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Orchid net profit tumbles as traumatic 2012 ends on a low

By Nick Taylor , 15-May-2012

Fourth quarter net profit at Orchid fell by two-thirds as the Indian API manufacturer ended a difficult year on a low.

Net profit at Orchid Chemicals & Pharmaceuticals in the quarter fell below analysts’ already lowered expectations. Struggles earlier in 2012 lowered outlook but the weak end to the fiscal year still sent shares in Orchid down 10 per cent.

K Raghavendra Rao, CEO of Orchid, said it faced “a few setbacks during the year”, such as temporary closure of an API (active pharmaceutical ingredient) plant after criticism by the Tamil Nadu pollution control board. Orchid also suffered a fire at its research and development facility in Sholinganallur.

These events dragged on financial performance at Orchid and contributed to the company missing guidance in the past two quarters. After a weak back half of 2012 full year net profit fell by one-third against 2011.

Profits continued to grow, albeit at a lower rate than the company or analysts expected, and full year turnover totalled $374m (€291m). Acceleration of sales growth is dependent on supply agreements Orchid inked to supplement its business with Hospira, which accounted for one-fifth of sales in 2012.

After the third quarter results Angel Broking wrote: “Orchid has entered into various supply agreements with other players in the regulated as well as non-regulated markets. The company has started supplying API to a leading Japanese company under a contract for the next five years.”

When the note was published in March Angel Broking was optimistic about the future performance of Orchid, reaffirming its buy rating and setting a target price of Rs255 a share. Following release of lacklustre fourth quarter results shares in Orchid slumped to Rs125.

The Economic Times reports Macquarie has downgraded Orchid to ‘underperform’ and slashed its target price by one-third to Rs105. The Orchid CEO remains optimistic though, saying “it is satisfying that we are on a growth path and are confident of delivering value going forward”.

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