The Hindu Business Line : Orchid's net up five-fold; touches Rs 28.96 crore

ORCHID Chemicals has reported a net profit of Rs 28.96 crore for the third quarter of this fiscal compared with Rs 5.76 crore in the year-ago period — an increase of over five times.

The Q3 net profit was slightly higher than that of the previous quarter (Rs 27.22 crore).

Q3 turnover rose to Rs 238 crore from Rs 172.26 crore in the year-ago period and Rs 239.32 crore in Q2. The company has cited the ramp-up in exports of Ceftriaxone injection. (The Ceftriaxone molecule went off-patent in August.)

In the first nine months of the fiscal, Orchid's net profit was Rs 63.51 crore compared with Rs 14.41 crore in the year-ago period.

Mr K. Raghavendra Rao, Managing Director of Orchid Chemicals, said there are good reasons to believe that the fourth quarter performance will be gratifying.

First, the company on December 20 received approval from the US authorities for marketing Cefprozil — another (antibiotic) molecule, which went off-patent on December 23. The value of the US market for the molecule is $230 million. Assuming that the post-patent price erosion will be about 75 per cent, the value of the current market for Cefprozil is estimated at around $60 million (Rs 270 crore). There are four players in this business — Novartis, Teva, Lupin and Orchid. Mr Rao believes Orchid would get a good share of the pie, because the company is into both forms of the drug — tablets and suspension.

Even divided equally among the four players, Orchid believes it would get an additional turnover of $15 million annually, a fourth of which could be achieved in a quarter. Orchid is expecting approval for Cefoxitin shortly, which would add to both turnover and profit in Q4.

The full effect of the financial restructuring will be also felt in Q4.

Orchid paid off Rs 260 crore of debt with the low cost funds obtained from the recent $65-million Global Depository Receipt issue. About 40 days' utilisation of the funds yielded an interest saving of Rs 2 crore in Q3 over the previous quarter. Interest cost in Q3 was Rs 22.14 crore compared with Rs 24 crore in the previous quarter.

Finally, Orchid expects "significant and permanent" reduction in working capital. With three molecules launched in the US market this year, the company's business from the regulated market (mainly the US) increased. Close to 40 per cent of the turnover comes from the US market, compared with less than 20 per cent a year ago. Since payments are quicker from customers in developed countries, Mr Rao expects lesser sundry debtors relative to topline growth.

The company also expects a fall in inventory levels. Plant stocks used to be high because the company had to hold them ready for various inspections from overseas authorities. "We used to hold about 90 different types of batches," notes Mr Rao. Now that phase is over and inventories will come down.