Orchid Chemicals and Pharmaceuticals Ltd. Initiating Coverage March 2011

PRIME BROKING

ORCHID CHEMICALS & PHARMACEUTICALS LIMITED 1

INVESTMENT RATIONALE

Orchid is in the area of niche generics and drug discovery, has presence acrossthe whole pharmaceutical value chain with state-of-the-art infrastructure. Thecompany has evolved into a fully integrated Indian pharmaceutical Company,straddling the pharmaceutical chain with its presence in six clusters namelyAPIs, CRAMS, branded generics, regulated generics, Novel Drug Delivery Sys-tems (NDDS) and New Chemical Entities (NCEs). We believe Orchid is in aunique position to tap these opportunities for the following reasons:

Exponential Growth in the high margin formulations business

The formulations business is typically a higher margin business compared toAPIs. It is expected to grow on back of around 100 product filings to be doneover a period of next 4 years out of which 35 would be for launch in US andEurope which are typically higher margin markets. As per our estimates thebusiness is expected over grow @ 65% for the period FY 11 to FY 13.

Deleveraged balance sheet

The sale of injectables formulation business to Hospira enabled the company torepay around Rs 1,400 crore of loans using the sale proceeds which signifi-cantly de-leveraged the balance sheet and also brought its various financialratios under control. The debt-equity ratio which had climbed from 1.3 to 4.4was once again brought to 1.5 levels.

In the generic formulations segment, every product has a life-cycle. Hence, it isimportant to capitalise on a generic opportunity in the first-wave of patentexpiry. Having derived significant value from generic launches in the cepha-losporin injections and penicillin injections space and with no major productsgoing off-patent in these segments going forward, these assets would not gener-ate significant growth in numbers. So, it made business sense to monetize theseassets and reduce the debt burden.

Deal with Karalex Pharma to improve margins

The Karalex Pharma’s management team has a collective experience of launch-ing over 100 generic pharmaceutical products in the US with a combined valuein excess of US$1 billion. This acquisition will pave the way for synergistic re-turns from its generic pharmaceuticals pipeline comprising first-to-file and Para-IV products, among others. This will in turn help improve the company’s mar-gins as distribution casts will come down.

Reuters code ORCD.BO

Bloomberg Code OCP IN

BSE 524372

Sensex 18,490

52week H/L (Rs) 344/128

Monthly H/L (Rs) 307/243

MktCap (Rs mn) 18,540

MktCap (US$ mn) 412

EV (Rs mn) 28,801

Valuation Parameters (FY 13)

EV/EBITDA 4.4

MktCap/EBITDA 3.6

EV/Sales 1.1

MktCap/Sales 0.9

Price Chart

Shareholding Pattern

Paurav Lakhani91-22-2498 1515

[email protected]

ORCHID CHEMICALS AND PHARMACEUTICALS LIMITED (ORCHID) CMP: Rs. 263STRONG BUY

March 03, 2011

“Flowering” in a mid-cap desert Initiating CoverageTarget Price: Rs. 384

0

50

100

150

200

250

Oct '09 Jan '10 Apr '10 Jul '10Orchid Sensex

30%

18%

52%

Promoters Institutions Others

PRIME BROKING


Promising New Chemical Entity (NCE) Research - a potential trigger

Orchid Research Laboratories Limited’s multi-therapeutic, multi-lead portfolio and selective partnerships withthe global customers for their projects reflects its emergence in the global drug discovery space as a potentialplayer. There are several molecules under research, the lead molecules under two therapeutic areas – anti-infectives and clotting disorders – show great potential based on confirmatory microbiological and pharmaco-logical studies. These molecules could see the light of the day in next 12 to 24 months. All expenses on this fronthave been expensed through P&L of that period and no potential income from the same has been taken into ourestimates. Any income from the same could see huge upsides in our estimates.

Promoter buying stake

The promoter has committed at various public forums to do a creeping acquisition of 5% of equity and bring upits holding in the company from current 31% to 36%.

Valuations

We expect a 28% CAGR in topline growth over the period FY11E to FY13E. Our EPS estimates on diluted basis(assuming FCCB Conversion) for FY12E and FY13E are at Rs. 22.9 and Rs. 32.0 respectively. The stock iscurrently trading at an P/E multiple of 11.5x and 8.2x times its FY12E and FY13E numbers. We are bullish onthe stock with a STRONG BUY rating and a price target of Rs. 384 at an P/E multiple of 12.0x times itsFY13E numbers.

PRIME BROKING


COMPANY BACKGROUND

The company was incorporated on 1st July 1992 as a 100% export oriented unit (EOU). The company has apresence spanning across multi-therapeutic segments like anti-infectives, anti-inflammatory, central nervous system(CNS), cardio vascular segment (CVS), nutraceuticals and other oral and sterile products. The organisations sinceits inception has grown into substantial size spread across several developed markets like USA, Europe, SouthAfrica and Japan (Exhibit I) and the journey is encapsulated as under. (Exhibit II)

Exhibit I: Organization Structure

Orchid Chemicals &Pharmaceuticals Ltd.

SubsidiariesJoint Ventures

Orchid EuropeLimited, UK

(100%)

Orchid PharmaJapan K K

(100%)

Diakron Pharmaceuticals

Inc., USA(42.71%)

NPNC OrchidPharmaceuticals

Co. Ltd, China(50%)

OrchidPharmaceuticalsInc. USA (100%)

OrchidPharmaceuticalsSA (Prop.) Ltd,

(100%)

BexelPharmaceuticals

Inc., USA(100%)

OrchidResearch

Laboratories Ltd.(100%)

OrgenusPharmaceuticalsInc. USA (100%)

PRIME BROKING


Exhibit II: Key MilestonesMilestone YearOrchid Chemicals is established on 1st July and has obtained Certificate of Commencement 1992Company goes public 1993Company starts commercial production and recives Good Manufacturing Practices (GMP) Certificaion 1994Sets up state-of-the-art formulation facility for manufacture of sterile cephalosporin formulations 1996Becomes the youngest Indian pharmaceuticals company to receive the ISO 9002 Certification 1997Commissions the Research & Development (R&D) Centre 1997Becomes the largest producer of oral and sterile cephalosporin formulations and ranked amoung top 5producers of cephalosporin APIs. 1997Formulations division becomes operational 1998Recieves ISO Certification for Environment Management Systems 1999Acquires a manufacturing plant at Aurangabad 2000Sets up a JV alliance with US based drug discovery research firm Bexel Biotechnology Inc, USA 2002Enters into JV with NCPC to set up manufacturing facility in China 2002Acquires domestic formulations company, Mano Pharmaceuticals and enters the chronic therapy segment 2003Commissions state-of-the-art Good Laboratory Practices (GLP) compliant preclinical facility to supportdrug discovery 2003JV with Bexel moves its novel anti-diabeic molecule into human clinicals 2003Aurangabad API facility is awarded ISO 14001 and OHSAS 18001 Certification 2003JV with Bexel sucessfully completes Phase 1(a); 1(b) and 2(a) trials on its lead anti-diabetic molecule andthe molecule also receives patent clearance from US Patent office 2004Enters into marketing agreement with Par Pharma for Non-Penicillin Non-Cephalosporin (NPNC) 2004Recives GLP Certification to become only the fifth company in India to be cetified for its R&D expertise 2005Enters into an agreement with Mayne Pharma (now Hospira) for marketing injectable antibioticformulations in selected regulated markets like USA, Europe and ANZ 2005Enters into a long-term Master Agreement with Pfizer for certain CRAMS 2005Undertakes structural consolidation of global discovery research by acquiring 100% in Bexel Pharma. 2006Sets up a wholly owned subsidiary in Japan called Orchid Pharma Japan KK to capitalize on growingJapenese market 2008US FDA approves ANDA for Piperacillin and Tazobactum injection with 6 months exclusivity 2009Inks business tranaction agreement with Hospira to transfer the generic injectables formulations dosageform pharmaceuticals business for USD 400 million 2009Acquires US-based marketing company Kalarex Pharma, to strengthen its presence in the front-end USmarket and to reach its generic products to the US customers directly. 2010Redeems FCCBs aggregating to USD 25.69 million 2010Source: Company, Prime Broking

Orchid is well diversified across the pharma value chain, starting from APIs to formulations to drug discovery,which helps to capture value in its product portfolio. It has its key differentiators which lent the company itsniche. (Exhibit III) The company has a clear strategic focus on niche generics and drug discovery and has state-of-the-art infrastructure to support its products.

PRIME BROKING


Source: Company, Prime Broking

Exhibit III: Key Differentiators

The company has evolved into a fully integrated Indian pharmaceutical Company, straddling the pharmaceuticalchain with its presence in six clusters: APIs, CRAMS, branded generics, regulated generics, Novel Drug DeliverySystems (NDDS) and New Chemical Entities (NCEs). (Exhibit IV)

Exhibit IV: Presence Across Full Value Chain


Global API Domestic Formulations

Global Generics CRAMS NDDS NCEs

PRIME BROKING


CURRENT OPERATIONS

The company has three API manufacturing sites out of which two are in India and one is in China which is a 50:50JV with North China Pharmaceuticals Company (NCPC); three formulations manufacturing sites and two worldclass R&D sites. (Exhibit V)

Exhibit V: Infrastructure Facilities

Orchid Chemicals &Pharmaceuticals Ltd.

FormulationsManufacturing

ActivePharmaceutical

IngredientsManufacturing

Research &Development

Alathur, ChennaiSIDCO

IndustrialEstate

Irungattukottai,Chennai


PharmaceuticalsComplex


IndustrialEstate

Aurangabad,Maharashtra

Shijiazhuang,Hebel Province,

China

Irungattukottai,Chennai

Sholinganallur,Chennai


PRIME BROKING


Active Pharmaceutical Ingredients (API)The API manufacturing plant located at Alathur, south of Chennai is one of the largest integrated antibioticmanufacturing complexes in India and specialises in the manufacture of cephalosporin APIs. The plant has thecapability to handle complex and hazardous reactions with safety and efficiency, the plant’s operations are backedby a full spectrum of utilities including a captive power generation plant, solvent recovery facilities, quality controlequipment and a ‘zero-discharge’ environment friendly effluent treatment plant. The plant has been approved byleading global regulatory agencies like the US FDA, UK MHRA, GMP, EDQM, TGA (Australian), Danish MedicinesAgency, in addition to several quality, environment and safety management recognition.

The API manufacturing complex in Aurangabad, near Mumbai provides multi-therapeutic product offeringscomprising high-end betalactams, carbapenems and non-penicillin non-cephalosporin (NPNC) APIs. The facilityhas also been approved by leading regulatory agencies

Formulations

The formulations manufacturing facility at Irungattukottai (IKKT), near Chennai has modern infrastructuregeared to offer high throughput, coupled with R&D labs, this formulations infrastructure is in the forefront of thecompany’s entry into the advanced markets of US and Europe. The oral formulations facility manufactures varioustypes of dosage forms such as oral tablets and capsules in diverse dosage strengths and product categories. Thefacility has been approved by leading regulatory agencies including the US FDA, UK MHRA, MCC (South Africa)and Danish Medicines Agency, based on specific filings. Several ANDAs (abbreviated new drug applications) havebeen filed from this complex with approvals and new launches underway.

The oral non-cephalosporin formulations facility at Alathur, Chennai specialises in the manufacturing of nutraceuticalproducts. The facility produces a range of dietary supplements for the advanced markets. Many other high-valueproducts like anti-diabetics, cardio vascular drugs (CVS), anti-depressants and anti-epileptics are manufactured inthis facility to cater to the emerging markets. Built to GMP (good manufacturing practices) standards (WHOguidelines), this facility has packaging machinery and a full-spectrum, dedicated quality control and microbiologicalservices, adding distinctiveness to the manufacturing quality.

The oral cephalosporin formulations facility again at Alatur, Chennai manufactures cephalosporin oral productsdedicated to the domestic and emerging markets. The facility has the capability to manufacture different dosageforms like tablets, capsules, dry syrups and liquid orals. The facility conforms to cGMP standards and is approvedby the WHO.

The company has Multi Horizon Strategy for API, Formulations and Innovation. (Exhibit VI)

Exhibit VI: Multi - Horizon Strategy


PRIME BROKING


Research & Development (R&D)

The Company has four R&D divisions dedicated to process research, drug discovery and development, phar-maceutical research and biotechnology. These research facilities are in the forefront of creating generic productpipelines, proprietary discovery pipelines, novel processes and formulations, each aimed at building valuableintellectual property. The National Good Laboratory Practices (GLP) Monitoring Authority of India, aligned toOECD Principles of GLP has also certified the R&D facilities for GLP compliance. The company has integratedDrug Discovery and Development Infrastructure (Exhibit VII)


Exhibit VII: Integrated Drug Discovery and Development Infrastructure

The wholly owned subsidiary, Orchid Research Laboratories Limited’s (‘Orchid Research’), multi-thera-peutic, multi-lead portfolio and selective partnerships with the global customers for their projects reflects itsemergence in the global drug discovery space as a potential player. Lead molecules have been identified in twotherapeutic areas – anti-infectives and clotting disorders – based on confirmatory microbiological and pharmaco-logical studies.(Exhibit VIII) The medicinal chemistry division trained scientists who perform design and synthesisof novel molecules in various therapeutic areas such as anti-infectives, anti-inflammatory, anti-cancer and meta-bolic disorders.

Bexel Pharmaceuticals Inc. (Bexel), the drug discovery subsidiary in the USA, is working on – innovativecompounds in the areas of diabetes, inflammation, obesity, multiple sclerosis, cardiovascular and auto-immunediseases.

The company focuses on developing Novel Drug Delivery Systems (NDDS) for select anti-infective mol-ecules. A few platform and product specific technologies with six prototype formulations have been successfullydeveloped. The areas of NDDS Research are Drug specific, Platform technologies and Disease conditions.

PRIME BROKING


Exhibit VIII: New Chemical Entity Development Status

Source: Company Presentation

The company to leverage its R&D base has taken up Custom Research and Manufacturing Services(CRAMS) as a discrete initiative.

The company has filed cumulative 36 ANDAs with the US FDA (23 in the non penicillin, non cephalosporin(NPNC) segment and 13 in the oral cephalosporin segment) and filed cumulative 18 marketing authorizations inthe EU (12 in the oral cephalosporin segment and 6 in the NPNC segment)

PRIME BROKING


DEAL WITH HOSPIRA

In 2009-10, the company sold its generic injectable formulations business for around US$400 million to Hospira,a generics injectable major. The agreement covered the sale of assets, products, product pipeline and team tomanage the transferred assets. Orchid sold its betalactam antibiotics formulations manufacturing complex (com-prising the cephalosporin, penicillin and carbapenems facilities) and a pharmaceutical research & developmentfacility at Irungattukottai, Chennai. It transferred its ten-product generics injectable product portfolio - sevencephalosporins, one penicillin and two carbapenems. It also transferred 24 ANDAs and 12 Dossiers along with450 employees, dedicated to the development and production of sterile betalactam antibiotic formulations, toHospira.

Why the Sale?The company was invoicing about US$ 90 million (injectable generic formulations sales) with an EBIDTA compo-nent of around US$40 million. This included an API component of US$40 million with an EBIDTA of US$15 million.This would mean that the net reduction in topline would be US$50 million with reduction in EBIDTA of US$25million.

In the generic formulations segment, every product has a life-cycle. Hence, it is important to capitalise on a genericopportunity in the first-wave of patent expiry. Having derived value from generic launches in the cephalosporininjections and penicillin injections space and with no major products going off-patent in these segments goingforward, these assets would not generate significant growth in numbers. So, it made business sense to monetisethese assets and reduce the debt burden.

Following the business transfer agreement, the company repaid around Rs 1,400 crore of loans using the saleproceeds which significantly de-leveraged the balance sheet and also brought its various financial ratios undercontrol.

Life after the dealThe company enjoys an exclusive ten-year API supply contract for molecules transferred to Hospira. This willassure a high API capacity utilization across product groups. The approvals of the carbapenem products in 2010and the consequent API supply ramp-up to Hospira would add to company’s revenues.

Karalex Pharma Deal

Orchid has entered into an agreement to acquire US-based generics marketing company Karalex Pharma LLC, inan all-cash deal to establish its front-end presence in generic sales and marketing. It has a collective experience oflaunching over 100 generic pharmaceutical products in the US with a combined value in excess of US$1 billion.This acquisition will pave the way for synergistic returns from its generic pharmaceuticals pipeline comprising first-to-file and Para-IV products, among others. This will in turn help improving the company’s margins which itpreviously lost to marketing companies to whom it sold the goods.

The growth strategy going forward for the company can be outlined as under: (Exhibit IX)

PRIME BROKING


Exhibit IX: Growth Strategy


FOREIGN CURRENCY CONVERTIBLE BOND (FCCB)

The company had issued FCCBs worth $175 m; redeemable at a premium of 42.77% of the issue price orconvertible into equity shares at a conversion rate of Rs. 348.34 per share by February 2012. The company hasalready bought back approx $58 m leaving company with outstanding bonds worth $117 m. The incentive forthe original FCCB holders to convert into equity shares is only around Rs 498. The company hasprovided for the premium on redemption on FCCBs in the books by debiting the securities premium account,which upon conversion will no longer be required and the provision will need to be reversed resulting in increasein networth of the company. In our calculations we have assumed conversion of the outstanding FCCBs in theFY12

PRIME BROKING


PERFORMANCE

Orchid’s focus on formulations and maintaining high operating margins has translated into an good financialperformance as demonstrated by a 7% CAGR in revenues and 43% CAGR in net profit over the period FY06 -FY10. (Exhibit X) However going forward the company is expected to grow at 28% CAGR in revenue terms and39% CAGR on the bottom line. (Exhibit XI)

Exhibit X: Performance Track Record

Source: Prime Broking

CAGR = 43%

CAGR = 39%(Rs mn)

(Rs mn)(Rs mn)CAGR = 7%

Revenues Net Profit

Revenues Net Profit

CAGR = 28%

(Rs mn)

9,366 9,638

13,010 12,968 13,435

FY 06 FY 07 FY 08 FY 09 FY 10

573785

1,753

-490

3,393

FY 06 FY 07 FY 08 FY 09 FY 10

Exhibit XI: Performance Outlook


15,750

21,375

25,650

FY 11 FY 12 FY 13

1,401

1,950

2,726

FY 11 FY 12 FY 13

PRIME BROKING


The Indian pharmaceutical industry ranks third by production volume, accounting for around 10% of the world’spharmaceutical output [Source: Ministry of State for Chemicals and Fertilisers, Government of India]. However,India’s pharmaceutical industry ranks only 14th by value and accounts for a mere 1.5% by value in the globalpharmaceutical industry.

The Indian pharmaceutical market, estimated at over US$20 billion and expected to grow to US$40 billion by2015, reporting a compounded annual growth rate of nearly 14% (source: Mckinsey).

Indian firms won 138 approvals from a total of 483 generics approved by the US FDA in 2009, constituting about31% of the abbreviated new drug applications (ANDAs) approved by US FDA.

Major innovator companies are now looking to tie up with Indian companies for the manufacture of their genericisedmolecules in view of low production cost. On the other hand, these innovator companies are also tying up withIndian companies for research and development and drug discovery projects in view of talent available in India ata reasonable cost. As per an E&Y report the relative indexed cost of a US FDA approved plant is 40% that of USand when it comes to labour the picture is still pretty as relative indexed cost of skilled chemist is only 7%compared to US. India has most number of US FDA approved plant outside US followed by Italy and China. Indiaaccounts for one-third of the Drug Master Files (DMFs) in the US and has filed the largest number of ANDAs fromany other country apart from the US. Indian companies have been active in filing DMFs in the US since 2000. Theglobal market for generics is expected to grow significantly on account of number of blockbuster drugs going offpatent over the coming years. (Exhibit XII)

INDIAN PHARMACEUTICAL INDUSTRY - IN A SWEET SPOT

2 6 2 7

5 8

4 8

3 9 3 7

2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4

Exhibit XII: Patent Expiry Schedule

Source: OPPI - Yes Bank Report

PRIME BROKING


Active Pharmaceutical Ingredients (APIs)

Bulk actives are otherwise known as Active Pharmaceutical Ingredients (APIs) or bulk drugs. They comprisemedicinally active ingredients that are converted into formulations or dosage forms. APIs are either manufacturedin-house by formulation companies or they can be outsourced to third party API manufacturers. The global APIindustry has grown substantially over past few years due to the growth in generics industry. Most of the compa-nies that purchase bulk drugs are generics manufacturers. India‘s bulk drug/API exports account for 21% ofIndia‘s pharmaceutical industry, which, in contrast to many developed countries is significantly higher as bulkdrugs are mainly manufactured for internal consumption.

The main reasons for growth in API business is:. Growth in the international generics industry. Increasing share of the Indian companies in DMF filings. Contract manufacturing opportunity

Formulations

Formulations involve developing a preparation of the drug (from APIs and other ingredients) which is both stableand acceptable to the patient. This usually involves incorporating the drug into a tablet, capsules, injectibles,syrups, etc. The formulations are administered to or taken by the patient and are available either by prescriptionor over-the-counter.

The domestic formulations industry grew at a CAGR of 14.3% from around USD 4.3 billion in 2002-03 to USD8.4 billion in 2007-08. The Indian market expanded much faster than the global pharmaceutical market as awhole. It is expected to reach USD 21.5 billion in 2015-16. The break-up of key therapeutic categories for 2007-08 is as under (Exhibit XIII)

Source: OPPI - Yes Bank Report

18%

11%

11%

9%9%8%

6%

5%

5%

5%

13% Anti-InfectivesGastroCardicRespiratoryPainVitaminsGynaecCNSDemaAnti-DiabeticOthers

Exhibit XIII: Key Therapeutic Categories

PRIME BROKING


The global market for generics is expected to grow significantly on account of number of blockbuster drugs goingoff patent over the coming years. The manufacturing of these generic are centered around China, India, EasternEurope and Brazil. USA is the major market for generics followed by Europe and Japan. The major driver for thePharmaceutical Industry in these markets is the percentage of ageing population is rising faster resulting in risinghealthcare cost. In such countries the government has modified its laws for generic medication and has thusenabled more companies to file DMFs and formulation dossiers.

PRIME BROKING


VALUATION

We expect a 28% CAGR in topline growth over the period FY11E to FY13E. Our EPS estimates on diluted basis(assuming FCCB Conversion) for FY12E and FY13E are at Rs. 22.9 and Rs. 32.0 respectively.

The stock is currently trading at an P/E multiple of 11.5x and 8.2x times its FY12E and FY13E numbers. We arebullish on the stock with a STRONG BUY rating and a price target of Rs. 384 at an P/E multiple of 12.0xtimes its FY13E numbers.

Fiscal Year FY08 (A) FY09 (A) FY10 (A) FY11 (E) FY12 (E) FY 13(E)

Revenues (Rs. mn) 13,010 12,968 13,435 15,750 21,375 25,650

EBITDA (Rs. mn) 3,399 1,706 -1,569 4,095 5,130 6,156

EBITDA (%) 26.1 13.2 -11.7 26.0 24.0 24.0

PAT (Rs. mn) 1,753 -490 3,393 1,401 1,950 2,726

Net Profit (%) 13.5 -3.8 25.3 8.9 9.1 10.6

No. of Shares (mn) 66 70 70 70 85 85

EPS (Rs.) 26.6 -7.0 48.2 19.9 22.9 32.0

P/E - - - 13.2 11.5 8.2

EV/EBITDA - - - 7.0 5.5 4.4

KEY RISKS

The key downside risks are as follows:

i) Large part of the promoters stake is pledged

ii) Inability to rollover FCCBs in case of non conversion.

iii) Exposure to foreign exchange fluctuations

PRIME BROKING


Annexure I: Consolidated Profit & Loss StatementRs mn FY08 (A) FY09 (A) FY10 (A) FY11 (E) FY12 (E) FY13 (E)

Total Income (incl. Other Income) 13,723 13,829 13,520 15,780 21,405 25,680

Total Expenses 9,610 11,263 15,003 11,655 16,245 19,494

PBITDA 4,112 2,566 -1,483 4,125 5,160 6,186

PBITDA Margin (%) 30.0 18.6 11.0 26.1 24.1 24.1

Depreciation 1,007 1,340 1,549 1,281 1,339 1,391

PBIT 3,106 1,226 -3,032 2,844 3,821 4,795

PBIT Margin (%) 22.6 8.9 -22.4 18.0 17.9 18.7

Interest 820 1,565 2,423 1,000 1,035 900

EO 0 0 10,153 0 0 0

PBT 2,286 -338 4,698 1,844 2,786 3,895

PBT Margin (%) 16.7 -2.4 34.7 11.7 13.0 15.2

Tax 532 152 1,306 443 836 1,168

PAT 1,753 -490 3,393 1,401 1,950 2,726

Less: Minority Interest 0 0 0 0 0 0

Add: Share of Profit from Associates 0 0 0 0 0 0

Adjusted PAT 1,753 -490 3,393 1,401 1,950 2,726

Net Profit Margin 12.8 -3.5 25.1 8.9 9.1 10.6

No. of shares 66 70 70 70 85 85

EPS 26.6 -7.0 48.2 48.2 22.9 32.0Source: Company, Prime Broking; (A) Audited; (E) Estimated

Annexure II: Consolidated Balance Sheet StatementRs mn FY08 (A) FY09 (A) FY10 (A) FY11 (E) FY12 (E) FY13 (E)

Share Capital & Warrants 659 704 704 704 853 853

Reserves & Surplus 5,991 5,634 8,672 9,988 19,199 21,925

Networth 6,650 6,338 9,377 10,693 20,052 22,778

Loan Funds 19,705 26,159 16,437 17,158 11,000 9,000

Foreign Currency Translation Reserve 0 -836 176 176 176 176

Deferred Tax Liability (Net) 1,149 1,285 2,028 2,028 2,028 2,028

Total Liabilities 27,504 32,945 28,017 30,055 33,256 33,982

Net Fixed Assets 21,601 25,542 20,722 21,441 22,103 22,711

Investments 8 8 8 8 8 8

Cash and Bank Balances 310 525 3,352 6,897 5,319 4,103

Debtors 5,379 6,725 7,370 3,913 5,311 6,373

Inventory 6,492 7,683 4,226 3,283 4,576 5,491

Loan, Advances & Other Current Assets 1,052 1,021 2,057 1,641 2,227 2,673

Current Liabilities 7,338 8,558 9,718 7,129 6,288 7,378

Net Current Assets 5,895 7,395 7,287 8,606 11,145 11,263

Total Assets 27,504 32,945 28,017 30,055 33,256 33,982Source: Company, Prime Broking; (A) Audited; (E) Estimated

PRIME BROKING


Annexure IV: Key Financial RatiosFY08 (A) FY09 (A) FY10 (A) FY11 (E) FY12 (E) FY13 (E)

Net Sales Growth 42.5% -0.3% 3.6% 17.2% 35.7% 20.0%

EBITDA Growth 16.7% -49.8% -192.0% -361.0% 25.3% 20.0%

EBIT Margin 18.4% 2.8% -23.2% 17.9% 17.7% 18.6%

Net Profit Margin 13.5% -3.8% 25.3% 8.9% 9.1% 10.6%

Debt to Equity Ratio 3.0 4.1 1.8 1.6 0.5 0.4

Interest Coverage Ratio 2.9 0.2 -1.3 2.8 3.7 5.3

Inventory Turnover (Days) 374 352 220 118 88 94

Debtor Turnover (Days) 151 170 191 131 79 83

Return on Asset 6.4% -1.5% 12.1% 4.7% 5.9% 8.0%

Return on CE 8.7% 1.1% -11.1% 9.4% 11.4% 14.0%

Annexure III: Consolidated Cash Flow StatementRs mn FY08 (A) FY09 (A) FY10 (E) FY11 (E) FY12 (E) FY13 (E)

Profit Before Tax 2,286 -338 4,698 1,844 2,786 3,895

Depreciation 1,007 1,340 1,549 1,281 1,339 1,391

Interest 820 1,565 2,423 1,000 1,035 900

Other Items 503 -907 -9,545 -30 -30 -30

Change in Working Capital -1,184 -1,173 -1,191 2,227 -4,118 -1,333

Income Tax Paid & Other Adjustments -323 -28 -659 -443 -836 -1,168

Cash Flow from Operations 2,103 459 -343 5,879 177 3,654

Change in Net Fixed Assets -5,447 -4,770 -2,247 -2,000 -5,501 -2,000

Change in Investments & Interest Received -7 0 0 0 0 0

Dividend Received 0 0 0 30 30 30

Other Items 0 0 16,374 -85 0 0

Cash Flow from Investing -5,454 -4,770 -14,128 -2,055 -1,970 -1970

Change in Capital 7 1,095 0 0 7,408 0

Debt Raised 3,916 5,465 -7,797 722 -6,158 -2,000

Interest Paid -1,218 -2,019 -2,889 -1,000 -1,035 -900

Dividend Paid -231 -231 -82 0 0 0

Cash Flow from Financing 2,474 4.311 -10,768 -278 215 -2,900

Change in Cash -878 0 3,016 3,546 -1,578 -1,216

Opening Cash & Bank Balance and others 1,188 525 335 3,352 6,897 5,319

Closing Cash & Bank Balance 310 525 3,352 6,897 5,319 4,103Source: Company, Prime Broking; (A) Audited; (E) Estimated

Source: Company, Prime Broking; (A) Audited; (E) Estimated

PRIME BROKING


This document has been prepared by Prime Broking Company (India) Limited (“Prime”). The information, analysis and estimates contained hereinare based on Prime’s assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intendedrecipient only. This document, at best, represents Prime’s opinion and is meant for general information only. Prime, its Directors, Officers or Employeesshall not in any way be responsible for the contents stated herein. Prime expressly disclaims any and all liability that may arise from information,errors or omissions in this connection. This document is not to be considered as an offer to sell, or a solicitation to buy any securities. Prime, itsaffiliates and their employees may from time to time hold positions in the securities referred to herein. Prime or its affiliates may from time to timesolicit from or perform investment banking or other services for any company mentioned in this document.

CONTACT NUMBERS

Dealing: +91 22 24982525 Research: +91 22 24981515

EQUITY SALES / DEALING TEL.: +91-22-24982525

Vinay Motwani Head of Sales & Distribution [email protected]

Nitin Khivasara VP - Equity Sales [email protected]

Sumeet Rewari VP - Equity Sales [email protected]

Nitin Shah Dealer - Equities [email protected]

Amir Merchant Dealer - Equities [email protected]

STOCK OWNERSHIP / CONFLICT DISCLOSURE

Prime / Prime Subsidiaries No

Key Prime Management &/or Other Employees No

Any Other Corporate Finance Conflict of Interest No

ANALYSTS’ RATINGS DEFINITIONS

STRONG BUY Expect 25% CAGR return

BUY Expect a CAGR return 15% and 25%

HOLD Expect 15% CAGR return

SELL Expect 5% CAGR return

Orchid Chemicals and Pharmaceuticals Ltd. Initiating Coverage March 2011

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