Fwd: <> Re: Orchid Chemicals- Worst Management Quality.Margin Funding Is Used To Hike Stake?

So should one buy orchid at this level or still there are chances of correction in it?

The stock of Orchid Chemicals, a generic player with niche in antibiotics, has lost over 45 per cent in the last two days. The stock's decline has to be seen in the light of ailing US investment bank Bears Stearns selling a large chunk of its shares.

 

This was followed by Orchid's promoters having to offload a 7 per cent stake in the company, to meet margin calls, after earlier ramping up their stake through the margin funded route.

 

Significant premium

 

Though reports of forex-related losses dogged the stock on Monday, this remains in the realms of speculation in the absence of any clarification by the company to the stock exchanges.

 

In addition, Orchid has foreign currency convertible bonds (FCCBs) amounting to $193 million, raised last year, which are still to be converted into Equity.

 

With the stipulated conversion price for these FCCBs now at a significant premium to the current stock price, the prospect of the holders exercising the conversion option has reduced.

 

This may leave Orchid with a significant loan obligation to be serviced in 2012.

 

However, unlike other stocks whose correction can be attributed to lofty valuations, Orchid trades at a modest valuation at the current market price of Rs 113.50 (BSE).

 

Likely earnings

 

This stock price discounts the company's expected earnings for 2008-09 by about four times. This has to weighed against likely earnings from over 12 product launches over the next two years and the company's proven track record of garnering shares in regulated markets. As also either Equity dilution on conversion of FCCBs or the redemption of Rs 1000 crore in Debt.

 

For the last nine months, Orchid's profit before exceptional items has risen by 94 per cent to Rs 134 crore over the same period last year.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

 

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