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Corporate - Restructuring

Orchid Chemicals bets on restructuring to spark growth

Sanjiv Shankaran
S. Gopikrishna Warrier


ORCHID Chemicals and Pharmaceuticals Ltd hopes that an extensive round of restructuring will revive its fortune in the near future.

According to Mr K. Raghavendra Rao, Managing Director of Orchid, the company is going through a phase of staff, product and market restructuring, which will start showing results within the next 12 months.

The company is poised to make the transition into the next quantum in terms of turnover and net profit, according to him.

"I see an increase in top and bottomline this year itself, and the company would become a mature organisation by 2004-05."

Speaking about why the company did not register a good performance during 2001-02, Mr Rao said that it was because during the year, it continued to be in cephalosporin production for the non-regulated markets. "Our aim is to move to the regulated markets, and this had not happened during the last year."

The formulations division had also made a loss of Rs 6.36 crore, which further dampened the overall results, he added.

Another factor was that Orchid's Aurangabad plant was supposed to come out with neutraceuticals, which in turn was supposed to reduce the company's dependence on cephalospornis. "This did not happen, as anticipated," Mr Rao said.

The fourth reason, according to him, was accounting for doubtful debts during the year. This was done to bring into the accounts statement the probability of losing part-payment from an importer from the Far East.

During the financial year 2001-02, the company registered a net profit of Rs 6.30 crore, which was drop from the net profit of Rs 35.75 crore for 2000-01.

This was even though the turnover increased to Rs 425.52 crore from Rs 371.24 crore. During the fourth quarter of 2001-02, the company registered a net loss of Rs 4.11 crore on a turnover of Rs 147.17 crore, compared to a net profit of Rs 10.25 crore on a turnover of Rs 100.71 crore during the fourth quarter of 2000-01.

According to Mr Rao, the company has initiated a few steps, which it expects will result in growth in the coming years. This includes introduction of high-value non-cephalosporin products from the Aurangabad plant. These are mostly in the neutraceutical supplement segment.

"We expect that this year, 15 to 20 per cent of our turnover in the bulk-active segment will be from non-cephalosporin products," he said.

"Last year, it was two per cent and was almost insignificant the year before that."

The formulations division is also expected to contribute to Orchid's group, since it started making money during the last quarter of 2001-02, he said.

Further, Orchid has filed the Drug Master Files (DMF) with the US Food and Drug Administration for four cephalosporin drugs, Mr Rao said.

Two of these are under review, and the company expects inspection for one of them to be carried out by October. "We are confident that by the end of this financial year, we will get two approvals," he said.

He added that the proposed joint venture with a large Chinese drug company would give Orchid a good base for expanding its sales in the Chinese market. It would also have operational control and also be paid for the technology that it transfers.

The joint venture will be a $25-million company, with equity involvement of $5 million from both the Indian and Chinese companies.

Orchid is also hoping to get benefit from the personnel restructuring of the recent months, which saw the induction of professionals to start activities that did not exist before in the company. According to Mr Rao, in addition to formulations, the areas that have got new focus from Orchid are regulations and patents, with two professionals having been appointed to handle them.

"In the last 16 months, we filed 44 patent applications, of which two have been accepted," he said. For the entire period of Orchid's existence, only two patent applications had been filed.

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