Buy Orchid chemicals; target of Rs 336: KRChoksey

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Buy Orchid chemicals; target of Rs 336: KRChoksey

KRChoksey is bullish on Orchid chemicals & pharmaceuticals and has recommended buy rating on the stock with a target of Rs 336 in its June 29, 2011 research report.

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KRChoksey is bullish on Orchid chemicals & pharmaceuticals and has recommended buy rating on the stock with a target of Rs 336 in its June 29, 2011 research report.

"Orchid chemicals & pharmaceuticals is a vertically integrated global pharmaceutical company which has presence across 70+ countries through alliances, JVs & Partnerships. The company produces API, Finished dosage forms, Oral antibiotics, Non penicillin & Non cephalosporin injectables etc. The company has a total of 6 manufacturing facilities. Company has various supply agreements for limited competitive products mainly in the injectables & Penems space which provides a higher revenue visibility. Also the company is expecting approval for Imipenem in Q1FY12 which is an additional booster. It also expects to launch two products under the alvogen agreement in FY12. The company has exclusive 10yr supply agreement for API with Hospira for the acquired generic injectable business. Other than this the company has various ANDA approvals which put together to the existing agreements provides higher revenue visibility."

"The company has lowered its debt levels significantly through the sale of injectible business to Hospira thus bringing the D/E ratio to 1.6x in FY11 from 4.1x in FY09. It also has improved its working capital management by lowering its receivable days from 200 in FY10 to 105 in FY11. Also inventory days have been reduced to 126 from 164 in FY10. Going further the company has enough cash & also plans to raise Rs 1000cr through equity route which would be used to reduce the debt & further expansion. Overall this improves the return ratios and also provides higher confidence at the profitability level."

"The company made sales of Rs 68cr in FY11 which is further expected to clock revenues of Rs 135cr in FY12. This is mainly on the back of setting up its front end marketing firm, karalex pharma. Orchid also has FTF pipeline of 8 products with a market opportunity of USD 8bn. These additional shared exclusivities if received would further provide great profits to the company. The company has shown considerable performance after the sale of injectible business to Hospira which provides a positive outlook on the company. We believe the performance would continue further & thus value the company at 12x (FY12 EPS of Rs 28) to arrive at a target price of Rs 336 which provides an upside potential of 26.3% to the CMP of Rs 266. The company is currently trading at 9.3x (FY12 EPS of Rs 28) & 7x (FY12 EPS of Rs 38)," says KRChoksey research report.

Public holding more than 90% in Indian cos

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