Orchid Pharma Ltd – 11000% Gain or 99% Loss?

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Orchid Pharma Ltd

About Orchid Pharma Ltd

Orchid Pharma Ltd. is one of the leading pharmaceutical companies in India.

Headquartered in Chennai and involved in the development, manufacture, and marketing of diverse bulk actives, formulations, and nutraceuticals with exports spanning over 40 countries.

Orchid’s world-class manufacturing infrastructure includes US FDA compliant API and Finished Dosage Form facilities near Chennai, Tamilnadu in India.

Orchid Pharma has dedicated, state-of-art and GLP compliant R&D infrastructure for Process research and Pharmaceutical research near Chennai, Tamil Nadu in India

About Resolution Plan

Orchid Pharma Ltd was owned and established by the erstwhile promoter, Mr. KR Rao. With rising debt, the company has been sent to IBC, and Dhanuka Laboratories acquired it from lenders.

Resolution Plan of Orchid Pharma
Break up of ₹610 crore brought by Dhanuka
Break up of ₹610 crores brought by Dhanuka
  • Lenders took a haircut of 65% on admitted claims of ₹3200 cr.
  • Lenders include SBI, BOI, PNB, ICICI Bank, Axis Bank, IDBI Bank, Union Bank of India, and Allahabad Bank.
  • 99% share capital of pre-IBC shareholder has been extinguished.
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Timeline of Events at Orchid Pharma

  • Oct 2017: Admitted to IBC.
  • Sept 2018: Bid by Ingen Capital (USA) approved.
  • Feb 2019: Due to nonpayment by Ingen, the company was sent back to IBC.
  • May 2019: Bid by Dhanuka Laboratories approved by CoC.
  • July 2019: Trading in equity shares suspended due to IBC.
  • Feb 2020: SC dismissed various pleas against the resolution plan  and approved the resolution plan
  • March 2020: BOD under new owners reconstituted
  • Nov 2020: Shares relisted

Also Read: Neogen Chemicals – An Agro-Pharma Theme Player

Shareholding Pattern, Share Extinguishment and Reduction

Shareholding Pattern of Orchid Pharma Ltd
Source: BSE. Dhanuka holds a 98.04% stake which is in a lock-in period for 12 months from Nov-20. Lenders held 1.19% and retail investor held a 0.51% stake

But..!! To accommodate Dhanuka’s 98% stake, 99% share capital of pre-IBC shareholders has been extinguished.

Source: Company  This means every 218 shares in old Orchid Pharma held were reduced to 1 share in new Orchid Pharma.

Wealth Destroyed by Orchid Pharma Ltd

Wealth Destroyed by Orchid Pharma
99% Wealth Destroyed for erstwhile shareholder, in same period Nifty Pharma gave 12% return. Shares were relisted in Nov-20 at ₹18.

Similar wealth destruction happened in the case of Ruchi Soya & Alok Industries and will happen for Jet Airways & DHFL. (click on the hyperlinks to know more).

So don’t be like “Agar pehle kharid leta to malaa maal ho jaata”

Is this legal? Since the company is unable to pay fully to its creditors it is legal that equity has been written off.

Why did it Rise by 11000%?

Orchid Pharma Share Price Movements

  • Shares available for trade are just 41600, as the rest shares are locked in. Hence can’t be traded.
  • The total quantity traded from relisting in Nov-20 till March-21 is 1,12,913 shares. So only 25% of free float shares actually change their hands.
  • This created euphoria for Orchid Pharma leading to a steep demand-supply mismatch.
  • Further, the market is betting on new management and owner with the hope that dust may turn into diamonds.
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Are Valuations Really Justified?

Valuation of Orchid Pharma
NAV per share is ₹240. P/B ratio is 10.  EPS(TTM) is ₹ -144

Clearly current valuations not justified… !!

We are paying ₹2400+(CMP) for a share that is worth ₹240(NAV) and which has lost ₹-144(EPS) in the last 12 months.

Also Watch: Orchid Pharma Fundamental Analysis by Beat The Street

Financial Performance of Orchid Pharma Ltd

Financial Performance of Orchid Pharma
Quarterly Results of Orchid Pharma Ltd
P&L Statement of Orchid Pharma
Orchid Pharma Cash Flows

On the return front, it has an RoE of -104% and RoCE of -6%

Final Thoughts & Opinion

Valuations and business revival are still a concern. The one-way upside movement is due to the low free float available.

As per SEBI Norms, promoters are required to bring their stake down to 75% in the next 3yr. So promoter will sell once lock-in period of 12 months ending in Nov-21.

This will definitely bring prices down unless underlying business performance remains subdued.

Sebi knows these kinds of run-ups in stressed companies, so they will come up with measures to prevent such steep upside/downside in stock price.

Nobody knows till what price this uptrend will continue but surely after this, there will be a medium-term downtrend in Orchid. Avoid fresh buying and book partial gains.

~By CA Sudarshan Bhandari, Beat The Street

Cover Image Credits: The Economic Times

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