Why Did Orchid Pharma Shares Plunge 10% Today?

Orchid Pharma, a small-cap stock which had defied gravity by soaring over 7,700% in just seven months is in focus of late.

Shares of the company have been under pressure lately after the blockbuster rally seen in the past year.

The stock, which was relisted on 3 November 2020 at Rs 18, scaled a high of Rs 2,680 on 5 April 2020, delivering 14,789% returns during the period.

The prime factor behind the spectacular rise in the stock was the limited number of shares.

Its promoter, Dhanuka Laboratories holds 98.04% stake in the company and the entire stake is locked in, as per the BSE data.

Public shareholders hold less than half a percent stake in the company.

The rally was likely to end once the promoters started selling stake to comply with market regulator's promoter holding norms.

And on Wednesday, the promoters gave enough reason for investors to believe the rally will fizzle out.

The company's promoters have offered to sell their shares at 72% discount to the last closing price.

Following this news, Orchid Pharma shares hit the 10% lower circuit limit on Thursday.

That's not all. Even today, shares of the company plunged 10%.

Key details about the OFS

Dhanuka Laboratories, one of the promoters of Orchid Pharma, will sell 3.3 m shares, representing 8.04% of the total issued and paid-up share capital of the company.

Orchid Pharma has set the floor price for its offer for sale (OFS) at Rs 375 which implies a discount of 72% to the stock's closing price of Rs 1,319.80.

The OFS opened for subscription on Thursday for non-retail investors. For retail investors, it opened today.

Only 10% of all shares on offer is reserved for retail investors.

The OFS is being conducted to meet the minimum public shareholding of 25%.

The promoters have to reduce their holding from the current 98.04% to 90% by November.

Why Orchid Pharma shares were deemed to fall

The main reason behind the meteoric rise in Orchid Pharma's stock was the shortage of shares.

To comply with market regulator's norms, new owners have to divest part of their stake of about 98% in the firm.

And the rally was likely to end once the promoters started selling stake in the company.

This is evident as since the April 2021 highs, shares of Orchid Pharma have fallen more than 60%.

Orchid is among a handful of Indian companies to offer a redeeming story after exiting bankruptcy proceedings.

However, investors must note that such rallies could pose a threat as those firms typically don't have good fundamentals.

There have been similar instances for companies such as Ruchi Soya Industries, Bafna Pharmaceuticals and Alok Industries, which resolved bankruptcies and were taken over by new investors.

Ruchi Soya's share price was at Rs 17 after relisting last year on 27 January. In a matter of months, it skyrocketed to touch a high of Rs 1,535 on 29 June - a jump of 8,929%.

The rise in Ruchi Soya's stock price was mainly on account of the low level of free float.

Quarterly and annual results

Last month, Orchid Pharma reported total income of Rs 1.3 bn during the period ended 31 March 2021 as compared to Rs 1 bn during the period ended 31 December 2020.

The company posted a net loss of Rs 247.2 m for the quarter against a loss of Rs 447.2 m for the period ended December 2020.

For the financial year ended March 2021, Orchid Pharma posted net loss of Rs 1.2 bn.

Revenues also declined to Rs 4.6 bn as compared to Rs 5.1 bn during the same period last year.

An interesting fact about Orchid Pharma is that the company is yet to post a profit. It has been clocking losses each year since financial year 2013 barring a year in between.

How Orchid Pharma shares are performing today

Orchid Pharma share price ended the day down by 10%.

The stock has a 52-week high quote of Rs 2,680 touched on 5 April 2021 and a 52-week low quote of Rs 18 touched on 3 November 2020.

At the current price of Rs 1,069 the company commands a marketcap of Rs 43.6 bn.

About Orchid Pharma

Orchid Pharma, established in 1992, is an integrated pharmaceutical company with presence in bulk drug manufacturing and formulations.

The major product of the company is Cephalosporin-based Active Pharmaceutical Ingredient (API).

The company was acquired by Dhanuka Laboratories (DLL) under Corporate Insolvency Resolution Process (CIRP) by the NCLT and the Resolution Plan has been implemented w.e.f. 31 March 2020.

Orchid, at present, has four manufacturing facilities in Chennai. The API unit at Alathur and the unit for formulations at Irungatukottai (IKKT) are USFDA certified. The two formulations units in Alathur cater to exports to non-regulated markets and the domestic market.

To know more about the company, check out Orchid Pharma company fact sheet and quarterly results on our website.

For a sector overview, read our pharmaceuticals sector report.

You can also compare Orchid Pharma with its peers.

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