Orchid Chem to repay FCCB through ECB, borrows $100 mn

Orchid Chemicals is buzzing on the radar today on account of the USD 100 million debt that the company has raised through external commercial borrowing. K Raghavendra Rao, chairman and managing director, Orchid Chemicals spoke to CNBC-TV18 about the fund-raising and strategies of the company going ahead.

Below is the edited transcript of the interview. Also watch the accompanying video.

Q: Just take us through the details of the USD 100 million ECB that you have raised?

A: Yes we have got a sanction for USD 100 million of External Commercial Borrowings (ECB) which will be used to repay the bonds for USD 117 million which are maturing in February 2012. Of course, there is also a yield-to-maturity (YTM) also to be added to this which will come from internal accruals. So we are replacing dollars with dollars and borrowing also is less than the repayment. So we don't have any issue in repayment of bonds in February when they mature.

Q: What kind of terms did you get on the ECB?

A: These terms are better than the interest that is there on these bonds which we are going to repay. The bonds that are currently outstanding are having 7.25% to YTM on a five-year bond, and the rates and tenure both are better than 7.25% and the tenure is longer than five years.

Q: What about the foreign exchange issue and the rupee-dollar rate? Does that worry you about how things might pan out?

A: Actually it is a positive for us because we are a net value addition company in terms of dollar terms. Our P&L is USD 400 million of exports each year and a net of imports for the material cost that goes into that- we are net dollar-positive of at least USD 200 million year-over-year, whereas the bonds are maturing once in five years. So in five years, we would be having a net value addition of more than a billion dollar. Thus foreign exchange is beneficial for us if the rupee is weakening. The only thing is in terms of stating the accounts at the end of each quarter, we need to restate the balance sheet items, instead of the P&L accruals over a period of time. So in a couple of quarters, we will be able to off set the notional loss on account of bonds at any point in time because our P&L is very strong in terms of dollars.

Q: And the gap between the total FCCB amount and the ECB is easily met through internal accruals?

A: Absolutely yes.

Sell Orchid Chemical, says Sudarshan Sukhani

Sell Orchid Chemical , says Sudarshan Sukhani, s2analytics.com.

Sukhani told CNBC-TV18, "Orchid Chemical is been a big disappointment. First it fell went on breaking support levels, we went on giving sell signals in it and then in the Rs 140-150 range there was a suggestion that probably the worst is over. But it's not. It's ready to begin another leg of the decline that we have already seen. That's worrying because it's not the only stock that's saying okay, I am ready to fall more. But Orchid Chemicals is a short selling idea. I don't know whether it's going to stop even at that target of Rs 124. I suspect before the bear market ends we will see it in double digits."

Orchid Chemicals may rally upto Rs 200: Tulsian

Orchid Chemicals may rally upto Rs 200, says SP Tulsian, sptulsian.com.

Tulsian told CNBC-TV18, "Orchid Chemicals, if you see FCCB of USD 117 million dollars and that has been cause of worry for the market. If you see Q2 results had a provision of about Rs 82 crore on account of the exchange loss that got set off against the tax refund of the equivalent, so that did not impact much on the bottomline of Q2 on a consolidated or taking all this into account, but if you see now since the FCCB of about USD 117 million has been replaced, I don't think that now you really have any worry- if you see the business profile of the company, they are the largest integrated antibiotic manufacturing company. They have 3 Active Pharmaceutical Ingredients (API) plants. They are the cephalosporin makers, one of the largest cephalosporin makers in the country and very good product pipeline they have good filings in the Europe and US to the extent to the extent of about 80 products and they are into the formulations also. They have their two plants, strong R&D pipeline."

He further added, "If you take all this into account and in fact I would say that FY11 results have been stable and one can expect that kind of results to get repeated from FY13. I will give a pass to FY12 results, but FY11 had a topline of close to about Rs 1600 crore and they an EPS of close to about Rs 22-23 and if you recall at that time management was confident that probably they will be able to post an EPS of close to about 25-30, but I don't think that that is likely to happen, as I said that because of this tax refund, exchange, gain, losses and all that, but yes, one can expect that from FY13, the company is in a position to post the topline of close to about Rs 2000 crore with atleast the EPS of about 20 plus if not 24-25."

"So if I take all these things into account, again you don't have any downside fear. The stock technically also looks oversold. We had been seeing short covering in the stock for the last couple of days. So if you take that FY13 performance based on a topline of Rs 2000 crore and expected EPS of 20 plus atleast I think share has potential to move back to about Rs 200, which market will start factoring in probably in the next 6- 8 months time. So target of Rs 200 can be seen in about 8 month's time from hereon."

Seth`s view on Orchid Chemicals

Prashastha Seth, IIFL Private Wealth feels that investors should hold their position in Orchid Chemicals .

Seth told CNBC-TV18, "The problem with Orchid Chemicals is not the business, the business is doing okay, and the valuations are cheap 6-5 times earnings."

He further added, "There are two problems with the company; one was the FCCB which the company said it has sorted out with the new ECB loan and second is in terms of pledged promoter shares which is still an overhang on this stock and will continue to be an overhang on the stock till the market sentiment improves. So if somebody is a trader then in these market conditions he would exit some of these stocks but if one is an investor and can wait and bear the pain theoretically of promoters pledge holding being sold and so on and so forth then some of these stocks present decent opportunity."

"I think five-six time one year forward earnings I don't see how much one can go wrong from where you are at this point of time and even the market sentiment is such that one might again have to as is the case with other two companies you will have to bear an extended period of pain but if one can see through it once the tiding change which could happen in three-six months down the line you could reap benefits from where one is at this point of time."