PRIME BROKING

March 03, 2011

ORCHID CHEMICALS AND PHARMACEUTICALS LIMITED (ORCHID) CMP: Rs. 263
STRONG
Initiating BUY
Coverage
“Flowering” in a mid-cap desert Target Price: Rs. 384
INVESTMENT RATIONALE
Reuters code ORCD.BO
Orchid is in the area of niche generics and drug discovery, has presence across
Bloomberg Code OCP IN
the whole pharmaceutical value chain with state-of-the-art infrastructure. The
BSE 524372 company has evolved into a fully integrated Indian pharmaceutical Company,
Sensex 18,490 straddling the pharmaceutical chain with its presence in six clusters namely
52week H/L (Rs) 344/128 APIs, CRAMS, branded generics, regulated generics, Novel Drug Delivery Sys-
tems (NDDS) and New Chemical Entities (NCEs). We believe Orchid is in a
Monthly H/L (Rs) 307/243
unique position to tap these opportunities for the following reasons:
MktCap (Rs mn) 18,540
MktCap (US$ mn) 412 Exponential Growth in the high margin formulations business
EV (Rs mn) 28,801 The formulations business is typically a higher margin business compared to
Valuation Parameters (FY 13) APIs. It is expected to grow on back of around 100 product filings to be done
over a period of next 4 years out of which 35 would be for launch in US and
EV/EBITDA 4.4
Europe which are typically higher margin markets. As per our estimates the
MktCap/EBITDA 3.6 business is expected over grow @ 65% for the period FY 11 to FY 13.
EV/Sales 1.1
MktCap/Sales 0.9 Deleveraged balance sheet
Price Chart The sale of injectables formulation business to Hospira enabled the company to
250 repay around Rs 1,400 crore of loans using the sale proceeds which signifi-
200 cantly de-leveraged the balance sheet and also brought its various financial
150 ratios under control. The debt-equity ratio which had climbed from 1.3 to 4.4
100 was once again brought to 1.5 levels.
50
In the generic formulations segment, every product has a life-cycle. Hence, it is
0
important to capitalise on a generic opportunity in the first-wave of patent
Oct '09 Jan '10 Apr '10 Jul '10
Orchid Sensex expiry. Having derived significant value from generic launches in the cepha-
losporin injections and penicillin injections space and with no major products
Shareholding Pattern
going off-patent in these segments going forward, these assets would not gener-
ate significant growth in numbers. So, it made business sense to monetize these
assets and reduce the debt burden.
30%
Deal with Karalex Pharma to improve margins
52%
The Karalex Pharma’s management team has a collective experience of launch-
18% ing over 100 generic pharmaceutical products in the US with a combined value
in excess of US$1 billion. This acquisition will pave the way for synergistic re-
Promoters Institutions Others turns from its generic pharmaceuticals pipeline comprising first-to-file and Para-
IV products, among others. This will in turn help improve the company’s mar-
Paurav Lakhani
gins as distribution casts will come down.
91-22-2498 1515
paurav@primesec.com

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Promising New Chemical Entity (NCE) Research - a potential trigger

Orchid Research Laboratories Limited’s multi-therapeutic, multi-lead portfolio and selective partnerships with
the global customers for their projects reflects its emergence in the global drug discovery space as a potential
player. There are several molecules under research, the lead molecules under two therapeutic areas – anti-
infectives and clotting disorders – show great potential based on confirmatory microbiological and pharmaco-
logical studies.These molecules could see the light of the day in next 12 to 24 months. All expenses on this front
have been expensed through P&L of that period and no potential income from the same has been taken into our
estimates. Any income from the same could see huge upsides in our estimates.

Promoter buying stake

The promoter has committed at various public forums to do a creeping acquisition of 5% of equity and bring up
its holding in the company from current 31% to 36%.

Valuations
We expect a 28% CAGR in topline growth over the period FY11E to FY13E. Our EPS estimates on diluted basis
(assuming FCCB Conversion) for FY12E and FY13E are at Rs. 22.9 and Rs. 32.0 respectively. The stock is
currently trading at an P/E multiple of 11.5x and 8.2x times its FY12E and FY13E numbers. We are bullish on
the stock with a STRONG BUY rating and a price target of Rs. 384 at an P/E multiple of 12.0x times its
FY13E numbers.

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COMPANY BACKGROUND
The company was incorporated on 1st July 1992 as a 100% export oriented unit (EOU). The company has a
presence spanning across multi-therapeutic segments like anti-infectives, anti-inflammatory, central nervous system
(CNS), cardio vascular segment (CVS), nutraceuticals and other oral and sterile products. The organisations since
its inception has grown into substantial size spread across several developed markets like USA, Europe, South
Africa and Japan (Exhibit I) and the journey is encapsulated as under. (Exhibit II)
Exhibit I: Organization Structure

Orchid Chemicals &

Pharmaceuticals Ltd.

Subsidiaries
Joint Ventures

Diakron NPNC Orchid

Pharmaceuticals Pharmaceuticals
Inc., USA Co. Ltd, China
(42.71%) (50%)

Orchid Europe Orchid

Orchid Pharma Orchid
Limited, UK Research
Japan K K Pharmaceuticals
(100%) Laboratories Ltd.
(100%) Inc. USA (100%)
(100%)

Orchid Bexel Orgenus

Pharmaceuticals Pharmaceuticals Pharmaceuticals
SA (Prop.) Ltd, Inc., USA Inc. USA (100%)
(100%) (100%)
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Exhibit II: Key Milestones

Milestone Year
Orchid Chemicals is established on 1st July and has obtained Certificate of Commencement 1992
Company goes public 1993
Company starts commercial production and recives Good Manufacturing Practices (GMP) Certificaion 1994
Sets up state-of-the-art formulation facility for manufacture of sterile cephalosporin formulations 1996
Becomes the youngest Indian pharmaceuticals company to receive the ISO 9002 Certification 1997
Commissions the Research & Development (R&D) Centre 1997
Becomes the largest producer of oral and sterile cephalosporin formulations and ranked amoung top 5
producers of cephalosporin APIs. 1997
Formulations division becomes operational 1998
Recieves ISO Certification for Environment Management Systems 1999
Acquires a manufacturing plant at Aurangabad 2000
Sets up a JV alliance with US based drug discovery research firm Bexel Biotechnology Inc, USA 2002
Enters into JV with NCPC to set up manufacturing facility in China 2002
Acquires domestic formulations company, Mano Pharmaceuticals and enters the chronic therapy segment 2003
Commissions state-of-the-art Good Laboratory Practices (GLP) compliant preclinical facility to support
drug discovery 2003
JV with Bexel moves its novel anti-diabeic molecule into human clinicals 2003
Aurangabad API facility is awarded ISO 14001 and OHSAS 18001 Certification 2003
JV with Bexel sucessfully completes Phase 1(a); 1(b) and 2(a) trials on its lead anti-diabetic molecule and
the molecule also receives patent clearance from US Patent office 2004
Enters into marketing agreement with Par Pharma for Non-Penicillin Non-Cephalosporin (NPNC) 2004
Recives GLP Certification to become only the fifth company in India to be cetified for its R&D expertise 2005
Enters into an agreement with Mayne Pharma (now Hospira) for marketing injectable antibiotic
formulations in selected regulated markets like USA, Europe and ANZ 2005
Enters into a long-term Master Agreement with Pfizer for certain CRAMS 2005
Undertakes structural consolidation of global discovery research by acquiring 100% in Bexel Pharma. 2006
Sets up a wholly owned subsidiary in Japan called Orchid Pharma Japan KK to capitalize on growing
Japenese market 2008
US FDA approves ANDA for Piperacillin and Tazobactum injection with 6 months exclusivity 2009
Inks business tranaction agreement with Hospira to transfer the generic injectables formulations dosage
form pharmaceuticals business for USD 400 million 2009
Acquires US-based marketing company Kalarex Pharma, to strengthen its presence in the front-end US
market and to reach its generic products to the US customers directly. 2010
Redeems FCCBs aggregating to USD 25.69 million 2010
Source: Company, Prime Broking
Orchid is well diversified across the pharma value chain, starting from APIs to formulations to drug discovery,
which helps to capture value in its product portfolio. It has its key differentiators which lent the company its
niche. (Exhibit III) The company has a clear strategic focus on niche generics and drug discovery and has state-
of-the-art infrastructure to support its products.

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Exhibit III: Key Differentiators

Source: Company, Prime Broking

The company has evolved into a fully integrated Indian pharmaceutical Company, straddling the pharmaceutical
chain with its presence in six clusters: APIs, CRAMS, branded generics, regulated generics, Novel Drug Delivery
Systems (NDDS) and New Chemical Entities (NCEs). (Exhibit IV)

Exhibit IV: Presence Across Full Value Chain

Domestic Global
Global API CRAMS NDDS NCEs
Formulations Generics

Source: Company, Prime Broking

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CURRENT OPERATIONS
The company has three API manufacturing sites out of which two are in India and one is in China which is a 50:50
JV with North China Pharmaceuticals Company (NCPC); three formulations manufacturing sites and two world
class R&D sites. (Exhibit V)
Exhibit V: Infrastructure Facilities

Orchid Chemicals &

Pharmaceuticals Ltd.

Active
Pharmaceutical Formulations Research &
Ingredients
Manufacturing Development
Manufacturing

Alathur, Chennai Alathur, Chennai

SIDCO SIDCO Irungattukottai,
Industrial Pharmaceuticals Chennai
Estate Complex

Alathur, Chennai Aurangabad, Shijiazhuang,

SIDCO Maharashtra Irungattukottai, Sholinganallur,
Hebel Province,
Industrial Chennai Chennai
China
Estate

Source: Company, Prime Broking

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The company has Multi Horizon Strategy for API, Formulations and Innovation. (Exhibit VI)
Exhibit VI: Multi - Horizon Strategy

Source: Company, Prime Broking

Active Pharmaceutical Ingredients (API)

The API manufacturing plant located at Alathur, south of Chennai is one of the largest integrated antibiotic
manufacturing complexes in India and specialises in the manufacture of cephalosporin APIs. The plant has the
capability to handle complex and hazardous reactions with safety and efficiency, the plant’s operations are backed
by a full spectrum of utilities including a captive power generation plant, solvent recovery facilities, quality control
equipment and a ‘zero-discharge’ environment friendly effluent treatment plant. The plant has been approved by
leading global regulatory agencies like the US FDA, UK MHRA, GMP, EDQM, TGA (Australian), Danish Medicines
Agency, in addition to several quality, environment and safety management recognition.
The API manufacturing complex in Aurangabad, near Mumbai provides multi-therapeutic product offerings
comprising high-end betalactams, carbapenems and non-penicillin non-cephalosporin (NPNC) APIs. The facility
has also been approved by leading regulatory agencies

Formulations
The formulations manufacturing facility at Irungattukottai (IKKT), near Chennai has modern infrastructure
geared to offer high throughput, coupled with R&D labs, this formulations infrastructure is in the forefront of the
company’s entry into the advanced markets of US and Europe. The oral formulations facility manufactures various
types of dosage forms such as oral tablets and capsules in diverse dosage strengths and product categories. The
facility has been approved by leading regulatory agencies including the US FDA, UK MHRA, MCC (South Africa)
and Danish Medicines Agency, based on specific filings. Several ANDAs (abbreviated new drug applications) have
been filed from this complex with approvals and new launches underway.
The oral non-cephalosporin formulations facility at Alathur, Chennai specialises in the manufacturing of nutraceutical
products. The facility produces a range of dietary supplements for the advanced markets. Many other high-value
products like anti-diabetics, cardio vascular drugs (CVS), anti-depressants and anti-epileptics are manufactured in
this facility to cater to the emerging markets. Built to GMP (good manufacturing practices) standards (WHO
guidelines), this facility has packaging machinery and a full-spectrum, dedicated quality control and microbiological
services, adding distinctiveness to the manufacturing quality.
The oral cephalosporin formulations facility again at Alatur, Chennai manufactures cephalosporin oral products
dedicated to the domestic and emerging markets. The facility has the capability to manufacture different dosage
forms like tablets, capsules, dry syrups and liquid orals. The facility conforms to cGMP standards and is approved
by the WHO.

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Research & Development (R&D)

The Company has four R&D divisions dedicated to process research, drug discovery and development, phar-
maceutical research and biotechnology.These research facilities are in the forefront of creating generic product
pipelines, proprietary discovery pipelines, novel processes and formulations, each aimed at building valuable
intellectual property. The National Good Laboratory Practices (GLP) Monitoring Authority of India, aligned to
OECD Principles of GLP has also certified the R&D facilities for GLP compliance. The company has integrated
Drug Discovery and Development Infrastructure (Exhibit VII)
Exhibit VII: Integrated Drug Discovery and Development Infrastructure

Source: Company, Prime Broking

The wholly owned subsidiary, Orchid Research Laboratories Limited’s (‘Orchid Research’), multi-thera-
peutic, multi-lead portfolio and selective partnerships with the global customers for their projects reflects its
emergence in the global drug discovery space as a potential player. Lead molecules have been identified in two
therapeutic areas – anti-infectives and clotting disorders – based on confirmatory microbiological and pharmaco-
logical studies.(Exhibit VIII) The medicinal chemistry division trained scientists who perform design and synthesis
of novel molecules in various therapeutic areas such as anti-infectives, anti-inflammatory, anti-cancer and meta-
bolic disorders.

Bexel Pharmaceuticals Inc. (Bexel), the drug discovery subsidiary in the USA, is working on – innovative
compounds in the areas of diabetes, inflammation, obesity, multiple sclerosis, cardiovascular and auto-immune
diseases.

The company focuses on developing Novel Drug Delivery Systems (NDDS) for select anti-infective mol-
ecules. A few platform and product specific technologies with six prototype formulations have been successfully
developed. The areas of NDDS Research are Drug specific, Platform technologies and Disease conditions.

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Exhibit VIII: New Chemical Entity Development Status

Source: Company Presentation

The company to leverage its R&D base has taken up Custom Research and Manufacturing Services
(CRAMS) as a discrete initiative.

The company has filed cumulative 36 ANDAs with the US FDA (23 in the non penicillin, non cephalosporin
(NPNC) segment and 13 in the oral cephalosporin segment) and filed cumulative 18 marketing authorizations in
the EU (12 in the oral cephalosporin segment and 6 in the NPNC segment)

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DEAL WITH HOSPIRA

In 2009-10, the company sold its generic injectable formulations business for around US$400 million to Hospira,
a generics injectable major. The agreement covered the sale of assets, products, product pipeline and team to
manage the transferred assets. Orchid sold its betalactam antibiotics formulations manufacturing complex (com-
prising the cephalosporin, penicillin and carbapenems facilities) and a pharmaceutical research & development
facility at Irungattukottai, Chennai. It transferred its ten-product generics injectable product portfolio - seven
cephalosporins, one penicillin and two carbapenems. It also transferred 24 ANDAs and 12 Dossiers along with
450 employees, dedicated to the development and production of sterile betalactam antibiotic formulations, to
Hospira.

Why the Sale?

The company was invoicing about US$ 90 million (injectable generic formulations sales) with an EBIDTA compo-
nent of around US$40 million.This included an API component of US$40 million with an EBIDTA of US$15 million.
This would mean that the net reduction in topline would be US$50 million with reduction in EBIDTA of US$25
million.
In the generic formulations segment, every product has a life-cycle. Hence, it is important to capitalise on a generic
opportunity in the first-wave of patent expiry. Having derived value from generic launches in the cephalosporin
injections and penicillin injections space and with no major products going off-patent in these segments going
forward, these assets would not generate significant growth in numbers. So, it made business sense to monetise
these assets and reduce the debt burden.
Following the business transfer agreement, the company repaid around Rs 1,400 crore of loans using the sale
proceeds which significantly de-leveraged the balance sheet and also brought its various financial ratios under
control.

Life after the deal

The company enjoys an exclusive ten-year API supply contract for molecules transferred to Hospira. This will
assure a high API capacity utilization across product groups. The approvals of the carbapenem products in 2010
and the consequent API supply ramp-up to Hospira would add to company’s revenues.

Karalex Pharma Deal

Orchid has entered into an agreement to acquire US-based generics marketing company Karalex Pharma LLC, in
an all-cash deal to establish its front-end presence in generic sales and marketing. It has a collective experience of
launching over 100 generic pharmaceutical products in the US with a combined value in excess of US$1 billion.
This acquisition will pave the way for synergistic returns from its generic pharmaceuticals pipeline comprising first-
to-file and Para-IV products, among others. This will in turn help improving the company’s margins which it
previously lost to marketing companies to whom it sold the goods.

The growth strategy going forward for the company can be outlined as under: (Exhibit IX)

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Exhibit IX: Growth Strategy

Source: Company, Prime Broking

FOREIGN CURRENCY CONVERTIBLE BOND (FCCB)

The company had issued FCCBs worth $175 m; redeemable at a premium of 42.77% of the issue price or
convertible into equity shares at a conversion rate of Rs. 348.34 per share by February 2012. The company has
already bought back approx $58 m leaving company with outstanding bonds worth $117 m. The incentive for
the original FCCB holders to convert into equity shares is only around Rs 498. The company has
provided for the premium on redemption on FCCBs in the books by debiting the securities premium account,
which upon conversion will no longer be required and the provision will need to be reversed resulting in increase
in networth of the company. In our calculations we have assumed conversion of the outstanding FCCBs in the
FY12

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PERFORMANCE

Orchid’s focus on formulations and maintaining high operating margins has translated into an good financial
performance as demonstrated by a 7% CAGR in revenues and 43% CAGR in net profit over the period FY06 -
FY10. (Exhibit X) However going forward the company is expected to grow at 28% CAGR in revenue terms and
39% CAGR on the bottom line. (Exhibit XI)

Exhibit X: Performance Track Record

Revenues Net Profit
(Rs mn) (Rs mn)
CAGR = 7% 3,393
CAGR = 43%
13,010 13,435
12,968

9,366 9,638 1,753

785
573

FY06 FY07 FY08 FY09 FY10

-490
FY 06 FY 07 FY 08 FY 09 FY 10

Source: Company, Prime Broking

Exhibit XI: Performance Outlook

Revenues Net Profit

(Rs mn) (Rs mn)
CAGR = 28% CAGR = 39% 2,726

25,650

21,375 1,950

15,750 1,401

FY11 FY12 FY13 FY 11 FY 12 FY 13

Source: Prime Broking

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INDIAN PHARMACEUTICAL INDUSTRY - IN A SWEET SPOT

The Indian pharmaceutical industry ranks third by production volume, accounting for around 10% of the world’s
pharmaceutical output [Source: Ministry of State for Chemicals and Fertilisers, Government of India]. However,
India’s pharmaceutical industry ranks only 14th by value and accounts for a mere 1.5% by value in the global
pharmaceutical industry.
The Indian pharmaceutical market, estimated at over US$20 billion and expected to grow to US$40 billion by
2015, reporting a compounded annual growth rate of nearly 14% (source: Mckinsey).
Indian firms won 138 approvals from a total of 483 generics approved by the US FDA in 2009, constituting about
31% of the abbreviated new drug applications (ANDAs) approved by US FDA.
Major innovator companies are now looking to tie up with Indian companies for the manufacture of their genericised
molecules in view of low production cost. On the other hand, these innovator companies are also tying up with
Indian companies for research and development and drug discovery projects in view of talent available in India at
a reasonable cost. As per an E&Y report the relative indexed cost of a US FDA approved plant is 40% that of US
and when it comes to labour the picture is still pretty as relative indexed cost of skilled chemist is only 7%
compared to US. India has most number of US FDA approved plant outside US followed by Italy and China. India
accounts for one-third of the Drug Master Files (DMFs) in the US and has filed the largest number of ANDAs from
any other country apart from the US. Indian companies have been active in filing DMFs in the US since 2000. The
global market for generics is expected to grow significantly on account of number of blockbuster drugs going off
patent over the coming years. (Exhibit XII)
Exhibit XII: Patent Expiry Schedule

58

48

39
37

26 27

2009 2010 2011 2012 2013 2014

Source: OPPI - Yes Bank Report

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Active Pharmaceutical Ingredients (APIs)

Bulk actives are otherwise known as Active Pharmaceutical Ingredients (APIs) or bulk drugs. They comprise
medicinally active ingredients that are converted into formulations or dosage forms.APIs are either manufactured
in-house by formulation companies or they can be outsourced to third party API manufacturers. The global API
industry has grown substantially over past few years due to the growth in generics industry. Most of the compa-
nies that purchase bulk drugs are generics manufacturers. India‘s bulk drug/API exports account for 21% of
India‘s pharmaceutical industry, which, in contrast to many developed countries is significantly higher as bulk
drugs are mainly manufactured for internal consumption.
The main reasons for growth in API business is:
. Growth in the international generics industry
. Increasing share of the Indian companies in DMF filings
. Contract manufacturing opportunity

Formulations
Formulations involve developing a preparation of the drug (from APIs and other ingredients) which is both stable
and acceptable to the patient. This usually involves incorporating the drug into a tablet, capsules, injectibles,
syrups, etc. The formulations are administered to or taken by the patient and are available either by prescription
or over-the-counter.
The domestic formulations industry grew at a CAGR of 14.3% from around USD 4.3 billion in 2002-03 to USD
8.4 billion in 2007-08. The Indian market expanded much faster than the global pharmaceutical market as a
whole. It is expected to reach USD 21.5 billion in 2015-16. The break-up of key therapeutic categories for 2007-
08 is as under (Exhibit XIII)

Exhibit XIII: Key Therapeutic Categories

13% Anti-Infectives
18% Gastro
5% Cardic
Respiratory
5% Pain
Vitamins
5% 11% Gynaec
CNS
6% Dema
Anti-Diabetic
11% Others
8%
9% 9%

Source: OPPI - Yes Bank Report

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The global market for generics is expected to grow significantly on account of number of blockbuster drugs going
off patent over the coming years. The manufacturing of these generic are centered around China, India, Eastern
Europe and Brazil. USA is the major market for generics followed by Europe and Japan.The major driver for the
Pharmaceutical Industry in these markets is the percentage of ageing population is rising faster resulting in rising
healthcare cost. In such countries the government has modified its laws for generic medication and has thus
enabled more companies to file DMFs and formulation dossiers.

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VALUATION
We expect a 28% CAGR in topline growth over the period FY11E to FY13E. Our EPS estimates on diluted basis
(assuming FCCB Conversion) for FY12E and FY13E are at Rs. 22.9 and Rs. 32.0 respectively.
The stock is currently trading at an P/E multiple of 11.5x and 8.2x times its FY12E and FY13E numbers. We are
bullish on the stock with a STRONG BUY rating and a price target of Rs. 384 at an P/E multiple of 12.0x
times its FY13E numbers.

Fiscal Year FY08 (A) FY09 (A) FY10 (A) FY11 (E) FY12 (E) FY 13(E)

Revenues (Rs. mn) 13,010 12,968 13,435 15,750 21,375 25,650

EBITDA (Rs. mn) 3,399 1,706 -1,569 4,095 5,130 6,156
EBITDA (%) 26.1 13.2 -11.7 26.0 24.0 24.0
PAT (Rs. mn) 1,753 -490 3,393 1,401 1,950 2,726
Net Profit (%) 13.5 -3.8 25.3 8.9 9.1 10.6
No. of Shares (mn) 66 70 70 70 85 85
EPS (Rs.) 26.6 -7.0 48.2 19.9 22.9 32.0
P/E - - - 13.2 11.5 8.2
EV/EBITDA - - - 7.0 5.5 4.4

KEY RISKS
The key downside risks are as follows:
i) Large part of the promoters stake is pledged
ii) Inability to rollover FCCBs in case of non conversion.
iii) Exposure to foreign exchange fluctuations

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Annexure I: Consolidated Profit & Loss Statement

Rs mn FY08 (A) FY09 (A) FY10 (A) FY11 (E) FY12 (E) FY13 (E)
Total Income (incl. Other Income) 13,723 13,829 13,520 15,780 21,405 25,680
Total Expenses 9,610 11,263 15,003 11,655 16,245 19,494
PBITDA 4,112 2,566 -1,483 4,125 5,160 6,186
PBITDA Margin (%) 30.0 18.6 11.0 26.1 24.1 24.1
Depreciation 1,007 1,340 1,549 1,281 1,339 1,391
PBIT 3,106 1,226 -3,032 2,844 3,821 4,795
PBIT Margin (%) 22.6 8.9 -22.4 18.0 17.9 18.7
Interest 820 1,565 2,423 1,000 1,035 900
EO 0 0 10,153 0 0 0
PBT 2,286 -338 4,698 1,844 2,786 3,895
PBT Margin (%) 16.7 -2.4 34.7 11.7 13.0 15.2
Tax 532 152 1,306 443 836 1,168
PAT 1,753 -490 3,393 1,401 1,950 2,726
Less: Minority Interest 0 0 0 0 0 0
Add: Share of Profit from Associates 0 0 0 0 0 0
Adjusted PAT 1,753 -490 3,393 1,401 1,950 2,726
Net Profit Margin 12.8 -3.5 25.1 8.9 9.1 10.6
No. of shares 66 70 70 70 85 85
EPS 26.6 -7.0 48.2 48.2 22.9 32.0
Source: Company, Prime Broking; (A) Audited; (E) Estimated

Annexure II: Consolidated Balance Sheet Statement

Rs mn FY08 (A) FY09 (A) FY10 (A) FY11 (E) FY12 (E) FY13 (E)
Share Capital & Warrants 659 704 704 704 853 853
Reserves & Surplus 5,991 5,634 8,672 9,988 19,199 21,925
Networth 6,650 6,338 9,377 10,693 20,052 22,778
Loan Funds 19,705 26,159 16,437 17,158 11,000 9,000
Foreign Currency Translation Reserve 0 -836 176 176 176 176
Deferred Tax Liability (Net) 1,149 1,285 2,028 2,028 2,028 2,028
Total Liabilities 27,504 32,945 28,017 30,055 33,256 33,982
Net Fixed Assets 21,601 25,542 20,722 21,441 22,103 22,711
Investments 8 8 8 8 8 8
Cash and Bank Balances 310 525 3,352 6,897 5,319 4,103
Debtors 5,379 6,725 7,370 3,913 5,311 6,373
Inventory 6,492 7,683 4,226 3,283 4,576 5,491
Loan, Advances & Other Current Assets 1,052 1,021 2,057 1,641 2,227 2,673
Current Liabilities 7,338 8,558 9,718 7,129 6,288 7,378
Net Current Assets 5,895 7,395 7,287 8,606 11,145 11,263
Total Assets 27,504 32,945 28,017 30,055 33,256 33,982
Source: Company, Prime Broking; (A) Audited; (E) Estimated

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Annexure III: Consolidated Cash Flow Statement

Rs mn FY08 (A) FY09 (A) FY10 (E) FY11 (E) FY12 (E) FY13 (E)
Profit Before Tax 2,286 -338 4,698 1,844 2,786 3,895
Depreciation 1,007 1,340 1,549 1,281 1,339 1,391
Interest 820 1,565 2,423 1,000 1,035 900
Other Items 503 -907 -9,545 -30 -30 -30
Change in Working Capital -1,184 -1,173 -1,191 2,227 -4,118 -1,333
Income Tax Paid & Other Adjustments -323 -28 -659 -443 -836 -1,168
Cash Flow from Operations 2,103 459 -343 5,879 177 3,654
Change in Net Fixed Assets -5,447 -4,770 -2,247 -2,000 -5,501 -2,000
Change in Investments & Interest Received -7 0 0 0 0 0
Dividend Received 0 0 0 30 30 30
Other Items 0 0 16,374 -85 0 0
Cash Flow from Investing -5,454 -4,770 -14,128 -2,055 -1,970 -1970
Change in Capital 7 1,095 0 0 7,408 0
Debt Raised 3,916 5,465 -7,797 722 -6,158 -2,000
Interest Paid -1,218 -2,019 -2,889 -1,000 -1,035 -900
Dividend Paid -231 -231 -82 0 0 0
Cash Flow from Financing 2,474 4.311 -10,768 -278 215 -2,900
Change in Cash -878 0 3,016 3,546 -1,578 -1,216
Opening Cash & Bank Balance and others 1,188 525 335 3,352 6,897 5,319
Closing Cash & Bank Balance 310 525 3,352 6,897 5,319 4,103
Source: Company, Prime Broking; (A) Audited; (E) Estimated

Annexure IV: Key Financial Ratios

FY08 (A) FY09 (A) FY10 (A) FY11 (E) FY12 (E) FY13 (E)
Net Sales Growth 42.5% -0.3% 3.6% 17.2% 35.7% 20.0%
EBITDA Growth 16.7% -49.8% -192.0% -361.0% 25.3% 20.0%
EBIT Margin 18.4% 2.8% -23.2% 17.9% 17.7% 18.6%
Net Profit Margin 13.5% -3.8% 25.3% 8.9% 9.1% 10.6%
Debt to Equity Ratio 3.0 4.1 1.8 1.6 0.5 0.4
Interest Coverage Ratio 2.9 0.2 -1.3 2.8 3.7 5.3
Inventory Turnover (Days) 374 352 220 118 88 94
Debtor Turnover (Days) 151 170 191 131 79 83
Return on Asset 6.4% -1.5% 12.1% 4.7% 5.9% 8.0%
Return on CE 8.7% 1.1% -11.1% 9.4% 11.4% 14.0%
Source: Company, Prime Broking; (A) Audited; (E) Estimated

ORCHID CHEMICALS & PHARMACEUTICALS LIMITED 18

 PRIME BROKING

EQUITY SALES / DEALING TEL.: +91-22-24982525

Vinay Motwani Head of Sales & Distribution vinay@primesec.com

Nitin Khivasara VP - Equity Sales nitinkhivasara@primesec.com

Sumeet Rewari VP - Equity Sales sumeetrewari@primesec.com

Nitin Shah Dealer - Equities nitin@primesec.com

Amir Merchant Dealer - Equities amir@primesec.com

STOCK OWNERSHIP / CONFLICT DISCLOSURE

Prime / Prime Subsidiaries No

Key Prime Management &/or Other Employees No

Any Other Corporate Finance Conflict of Interest No

ANALYSTS’ RATINGS DEFINITIONS

STRONG BUY Expect  25% CAGR return

BUY Expect a CAGR return  15% and  25%
HOLD Expect  15% CAGR return
SELL Expect  5% CAGR return

CONTACT NUMBERS
Dealing: +91 22 24982525 Research: +91 22 24981515
This document has been prepared by Prime Broking Company (India) Limited (“Prime”). The information, analysis and estimates contained herein
are based on Prime’s assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended
recipient only.This document, at best, represents Prime’s opinion and is meant for general information only. Prime, its Directors, Officers or Employees
shall not in any way be responsible for the contents stated herein. Prime expressly disclaims any and all liability that may arise from information,
errors or omissions in this connection. This document is not to be considered as an offer to sell, or a solicitation to buy any securities. Prime, its
affiliates and their employees may from time to time hold positions in the securities referred to herein. Prime or its affiliates may from time to time
solicit from or perform investment banking or other services for any company mentioned in this document.

ORCHID CHEMICALS & PHARMACEUTICALS LIMITED 19