Competitive market conditions have forced Orchid Chemicals & Pharmaceuticals to exit its manufacturing joint venture in China.
The 50 per cent stake Orchid holds in the joint venture company NCPC-Orchid Pharmaceuticals will be transferred to the partner company North China Pharmaceutical Corporation (NCPC) for a total cash consideration of $13.9 million.
In 2002, Orchid had entered into a 50:50 joint venture with NCPC to set up a cephalosporin (antibiotics) API manufacturing facility in Shijiazhuang, China, to supply to the local Chinese market. At that time, Orchid felt this would help strengthen its foothold in China.
“But with the local Chinese players fast integrating, the operating conditions have grown quite competitive in China,” said Orchid’s Chairman and Managing Director, K. Raghavendra Rao.
“Moreover, the products that the joint venture manufactures and markets in the local Chinese market have reached a mature stage resulting in flat growth prospects going forward. Hence, it was a prudent decision to relinquish our stake to the partner and exit the JV.”
According to a company official, Orchid had clocked revenues of $24 million from this JV last year, with profits of $1.5 million. It has invested $5 million in the last 10 years in the JV.
Orchid’s exports to China will, however, continue, said the company official. Last year, Orchid exported antibiotics and non-antibiotic APIs worth Rs 150 crore to China.
Q2 results
In August, Orchid sold its penicillin and penem API business to US-based Hospira for $200 million.
Meanwhile, Orchid Pharmaceuticals has registered a net loss of Rs 20 crore during the second quarter, under “working capital constraints and a higher interest outflow.”
Last year, second quarter, the company had made a profit of Rs 23.43 crore. Orchid’s standalone income dipped 21 per cent to Rs 330.54 crore.
The above numbers include the exceptional gain/loss on account of the profit on stake sale in the Chinese venture and the exchange loss on foreign currency loans aggregating Rs 46.22 crore.