Orchid Pharma to exit from Chinese joint venture, posts net loss of Rs 24 cr

Chennai-based Orchid Chemicals and Pharmaceuticals Ltd has announced that it was exiting from its 50:50 manufacturing joint venture in China. The exit is part of Orchid’s strategy to consolidate manufacturing operations in India.

The company would transfer its 50 per cent stake in its JV firm, NCPC-Orchid Pharmaceuticals, to NCPC for a total cash consideration of $13.9 million (RMB 87.5 million), which is around Rs 76.19 crore at on Sunday’s currency rate.

K Raghavendra Rao, chairman and managing director of Orchid Pharma said, “With the local Chinese players fast integrating, the operating conditions have grown quite competitive in China. Moreover, the products that the JV manufactures and markets in the local Chinese market have reached a mature stage resulting in flat growth prospects going forward. Hence, it was a prudent decision to relinquish our stake to the partner and exit the JV.”

The company, in 2002, had entered into a 50:50 JV with North China Pharmaceutical Corporation (NCPC) to set up a Cephalosporin API manufacturing facility located in Shijiazhuang, China. Orchid Pharma has so far invested around $5 million into the Joint Venture. The JV added around $23 million to its books as revenue and a profit of $1-1.5 million, as its share of 50 per cent in JV, said company spokesperson.

The company has posted a net loss of Rs 24 crore for the quarter ended September 30, 2012, as against a profit of Rs 20.72 crore during the same period of last fiscal year, on a consolidated basis. The total income stood at Rs 378.37 crore for the second quarter of this fiscal year, as against Rs 465.71 crore recorded during the same period of last year, a decline of 18.75 per cent.

The increased interest outflow and the continuing liquidity pressure leading to working capital constraints have impacted the revenues and profitability during the second quarter, said Rao.

“This continuing pressure will lead to the current financial year witnessing a flat trend in terms of our overall performance. We are working on a long-term growth strategy encompassing both the existing business verticals and foray into new product segments which should improve the revenue and margin profile next fiscal onwards,” he added.