The promoters of Chennai-based Orchid Chemicals and Pharmaceuticals (Orchid) have hiked their stake in the company to 26% through open-market purchases since January this year. The promoters have acquired the shares mainly through two PACs – Orchid Healthcare and R Vijayalakshmi. As on March 25, the promoters’ holding in the mid-cap pharma company stood at 26%, up from 21.17% at the end of the December quarter.
While the company officials were not immediately available for comments, analysts with different brokerage firms feel that the promoters’ move to enhance their stake auger well for the business as it would re-infuse investors confidence in the company. ?After the margin call fiasco, which forced the promoters to sell over 7% of their stake to cough up the margin money in March 2009, there was a lack of investor interest in the Orchid counter. However, the new development of promoters hiking their stake to 26% would see renewed activities in the stock in coming days,? said an analyst with a local brokerage house, adding, ?the move would help further improve investors’ faith in the company?.
According to information available with FE, R Vijayalakshmi bought 3.19 lakh shares of the company between March 16 and 19. This is on top of 21.08 lakh shares she bought on February 25 and another 21.47 lakh share on February 26 through market purchases, hiking her stake to 3.73%. Similarly Orchid Healthcare bought 60,409 shares on March 17, 28.47 lakh shares on February 25 and an additional 29.62 lakh shares on February 26 from the open market, taking its stake in the company to 4.40%.
Plans of the Rao family, which promotes the company, to jack up their stake went haywire after a sub prime-hit Bear Sterns decided to exit the company dumping millions of Orchid stocks in the open market, sending the stock into a tailspin. The crash in stock prices had triggered margin calls from two brokerage houses – Indiabulls and Religare. The broking houses had helped the promoters to up their stake in the company from 17% to 24% by providing margin funding on an 80:20 basis.
This means that promoters borrowed Rs 80 for every Rs 20 they invested in the company’s stock. With the stock prices tanking over 40% due to selling pressure, the brokerages went for margin calls forcing the promoters to part with the entire 7% stake they bought through the deal. A margin call refers to a demand from a broking house to its client to deposit cash or additional stocks to maintain the mutually agreed upon margin. If the client fails to take the call, the broking house is free to sell the stocks it holds in the margin account in the market.
Orchid stock is hovering around the Rs 160 mark on the bourses. The stock hit a yearly high of Rs 239.40 on December 16, 2009, and a yearly low of Rs 56.50 on March 12, 2009.