Orchid Chemicals in equal JV with NCPC
By Venkatachari Jagannathan | 20 Jul 2002
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Chennai: The cephalosporin bulk major Orchid Chemicals and Pharmaceuticals and the Chinese drug company North China Pharmaceutical Company have officially announced the formation of a 50:50 joint venture (JV) company, NCPC Orchid Pharmaceuticals Company, to be based in China. Both the companies had signed the JV deal a month back in China.
“We have intimated the bourses about the board's decision to look into joint venture opportunities in China. As such there is no suppression of market or price sensitive information,“ says Orchid Chemicals managing director K Raghavendra Rao. The company had intimated the National Stock Exchange (NSE) about its plans to form a JV in China on 6 December 2001.
But after opening at Rs 79.25 on the NSE (the previous close being Rs 77.80), the Orchid Chemicals scrip during the day (18 December 2002) touched a high of Rs 82.45 before closing at Rs 81.70.
The $350-million turnover North China Pharmaceutical Company is a listed company, with 59-per cent of its stake owned by the Chinese government. The balance is held by the public. The company clocked a profit of $16 million last year. It is part of North China Pharmaceutical Group Corporation, which has a turnover of $680 million and a net profit of $38 million.
Rao says both the joint venture partners will invest $5 million each as equity, and the $15 million will be raised as loan from the Chinese banking system. A part of the equity contribution by North China Pharmaceutical Company is in the form of building and land.
NCPC Orchid will initially manufacture 300 tonnes of sterile and injectible cephalosporin bulk and formulation and later get into other therapeutic areas. “The company will produce them in crystalline and lyphilisation forms,“ says Rao. “Fifty per cent of the $4.4-million Chinese anti-infectives market consists of cephalosporin-based drugs.“
“The JV products are for the Chinese market as the demand is huge. NCPC Orchid expects the Chinese government to give its green signal for the JV by next month,“ says NCPC group chairman Lu Weichuan.
As per plans the 150-t crystalline plant will first go on stream in January 2003 followed by the lyphilisation plant of a similar capacity in April 2003. The non-sterile plant, also on the cards, will start functioning from September 2003. The plant will produce from the penultimate stage of the bulk exported by Orchid Chemicals.
For Orchid Chemicals, the Chinese venture, apart from providing an opportunity to increase its exports, also gets revenues in the form of a technology transfer fee ($1.5 million) and a 5-per cent royalty on the quantum of value-additions.
“Orchid Chemicals will get at least $30 million additional sales. This is in addition to the $40 million that is earned from exports to China,“ Rao adds. For Orchid Chemicals, China is a major market as it accounts for nearly 70 per cent of its exports.
One of the rationales for the Chinese JV is the convenience of marketing and collections. Currently, Orchid Chemicals sells its bulk to several small- and medium-sized Chinese companies. The company, sometime back, experienced a major payment default by one of the Chinese importers.
The eight-member board of NCPC Orchid will have equal representation from the promoters while the general manager, the chief executive officer and the chief financial officer will be the Chennai company's nominee.
“We have intimated the bourses about the board's decision to look into joint venture opportunities in China. As such there is no suppression of market or price sensitive information,“ says Orchid Chemicals managing director K Raghavendra Rao. The company had intimated the National Stock Exchange (NSE) about its plans to form a JV in China on 6 December 2001.
But after opening at Rs 79.25 on the NSE (the previous close being Rs 77.80), the Orchid Chemicals scrip during the day (18 December 2002) touched a high of Rs 82.45 before closing at Rs 81.70.
The $350-million turnover North China Pharmaceutical Company is a listed company, with 59-per cent of its stake owned by the Chinese government. The balance is held by the public. The company clocked a profit of $16 million last year. It is part of North China Pharmaceutical Group Corporation, which has a turnover of $680 million and a net profit of $38 million.
Rao says both the joint venture partners will invest $5 million each as equity, and the $15 million will be raised as loan from the Chinese banking system. A part of the equity contribution by North China Pharmaceutical Company is in the form of building and land.
NCPC Orchid will initially manufacture 300 tonnes of sterile and injectible cephalosporin bulk and formulation and later get into other therapeutic areas. “The company will produce them in crystalline and lyphilisation forms,“ says Rao. “Fifty per cent of the $4.4-million Chinese anti-infectives market consists of cephalosporin-based drugs.“
“The JV products are for the Chinese market as the demand is huge. NCPC Orchid expects the Chinese government to give its green signal for the JV by next month,“ says NCPC group chairman Lu Weichuan.
As per plans the 150-t crystalline plant will first go on stream in January 2003 followed by the lyphilisation plant of a similar capacity in April 2003. The non-sterile plant, also on the cards, will start functioning from September 2003. The plant will produce from the penultimate stage of the bulk exported by Orchid Chemicals.
For Orchid Chemicals, the Chinese venture, apart from providing an opportunity to increase its exports, also gets revenues in the form of a technology transfer fee ($1.5 million) and a 5-per cent royalty on the quantum of value-additions.
“Orchid Chemicals will get at least $30 million additional sales. This is in addition to the $40 million that is earned from exports to China,“ Rao adds. For Orchid Chemicals, China is a major market as it accounts for nearly 70 per cent of its exports.
One of the rationales for the Chinese JV is the convenience of marketing and collections. Currently, Orchid Chemicals sells its bulk to several small- and medium-sized Chinese companies. The company, sometime back, experienced a major payment default by one of the Chinese importers.
The eight-member board of NCPC Orchid will have equal representation from the promoters while the general manager, the chief executive officer and the chief financial officer will be the Chennai company's nominee.
