The Hindu Business Line : Reducing debt is Orchid Chemicals’ priority

Chennai, Oct. 1 Orchid Chemicals is conscious of the debt overhang and the need to correct the capital structure, said Mr Raghavendra Rao, Managing Director.

Speaking on the sidelines of the company’s AGM, he said that the company managed to reduce its foreign currency debt by raising foreign currency convertible bonds, domestic debt surged due to capital expenditure on investments.

According to a report by Angel Broking, Orchid Chemicals and Pharmaceutical should focus on pruning its burgeoning debt levels and refrain from incurring further incremental capital expenditure. The company’s rupee term loan rose by 154 per cent to Rs 921 crore in 2008-09 compared with Rs 361 crore the previous year. Interest and finance charges almost doubled to Rs 155 crore in 2008-09 from Rs 81 crore last year.

According to the report burden of debt was built over the past few years on account of high front-end capital expenditure incurred towards building capacities for cephalosporin, penicillin, carbapenems and non penicillin non cephalosporin. However, the revenues came only from its cephalosporin facility. So far the company has incurred capital expenditure of Rs 1,500 crore in the last three years.

Mr Rao said that with Orchid getting the 180-day exclusive approval from US to sell the generic drug Pipercillin-Tazobactam injections, cephalosporin launches in Europe and additional launches in the US, the company would be able to reduce the debt.

Mr Sushant Dalmia, Analyst, Angel Broking, said that the approval from the US is beneficial for the company as it would augment its revenue by $84 million (about Rs 420 crore) during the exclusivity period. If the revenues from the recent approval are aimed at reducing debt, then debt to equity ratio would be come down to 2.6 times from the current high of four times.

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