Some correction in the counter saw the scrip falling to the current low of around Rs 154. Orchid Chemicals is certainly a very good long-term bet and investors in the longer run can expect a bonus, too, from this South-based company. The company is comfortably placed with a relatively low equity of Rs 17.35 crore with huge reserves 152.46 crore, thereby yielding a very high book value of Rs 176. Over the years, the company has not capitalised its huge reserves. In all likelyhood, the company is expected to reward its shareholders through the issue of bonus shares by capitalising itsreserves.

Orchid Chemicals has emerged as one of the fastest growing drug company and has generated a lot of interest from the foreign institutional investors (FIIs). The stock, however, has underperformed other pharma stocks and market in general. The FII ceiling has already touched the 24 per cent mark and the company has already sought approval to hike the ceiling to 30 per cent. This is certainly going to bring FIIs back to this counter, which augurs well for smaller investors as well. A high holding by FIIs coupled with a low floating stock of around 27 per cent with public could see the stock flaring up in the coming times.

The company has recently bagged a prestegious order to supply an important ingredient, sildenafil citrate, for the impotancy drug viagra to Pfizer. Orchid Chemicals is an integrated producer of high demanded antibiotics cephalosporin in the world market, is also the third largest foreign exchange earner in the Indian pharmaceutical industry with exports to around 26countries.

Orchid Chemicals is in the process of setting up a Rs 50-crore non-cephalosporin plant in Tamil Nadu, which would further boost the company's margins. Also on the anvil is the plan to enter the formulations segment for its existing products.

Orchid commands a 13 per cent of world market share for cephalexin and about 10 per cent for other products. International certification for its products has further helped the company to establish its brandname in the global market.

However, the company's performance in the first qaurter has been a dampener. Orchid Chemicals reported a lacklustre growth in the first quarter ended June 1999 with a meagre six per cent jump in profits at Rs 9.07 crore on a turnover of Rs 80.12 crore in the first quarter of 1999-2000.

The company proposes to issue warrants in 18 months for Rs 175 crore in order to fund its new projects. The warrants, convertible into equity shares, would be issued within 18 months at a price not less than the price as per the Sebiformula.

Turnover during the first quarter was up 32 per cent to Rs 60.59 crore. Substantial rise in interest cost from Rs 5.54 to Rs 8.02 crore affected the profit margins.

The company's major breakthrough in the form of entering into a collaboration with an Italian R&D laboratory for antibiotic-polymer products could prove to be a revenue spinner. The invention promises to revolutionise antibiotic therapy in the country, which is applicable to a whole range of antibiotics such as beta-lactums.

Though sildenafil citrate will be one of the prime drivers for growth in the near future, the company has a strong product portfolio in the fast-growing cephalosporin market. Though the prices of cephalosporins have been depressed in the world market, the company has more or less maintained its operating margins primarily because it has been continuously launching new products as well as penetrating new markets.