Orchid Chemicals & Pharmaceuticals falls 40% : Good Buy

Orchid Chemicals & Pharmaceuticals fell 40% today as one of FII investors (Macquarie Bank which owned 6% of the company shares) offloaded its stake in the company. The company Fundementals remain unaffected and is a good buy at current levels. The stock is expected to recover and bounce back to Rs 200, by April.

Global investment banking and equity research firm Macquarie Bank had acquired 6.84% in pharmaceutical company Orchid Chemicals for Rs115.78 crore. Macquarie Bank bought 4,500,000 shares amounting to 6.84% stake in Orchid Chemicals through secondary market purchase route on 27 December, Orchid Chemicals said in a disclosure to the Bombay Stock Exchange. Calculated on the basis of the closing price of Orchid Chemicals on 27 December (Rs257.30), the deal value amounted to about Rs115.78 crore, at a price of 291.

Valuation

At the current price of Rs 127, the stock discounts the company’s 2008-09 earnings by 15 times, which appears justified in relation to the earning prospects. Factors such as possible equity dilution through $200 million FCCB issue (used to retire debt), ambitious capex and muted sales growth in recent years have weighed on the stock price. Nevertheless, Orchid’s performance in antibiotic injectibles, guided sales growth of over 30 per cent in 2007-08 and the possibility of five exclusive product launches in 2009, suggest a sustainable earnings picture.

Long term investment for a period of two year can fetch you good return.