Financial Information:

Orchid Chemicals & Pharmaceuticals consolidated net sales grew by mere 4% YoY to Rs 482.10 crore for the quarter ended December 2011. However, OPM fell by 150 bps YoY to 26% led to 2% decline in operating profit to Rs 129.03 crore. There was sharp 83% rise in interest cost to Rs 49.56 crore and depreciation increased by Rs 32.24 crore to Rs 38.29 crore. Consequent to this PBT before forex loss fell by 43% to Rs 41.18 crore. After adjusting for the forex loss of Rs 49.07 crore compared to forex gain Rs 3.66 crore in the corresponding previous period there was loss of Rs 7.88 crore at PBT level compared to profit Rs 75.61 crore in the corresponding previous period. Further, after accounting provision for the tax Rs 3.18 crore there was net loss Rs 11.07 crore compared to net profit Rs 56.62 crore in the corresponding previous period.

Highlights of the Call:

• The subdued 4% revenue growth during the quarter was on the back of change in product mix and business mix. Also, Revenues from dominant API business (76% of sales) grew by moderate 7% YoY to Rs 353.3 crore for the quarter ended December 2011. However, the Global generic business grew by 26% to Rs 114 crore. It expects Rs 30 crore reversal in forex losses in Q4'FY12.
• The Global API (Active Pharmaceutical Ingredients) business of Orchid continued to witness strong growth backed by the long-term supply arrangements with key, large global majors.
• During the quarter, Revenues contribution from Hospira business was 23% to the total sales and the trend continues to be similar levels (22-23%) for the full year.
• The Exceptional items for the quarter ended December 31, 2011 represents exchange loss on FCCB's / FCTL's of Rs.49.07 crore (Corresponding quarter- Gain of Rs.3.66 crore). For the nine months ended December 31, 2011, exceptional items represents FCTL/ FCCB's loss of Rs. 70.30 crore (Corresponding nine months- Gain of Rs.6.97 crore) and one time closure expenses of Alathur Plant of Rs. 11.30 crore. (Corresponding nine months- Nil).
• The Company had exercised the option provided under the Amendment to the Companies (Accounting Standards) Amendments Rules, 2006 dated March 31,2009. The Ministry of Company Affairs vide notification dated 29th December 2011 has extended the amortization of gains or losses arising on reporting of Foreign Currency Monetary items over the balance period of such long term asset / liability. Accordingly Exchange loss on Long-term foreign currency loans have been amortized over the balance period of such loans. This has resulted in the charge for foreign exchange loss being lower by Rs.21.03 crore and Rs. 76.69 crore for the quarter ended December 31, 2011 and for the nine months ended December 31,2011 respectively. The amount remaining to be amortized in the financial statements as at December 31, 2011 on account of exercising the above option is Rs.76.69 crore (corresponding Nine months Rs. 1159 crore).

• It generally files 20 products every year. It has re-filed cefixeime (both tablet and suspension forms) and expects the approval and the launch could be mostly happen in FY'13 for the suspension form. Further, it clarified that it is similar to any of the typical selling product and the company is capable to market it itself.
• The emipenem and merepenem (just 2 players in the market) combine sales were USD 18 million in the Q3'FY 12. It indicated that there was limited competition for both products and expects good visibility going forward.
• In regards to the collaborative research agreement with the Merck, the company successfully completed its anti-infective research calibration with the subsidiary of Merck. Consequent to this Orchid has received USD 1.5 million milestone payment from Merck. Under the terms of the agreement it is eligible to receive payments totaling more than USD 100 million associated in the Long run. Also it is eligible to receive significant royalties on worldwide net sales of any products commercialized under the agreement.
• In regards to its proprietary novel PDE4 inhibitor molecule OCID 2987 successfully completed Phase I trail in Europe. The molecule positioned for the treatment of inflammatory disorders including COPD (Chronic Obstructive Pulmonary Disease).

• The company is off the guidance on top line by 7-8% and 10% on bottom-line for FY'12. The actuals were lower in the top line on account of shutdown of cephalosporin plant and delay in approvals in penems. The bottom line was also impacted on account of hardening of interest rates.

• The Company expects 20% growth in top line and bottom-line for the FY'13. It clarified that H1'FY13 will be much better than H1'FY 12.
• The key triggers for the FY'13 were 1) advantage of approval of Hospira 2) Product mix will be favorable in the penems business 3) Newer cephalosporin approvals in H2'FY 13 4) Growth from products through the partners 5) few of the product launches.
• There were two to three FTF launches (desloratadine) going forward. Also, the Company recently received approval for Abbreviated New Drug Application (ANDA) from US FDA for Levofloxacin tablets.
• The order book of the Tazobactum was full and there is no significant change noticed in the business.
• The Capex is Rs 250 crore (most it has been already spent) for FY'12 and expects Rs 100-150 crore for the FY'13.
• The Long-term Rupee loans were at Rs 800 crore (13% interest rate) and working capital was at Rs 600 crore (9-10% interest rate) as on 31^st December 2011.
• The Debtor days were at 60 days and inventory days come down to 100 days (earlier 126 days) as on December 31^st 2011.