Orchid's bottom line in the future. Further, with an improved product and geographical mix, Orchid's margins will also show substantial expansion. With a strong top line growth, robust margins and a clean balance sheet, Orchid's future seems very bright. At the current market price of Rs 244, Orchid is quoting at 10.4x its estimated FY2009 earnings. In view of the bright prospects for the company, we retain our positive stance on the stock and maintain our Buy call with a revised price target of Rs 375, at which Orchid will discount its FY2009E fully diluted earnings by 16x.