Orchid Chemicals sees 20% growth in FY12 vs 25% earlier

Orchid Chemicals and Pharmaceuticals expects its sales will grow closer to 20% than the 25% it had seen earlier.

 "We marginally reduced it because we were expecting a 25% growth for FY12. We said that maybe we will be closer to 20 instead of 25. We still have a few weeks to go. Let us see how the performance is going to be. So far we are doing quite well," K Raghavendra Rao, Orchid's CMD told CNBC-TV18.

But fiscal 2013 could augur well for the company as It expects interest rates will be lower by 15-20%, following repayment of USD 167 million worth FCCBs (Foreign Currency Convertible Bonds).

Chennai-based Orchid Chemicals redeemed USD 167.64 million in outstanding FCCBs, including yield to maturity, on Tuesday.

The company had floated the FCCBs in February 2007 seeking funds for capacity expansion among other reasons.

Rao said that it was able to pay FCCBs without any dilution and without alterating capital structure.

Below is an edited transcript of his interview. Watch the accompanying video for more.

Q: How much have you redeemed on your FCCBs? What has that has done to alleviate your total debt levels and your interest costs?

A: The FCCBs were due yesterday USD 167.64 million. We paid them in full as on the due date and that was funded by a combination of cash on the balance sheet that is working capital management and internal accruals to the extent of USD 70 million and an external commercial borrowing of USD 97 million. I am glad that internal resources have funded more than 40% of the total repayment and less than 60% was replacement debt. This does good things for the company because without altering the capital structure of the company and without resorting to total borrowing we have been able to repay the FCCBs on time.

Q: Can you give us a sense of what your interest rate run rate per quarter will be now going forward given the terms of the ECB? In addition, what is the overall debt that you would be sitting on now for FY13?

A: Yes, I think FY13 interest charges will be about 15-20% lower in absolute number compared to FY12 interest charges. That is because of a combination of factors. One is the overall debt itself is going to be lower because we have repaid USD 167 million but borrowed only USD 97 million and secondly the dollar interest is much lower. It is 460 bps over LIBOR is the contract. Thirdly, further internal generation is going to happen next year, which will also bring down debt. So overall, I expect about 15-20% reduction in absolute interest charges number for next year.

Q: You did scale down your guidance for FY12. Can you take us through how the business is going and whether you expect to clock a better run rate for FY13 then?

A: We marginally reduced it because we were expecting a 25% growth for FY12. We said that maybe we will be closer to 20 instead of 25. We still have a few weeks to go. Let us see how the performance is going to be. So far, we are doing quite well. If you look at the last two years post Hospira deal, we have almost doubled the size of the company. We were about a Rs 1,000 crore company in March 10 after the sell of injectable division. Now we are a Rs 2,000 crore company. In two years we have been able to double our business. In terms of the growth rate we were expecting 25%, maybe we will clock around 20% and I think that kind of a run rate of around 20% growth should happen even next year as well.

Q: The reduction on the EPS was quite stark though. For the next year FY13 how much recovery are you expecting to see on your EPS growth?

A: As I said 20% growth in current year and on the back of that another 20% growth next year should be in the EPS terms as well. So let us wait for this year to get over and I think next year should auger well for the company, because again a combination of factors. New approvals for Hospira, market expansion and new customers that we are getting and some of the Para IV First-To-File will be launched. This should give us a 20% growth and that should reflect in the EPS as well.

Q: Could you just update us on the PDE4 molecule? When does that hit Phase II? Are you at all exercising the option of out licensing as the market has been talking about?

A: PDE4 has completed Phase I successfully in Europe. We are moving it to Phase II year trials next quarter. Our goal is once the Phase II data comes out clean we would be out licensing that molecule to international companies because unless we establish a proof of concept in affected human beings, both the valuation and the probability of the molecule making to the market will not be there. We would like to do that sometime during 2012 calendar once the Phase II year results come in.