Orchid Chemicals & Pharmaceuticals scrip has fallen more than 50% in the last two days. On Friday, 14 March, it closed at Rs206 and today on 18 March it has closed at Rs113.60. At today's closing price, the scrip is quoting at a PE of 4.16. Incidentally, the Business Line carried a detailed buy recommendation of Orchid Chemicals at Rs206 only last Sunday. Click here to view the report.
What would have triggered the steep fall in the scrip in the last couple of days?
1. Bear Stearns sold a huge chunk of Orchid Chemicals stock on Monday due to its liquidity related problems. Bear Sterns has sold the scrip at 195 range on Monday.
2. Macquaire Bank which holds a sizeable chunk of Orchid Chemicals is rumoured to have sold their stake in the market.
3. There is a sale of more than 20 lakh shares by the promoters family members on Monday at Rs135 range.
4. Orchid Chemicals is supposed to carry forex derivative contracts in their books which due to the recent currency movements in Yen and CHF may have a negative impact on the profit and loss for this quarter.
Answers to the questions above:
1. The entire lot sold by Bear Stearns has been picked up by another FII. Also we should note that the sale by Bear Stearns is nothing related to the fundamentals of Orchid Chemicals but due to its own liquidity position.
2. Macquaire Bank sale is still a rumour and no bulk deals reported.
3. The promoters have clarified that the sale of more than 20 lakh shares has been triggered due to margin call on their individual share trading accounts and it was not an intentional sale.
4. The company has clarified that their exposure in forex derivatives is negligible to their balance sheet size.
Don't think I am a qualified technical expert but when I had one look at the graph it has broken all supports and quoting below 100 DMA and 200 DMA. On pure technicals, it is not a buying signal!!
I think there is no justification for the steep correction of over 50% in the last two days in the scrip. The fundamentals merit a closer look at the scrip with large scale expansion planned by Orchid Chemicals, launch of new products in the coming year in US market etc., If at all somebody is going to buy Orchid, it is better to stagger your purchase. Remember the famous quotation, when the whole world is fearful, you can be greedy.
I don't currently own Orchid Chemicals but may own it in the future. Please check the fundamentals and take your own personal decision.