 "Orchid Pharma")
Chennai-based Orchid Pharma’s stock touched Rs 2,129 on Thursday, up more than 11,700 per cent from Rs 18 in November 2020, bringing cheer to Dhanuka Laboratories (DLL), which took over the company almost a year ago, under the National Company Law Tribunal (NCLT) resolution process. While the gains have been phenomenal, experts advise caution.
Though Orchid was under the Insolvency and Bankruptcy Code (IBC) process, the company’s four plants were operational. The new management infused money for the company’s operations and research capabilities.
DLL officials say demand for Orchid’s products is growing and given strong client relationships, most of its customers are back with the firm. The acquisition of Orchid Pharma will help DLL expand its presence in the regulated markets — it operates in the non-regulated/semi-regulated markets currently. DLL reckons loss-making Orchid will deliver 20-25 per cent growth and return to profit in 6-12 months.
Market analyst Ambareesh Baliga said the main factors helping the stock are capital restructuring and the new management take over. The company’s balance sheet is also in better shape now. People who held 1,000 shares before the stock was suspended (July 2019) were allotted only 4 shares under the new scheme of arrangement. “With the new management taking over, the ideal value of the share should be Rs 2,600-2,700 taking into account low floating stocks and pre-suspension market cap,” said Baliga.
Some analysts, however, say investors should adopt a cautious approach given that the company is yet to turn profitable and has been making losses each year since FY13 barring a year in between. An analyst at a domestic brokerage believes that it will be difficult to expand presence, increase sales and report profits unless there are confirmed contracts and utilisation levels of the plants are high. Moreover, pricing pressures and compliance requirements of plants, especially for sales to regulated markets, would be key challenges.
Though Orchid was under the Insolvency and Bankruptcy Code (IBC) process, the company’s four plants were operational. The new management infused money for the company’s operations and research capabilities.
DLL officials say demand for Orchid’s products is growing and given strong client relationships, most of its customers are back with the firm. The acquisition of Orchid Pharma will help DLL expand its presence in the regulated markets — it operates in the non-regulated/semi-regulated markets currently. DLL reckons loss-making Orchid will deliver 20-25 per cent growth and return to profit in 6-12 months.
Market analyst Ambareesh Baliga said the main factors helping the stock are capital restructuring and the new management take over. The company’s balance sheet is also in better shape now. People who held 1,000 shares before the stock was suspended (July 2019) were allotted only 4 shares under the new scheme of arrangement. “With the new management taking over, the ideal value of the share should be Rs 2,600-2,700 taking into account low floating stocks and pre-suspension market cap,” said Baliga.
Some analysts, however, say investors should adopt a cautious approach given that the company is yet to turn profitable and has been making losses each year since FY13 barring a year in between. An analyst at a domestic brokerage believes that it will be difficult to expand presence, increase sales and report profits unless there are confirmed contracts and utilisation levels of the plants are high. Moreover, pricing pressures and compliance requirements of plants, especially for sales to regulated markets, would be key challenges.
