Orchid Chemicals - 1QFY2013 Result Update - Angel Broking

Orchid Chemicals (Orchid) reported lower-than-expected numbers for 1QFY2013. For the quarter, the net sales came in at Rs.365cr, much lower than the estimated Rs.500cr. However, the main disappointment came on the operating front, where the OPM came in at 3.3%, on the back of lower sales and rupee (INR) deprecation. This led the company to post a loss of Rs.46cr during the quarter. Although the stock has declined sharply, given the valuations, we maintain our Buy view on the stock.

Lower-than-expected performance: For the quarter, on a consolidated level, Orchid reported net sales of Rs.365cr, a decline of 11.7% yoy. The company's gross margin declined by 10.9% to 37.7%; which resulted in OPM coming in at 3.3% vs 13.0% in the corresponding period last year. This along with a higher interest expenditure led to a net loss at Rs.46cr vis-à-vis expectation of net profit of Rs.32cr.

Outlook and valuation: We expect Orchid to post net sales of Rs.2,434cr, with EBITDA margin of 16.0% in FY2014E. The stock is currently trading at 8.4x FY2013E and 6.1x FY2014E earnings. We maintain our Buy rating on the stock with a revised target price of Rs.140.

Source : Equity Bulls

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