Orchid+Pharma+ Initiating+Coverage Dec 23 NUVAMA

December 2023
Ini a ng Coverage
Orchid Pharma
Turnaround play set to enter big leagues
Aashita Jain
Nuvama Institutional Equities
aashita.jain@nuvama.com
India Equity Research Pharmaceuticals December 20, 2023
ORCHID PHARMA
INITIATING COVERAGE
KEY DATA
Rating BUY
Turnaround play set to enter big leagues
Sector relative Outperformer
Price (INR) 715
12 month price target (INR) 900 Orchid Pharma (Orchid) is a leading supplier of cephalosporin APIs. The
52 Week High/Low
Market cap (INR bn/USD bn)
750/330
36/0.4
new promoters (Dhanuka) have revived its fortunes in just three
Free float (%) 28.0 years—deleveraging balance sheet and trebling EBITDA. We argue
Avg. daily value traded (INR mn) 133.3
Orchid is poised for a growth journey led by: i) higher utilisation on
75% expanded capacities; ii) timely execution of novel and two
SHAREHOLDING PATTERN limited-competition opportunities; and iii) PLI for key starting material
Sep-23 Jun-23 Mar-23 (7ACA), which shall propel sales and drive backward integration.
Promoter 72.4% 72.40% 89.96%
FII 8.08% 8.58% 0.81%
We forecast a core business revenue/EBITDA/PAT CAGR of
DII 12.47% 13.49% 2.62% 23%/30%/49% over FY23–26E with a healthy uptick in RoE from 8% to
Pledge 0% 0% 0% 20%-plus by FY26E. Initiating Orchid at ‘BUY’ with an SoTP-based TP of
INR900—20x Dec-25E core EPS, and INR215 from PLI, Para IV and NCE.
FINANCIALS (INR mn) Core business bulking up; new promoters delivering on promises
Year to March FY23A FY24E FY25E FY26E
The New Dhanuka management has successfully turned around the base business.
Revenue 6,659 8,398 10,732 16,735
EBITDA 836 1,101 1,792 3,779
Tripling of EBITDA over FY20–23, cost control and zero term debt (versus INR4.27bn)
Adjusted profit 139 910 1,557 3,238 testifies to their execution skills. Plants are now operating at 80% utilisation versus
Diluted EPS (INR) 3.4 17.9 30.7 63.8 sub-50% earlier, thereby triggering capacity addition. Management is now laser-
EPS growth (%) nm 427.5 71.1 108.0 focused on introducing products, expanding the customer base and ratcheting up
RoAE (%) 7.9 9.7 12.4 21.6
utilisation on expanded capacities (up 75% in both oral and sterile). This should drive
P/E (x) 210.2 39.9 23.3 11.2
EV/EBITDA (x) 46.2 32.5 22.4 10.6
a revenue/PAT CAGR of 23%/49% over FY23–26E.
Dividend yield (%) 0 0 0 0
Poised to take off; multiple opportunities set to unfold
Orchid boasts superior R&D skills, evident from its impressive pipeline. Para IV in
PRICE PERFORMANCE Avycaz and Ceftaroline (expected filing in Q4FY24) along with the royalty on novel
750 72,000 drug Enmetazobactam’s sales could add 10%/15% to FY26E/27E revenue. The
665 69,000
Cefiderocol CDMO with Shionogi, India branded and DLL-Orchid merger are other
580 66,000
495 63,000 significant opportunities, but not yet built in our numbers.
410 60,000
325 57,000 PLI to reinforce API positioning; propel revenue
Dec-22 Mar-23 Jun-23 Sep-23 Dec-23
The upcoming 7ACA PLI plant in Jammu (key starting material for Ceph API) is capital-
ORCP IN EQUITY Sensex
intensive, entailing INR6bn outlay. However, the benefit of backward integration is
remarkable. Besides, the potential returns are huge (~30%) with incentives alone (PLI
+ GST refund) covering the entire project cost in five years, not to mention the 6%
interest subvention scheme. We expect the payback period to be two–three years.
Upside potential: base case 26%; bull 60%, blue-sky: 2x, stressed 16%
Orchid is a high-risk high return play given multiple factors at play. We classify the
business into three buckets: i) core; ii) PLI; and iii) NCE and two Para IV drugs. We lay
out three scenarios (exhibit 9 and 10) assuming varying launch dates and operating
leverage. Our FY26E EPS is much higher than consensus as we also factor in the last
two buckets. Base assumptions: core: 49% PAT CAGR (yielding INR685/share); Para
IV: H2FY26 launch (50% probability (P)) (INR40/share DCF-based) and NCE: US launch
in H1FY26 (INR65/share, 90% P); and PLI: H1FY26 at 35% utilisation (INR110). Any
obstacles in the aforementioned opportunities or a slower uptick in PLI utilisation
could derail growth plans. Other risks: a sharp fall in API prices and regulatory.
Aashita Jain
Aashita.Jain@nuvama.com
Nuvama Research is also available on www.nuvamaresearch.com, Bloomberg - NUVA, Thomson Reuters, and Factset Nuvama Institutional Equities
ORCHID PHARMA
Executive Summary
Leading presence in niche cephalosporin APIs
Orchid is present in the fastest growing antibiotic called cephalosporin, which
accounts for ~26% of the overall antibiotic market and is growing at ~8%. The
cephalosporin API market is estimated to be ~USD2bn in 2022, wherein Orchid
currently commands a market share of ~5%. Higher complexity and capital outlay in
a low-growth segment act as entry barriers in the niche cephalosporin space, making
the market conducive to growth for Orchid. Besides, no new player globally is adding
capacity, and Orchid’s plant is the only USFDA-approved sterile plant in India.
Base business turning around; further growth plans in place

The new promoters had their task already cut out in the form of: i) leveraging
Dhanuka’s customers in emerging markets (EMs) to lift Orchid’s utilisation, ii) adding
capacities to drive growth; iii) launching products; iv) winning back lost businesses;
and v) bringing cost discipline and reducing debt.
So far, the turnaround in the base business has been impressive—evident from a
deleveraged balance sheet, tripling of EBITDA and turning PAT-positive over FY20–
23. Capacity utilisation of existing facilities, lagging at <50%, has improved to about
80%, thereby bringing about 75% capacity addition in both sterile and oral. This
coupled with product launches such as cefcapene and cefovecin should drive core
business revenue/PAT CAGR of 23%/49% over FY23–26E along with a 200bp
improvement in EBITDA margin to 14.8%.
Limited competition, NCE drugs set for leap, superior R&D capability
Para IV opportunities in the US – gAvycaz (likely FTF) and gTeflaro – shall project
Orchid into the big leagues’ trajectory. ANDA filing is likely in Q4FY24 and launch in
end-FY25 or H1FY26. Growth potential is huge given few players and 1.5x
multiplication of net market with generics entry.
NCE – Opportunity: Orchid Pharma is entitled to a 6–8% royalty on worldwide sales
(USD200–300mn annually) of Enmetazobactum, which translates to potential
annual revenue of USD16-25mn. Orchid Pharma developed Cefepime
Enmetazobactum and out-licensed global rights (excluding India) in 2013 to Allecra
Therapeutics. Allecra further out-licensed China rights to Shanghai Haini for
USD78mn in 2020, which highlights the huge potential of this drug, and to Advanz
Pharma for Europe. Orchid has retained the rights to develop the molecule for India,
and believes it would be an INR1bn-plus opportunity.
Our conservative estimate suggests the above opportunities could altogether
generate ~USD20mn/50mn sales in FY26E/27E, adding 13%/28% to core revenue.
In particular, the Cefiderocol CDMO opportunity displays Orchid’s expertise in
cephalosporin. It is on a cost-plus pricing basis with an assured 20% PBT and likely
to be a big growth driver given huge potential in AMR (antimicrobial resistance). This
is not factored in our numbers yet.
7ACA PLI: Providing huge growth impetus, backward integration

Orchid is well on its way to becoming a fully-integrated cephalosporin player by
backward integrating to KSM level through a 7ACA PLI project and forward
integrating into formulations by setting up a critical care division for hospitals in
India. While it entails high capex (INR6bn for setting up 1,000MT 7ACA and
downstream process plant), the benefit of backward integration should
compensate, RoCEs are high (25%-plus) and could take Orchid to new heights by
2 Nuvama Research is also available on www.nuvamaresearch.com, Bloomberg - NUVA, Thomson Reuters, and Factset Nuvama Institutional Equities
ORCHID PHARMA
doubling its current revenue. In addition, the PLI incentive and GST refunds should
cover the project cost in five years. Accordingly, we expect a payback, factoring in
downstream revenues, in just two–three years. We acknowledge the delay in land
acquisition, but expect commercialisation from H1FY26. Assuming USD55/75 price
per kg for 7ACA/ downstream product and 35%/85% utilisation in FY26E/27E, we
derive a DCF value of INR110/share for this project in our fair value (~12% of our
target price).
Orchid DLL merger: Formidable player in cephalosporin APIs

Orchid announced a scheme of amalgamation with Dhanuka Laboratories on
December 6, 2023. The shareholders of Dhanuka would get 161 shares of Orchid for
every five shares held, implying ~INR5bn equity valuation for Dhanuka’s standalone
business after cancellation of DLL’s current holding in Orchid, post-merger. The
merger shall create a large cephalosporin API company with a turnover of more than
INR12bn.
Both Dhanuka and Orchid are in the cephalosporin space and complement each
other. DLL is a leader in emerging markets while Orchid is mainly present in
regulated markets. Furthermore, DLL’s non-penicillin non-cephalosporin (NPNC)
business (INR400mn revenues) is operating at mere 30% utilisation, which offers
Orchid enough room to improve and grow.
Outlook and valuation: Plenty to cheer for; initiate at ‘BUY’

Orchid has multiple engines that could propel its growth and take it to greater
heights. That said, given various factors at play, Orchid is a high-risk high-return
opportunity. We classify the company’s business into three buckets: i) core, ii) PLI;
and iii) NCE and two Para IV drugs. We lay out three scenarios (exhibit 10) assuming
varying launch dates and operating leverage. Our FY26E EPS is significantly higher
than consensus, as we also factor in the last two buckets.
Base (TP: INR900): Core: 49% PAT CAGR (yielding INR685/share based on 20x Dec-
25E EPS); Para IV: H2FY26E launch (DCF-based INR40/share based on 50%
probability (P)) and NCE US launch in H1FY26E (INR65/share, 90% P); and PLI:
H1FY26E at 35%/85% utilisation in FY26/27E (DCF-based INR110/share).
Bull (TP: INR1135): Core: 57% PAT CAGR (yielding INR765/share based on 20x Dec-
25E EPS); Para IV: H1FY26E launch (DCF-based INR125/share based on 100% P) and
NCE US launch in H1FY26E (INR75/share, 100% P); and PLI: H1FY26E at 45%/95%
utilisation (DCF-based INR170/share).
Bear (TP: INR624): Core: 32% PAT CAGR (yielding INR480/share based on 20x Dec-
25 EPS); Para IV: FY27E launch (DCF-based INR5/share based on 50% probability (P))
and NCE: US launch in FY27E (INR35/share, 90% P); PLI: H2FY26E at 20%/55%
utilisation (DCF-based INR70/share).
Key risks
 Delay in approval or launch of limited competition opportunities, NCE or PLI.
 Slower uptick in PLI plant utilisation could derail high-growth plans.
 Sharp fall in API prices or huge capacities from competition
 Adverse USFDA or other regulatory inspection outcomes
Nuvama Research is also available on www.nuvamaresearch.com, Bloomberg - NUVA, Thomson Reuters, and Factset Nuvama Institutional Equities 3
ORCHID PHARMA
The Story in Charts

Cephalosporin ~26% of USD47bn antibiotic market... …and growing fastest at 5–8% CAGR over FY22–28E
Beta Lactam 20 Cephalosporin Market
Fluoroquinolone, 17
Others, 0% 8% Macrolides, 6% API Market size estimated: USD 2-2.5bn
Monobactum
Ansamycin, 6% 16 CAGR: 5-8%
, 1%
Carbapenem and Penems, 12 13 13 12
12
7% Imidazole, 11
12
(USD bn)
4%
Penicillin, 8
18%
Others, 26%
Cephalosporins
4
, 26%
Beta lactam &
Lactamese 50% 0
2017 2018 2019 2020 2021 2022 2028
Cephalosporin Revenue
Orchid’s core revenue to expand at 23% CAGR… …driving 30% core EBITDA with upside potential
30000 Revenue Breakup EBITDA Breakup
+23% core business CAGR; 26%
7500 23%
Troubled with debt, Para IV, NCE and PLI Operating leverage
poor service and no new opportunities to propel and niche
24000 opportunities to 20%
launches, revenue was revenues 5900
further drive margin
18,736 on a constant decline. Management's efforts 13%
Also lost INR500mn 16,735
14%
(INR mn)
18000 4300 in cost rationalisation

(INR mn)
sterile sales from Pfizer Turnaround in well-executed

business post +30% core
2700 6% 8%
12000 Dhanuka EBITDA
(12%) +23% 12,386
takeover
3x
+11% 1100 1,838 2%
6000 836
6,659 281
-500 -4%
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
FY26E
FY27E
FY28E
0
FY14
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
FY26E
FY27E
FY28E
FY14
Core Business Revenue Para IV products and NCE PLI (7ACA) Core EBITDA Para IV and NCE PLI 7ACA Margin (RHS)
Continuous improvement in core business… …and capacity expansion to aid revenue growth
7000 100% Capacities
FY20-23 1200
Oral CAGR: 15% 1050
5600 Sterile CAGR: 8% 80% Oral 200MT by
2065 960 Mar-24
1882 750
(INR nm)
4200 60% 700

1660 1656 720 Sterile wef 600
1145
(MT)
2800 40% 500 Nov'23

4444 480 400
3730 350
1400 2924 2704 2672 20% 250
200
240
0 0%
FY20 FY21 FY22 FY23 H1FY24 0
Oral Capacity Sterile Capacity Total
Oral Revenue Sterile Revenue
Oral Utilisation Sterile Utilisation As Acquired Improvement Expansion
ORCHID PHARMA
Debt reduction testifies to promoters’ credibility Return ratios set to improve drastically
4800 4270 30%
3640
3600 3319 20% 22%
2530 12% 14%

2329 8% 9%
2400 1997 10%
(INR mn)
6% 8%
1480
3%
1200 810 0%
-5% -3%
0 -7%
0 -10% -9%
-9% -13%
-405
-1200 -20%
FY20 FY21 FY22 FY23 H1FY24 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
RoCE RoE
Term Loan Net Debt/(Cash)
Source: Company, Nuvama Research
Key metrics’ breakdown–new opportunities to build on core business

FY23 FY24E FY25E FY26E
Revenue Total 6,659 8,398 10,732 16,735
Core business 6,659 8,324 10,321 12,386
Para IV and NCE 74 411 1,622
PLI 7ACA project 0 0 2,727
EBITDA Total 836 1,101 1,792 3,779
Core business 836 1,049 1,448 1,838
Para IV and NCE 52 344 1186
PLI 7ACA project 0 0 755
EBITDA margin Total 12.6% 13.1% 16.7% 22.6%
Core business 12.6% 12.6% 14.0% 14.8%
Para IV and NCE 70.0% 83.6% 73.1%
PLI 7ACA project 27.7%
PAT Total 531 861 1,523 3,208
Core business 531 809 1,179 1,845
PLI 7ACA project - - 246
Source: Nuvama Research
Scenario analysis: base case 26%; bull 60%, stressed 18%

Bear Case Bull Case Base case
FY25 FY26 FY25 FY26 FY25 FY26

Total EPS 23.1 34.4 35.2 88.0 30.0 63.3
Core EPS 20.3 24.4 26.5 41.0 23.2 36.4
Para IV, NCE and PLI 2.8 10.0 8.7 47.0 6.8 26.9
Target Price 590 1135 900

Base business at 20x multiple 480 765 685
Para IV, NCE and PLI DCF 110 370 215
Upside/(downside) -18% 58% 26%
ORCHID PHARMA
Financial Statements
Income Statement (INR mn) Balance Sheet (INR mn)
Year to March FY23A FY24E FY25E FY26E Year to March FY23A FY24E FY25E FY26E
Total operating income 6,659 8,398 10,732 16,735 Share capital 408 507 507 507
Gross profit 2,813 3,298 4,373 7,206 Reserves 6,478 11,289 12,846 16,083
Employee costs 654 706 762 899 Shareholders funds 6,886 11,796 13,353 16,591
R&D cost 64 80 103 134 Minority interest 0 0 0 0
Other expenses 1,259 1,411 1,717 2,393 Borrowings 2,635 1,825 5,825 5,825
EBITDA 836 1,101 1,792 3,779 Trade payables 1,818 2,410 3,005 4,504
Depreciation 548 305 371 551 Other liabs & prov 108 108 108 108
Less: Interest expense 322 100 88 117 Total liabilities 12,252 16,944 23,096 27,832
Add: Other income 194 214 224 236 Net block 5,727 6,172 12,051 11,899
Profit before tax 139 910 1,557 3,347 Intangible assets 4 4 4 4
Prov for tax 0 0 0 109 Capital WIP 465 1,465 465 1,465
Less: Exceptional item 392 0 0 0 Total fixed assets 6,196 7,640 12,519 13,368
Reported profit 531 910 1,557 3,238 Non current inv 0 0 0 0
Adjusted profit 139 910 1,557 3,238 Cash/cash equivalent 306 2,246 1,965 2,002
Diluted shares o/s 41 51 51 51 Sundry debtors 2,152 2,714 3,468 5,408
Adjusted diluted EPS 3.4 17.9 30.7 63.8 Loans & advances 265 265 265 265
DPS (INR) 0 0 0 0 Other assets 2,287 3,033 3,833 5,744
Tax rate (%) 0 0 0 3.3 Total assets 12,252 16,944 23,096 27,832
Important Ratios (%) Free Cash Flow (INR mn)

Gross margin 42.2 39.3 40.8 43.1 Reported profit 463 910 1,557 3,347
Net debt/EBITDA 2.8 (0.4) 2.2 1.0 Add: Depreciation 548 305 371 551
OCF as a % of sales 2.8 7.1 9.8 9.3 Interest (net of tax) 316 100 88 117
EBITDA margin (%) 12.6 13.1 16.7 22.6 Others (350) 0 0 0
Net profit margin (%) 2.1 10.8 14.5 19.3 Less: Changes in WC (791) (715) (959) (2,352)
Revenue growth (% YoY) 19.0 26.1 27.8 55.9 Operating cash flow 183 600 1,057 1,553
EBITDA growth (% YoY) 57.4 31.7 62.7 110.9 Less: Capex (264) (1,750) (5,250) (1,400)
Adj. profit growth (%) nm 555.3 71.1 108.0 Free cash flow (80) (1,150) (4,193) 153
Assumptions (%) Key Ratios

GDP (YoY %) 4.0 4.0 4.0 4.0 RoE (%) 7.9 9.7 12.4 21.6
Repo rate (%) 4.4 4.4 4.4 4.4 RoCE (%) 5.3 8.7 10.0 16.7
USD/INR (average) 70.9 70.9 70.9 70.9 Inventory days 190 190 197 183
Base biz revenue growth % 19.0 25.0 24.0 20.0 Receivable days 106 106 105 97
Base biz EBITDA margin (%) 12.6 12.6 14.0 14.8 Payable days 173 173 173 173
Base biz PAT growth (%) 187.9 61.5 41.5 54.5 Working cap (% sales) 42.2 42.0 41.8 40.9
7ACA price per kg (USD) 0 0 0 55.0 Gross debt/equity (x) 0.4 0.2 0.4 0.4
PLI downstream price 0 0 0 75.0 Net debt/equity (x) 0.3 0 0.3 0.2
per kg (USD) Interest coverage (x) 0.9 7.9 16.1 27.7
Valuation Metrics Valuation Drivers

Diluted P/E (x) 210.2 39.9 23.3 11.2 EPS growth (%) nm 427.5 71.1 108.0
Price/BV (x) 4.2 3.1 2.7 2.2 RoE (%) 7.9 9.7 12.4 21.6
EV/EBITDA (x) 46.2 32.5 22.4 10.6 EBITDA growth (%) 57.4 31.7 62.7 110.9
Dividend yield (%) 0 0 0 0 Payout ratio (%) 0 0 0 0
Source: Company and Nuvama estimates
ORCHID PHARMA
Investment Rationale
Leading presence in niche cephalosporin APIs
 Orchid is present in the fastest growing antibiotic – cephalosporins – that
accounts for ~26% of the overall antibiotic market and is growing at ~8%. The
cephalosporin API market size is estimated to be ~USD2-2.5bn, wherein Orchid
commands a market share of ~5%.
 Higher complexity and capital investment in the low-growth segment act as an

entry barriers in the niche cephalosporin space, making the market conducive for
growth for Orchid. Barring incumbents, no one else globally is adding capacities.
 Orchid derives about 35% of revenue from sterile APIs. Given the paucity of
sterile assets (only Orchid has a USFDA-approved sterile plant in India), under
Dhanuka management, this could be a sticky revenue stream.
Orchid Pharma is one of the leading suppliers of cephalosporin APIs used as the first-
line of treatment in infections. While these are structurally similar to penicillin,
cephalosporins are more resistant to bacterial enzymes that break down antibiotics,
making them effective against a broader range of bacterial infections.
Cephalosporins also have an excellent safety profile. There are six generations of
cephalosporins while the third generation onwards have a strong safety profile and
wide coverage of gram-negative bacteria.
Orchid has the widest portfolio of more than 30 products across oral and sterile
cephalosporins. It has developed products across four generations of cephalosporins
and is now developing the fifth- and sixth-generation products.
Orchid Pharma has widest range of cephalosporin API portfolio with more than 30 products
Source: Company
Manufacturing cephalosporin APIs is complex…

The manufacture, storage and supply of oral and sterile cephalosporin APIs is a
complex process and requires maintenance of the quality of sterile APIs
manufactured at all stages. Sterile APIs are more complex and entail high entry
barriers due to high capital cost and cross-contamination risk. As per management,
Orchid Pharma is the only company in India with an approved USFDA sterile plant.
Orchid derives about 35% of revenue from sterile APIs. Given the paucity of sterile
assets under Dhanuka management, this may be a sticky revenue stream.
ORCHID PHARMA
Orchid has the only USFDA-approved sterile plant in India
~200
~150
4 1 2 1
India China
Total API Facilities USFDA approved Oral Cephalosporin Sterile Cephalosporin
Source: Company
…leading to limited competition

Higher complexity and capital investment in a low-growth segment act as entry
barriers in the niche cephalosporin space, making the market conducive to growth
for Orchid. Apart from existing players, no other player globally is adding capacities.
Among Indian players, Lupin, Aurobindo, Sun Pharma, Covalent and Nectar Life are
some key suppliers. Most players consume APIs in-house while pure-play API
exporters are few.
In case of existing players, India-based supplies such as Nectar and Covalent are
mainly EM focused. Nectar is in financial trouble while Covalent has no presence in
sterile APIs and no intention of entering regulated markets. The prices of global
players like ACS Dobfar are 2–3x that of Orchid’s. ACS serves customers such as
Abbvie and is not a generic provider. In China, Qilu focuses on high-volume products
and not on complex chemistries or small volume products such as Gen-5/6.
~USD2bn cephalosporin API market: Ample room for Orchid to grow

Of the USD47bn antibiotics market,
The global antibiotic market stands at ~USD47bn. This is likely to increase at a 2.5%
cephalosporin commands the largest share -
26–28%, implying a USD12–13bn market CAGR over 2022–28 mainly due to growth in EMs and a rebound in demand to pre-
and is fastest growing. Cephalosporin APIs’ pandemic levels. Of this, cephalosporin is the largest market with a share of 26–28%,
estimated market size is USD2bn. implying a USD12-13bn market. It is likely to expand at a 5–8% CAGR over 2022–28E.
We believe the cephalosporin API market would be USD2–2.5bn globally, which
implies a share of 5% for Orchid.
ORCHID PHARMA
Global antibiotic market (2022) -USD47bn Global antibiotic market CAGR of 2–5% in FY22–28
Beta Lactam Fluoroquinolone, Global Antibiotic Drug Market: 2017-2028
Others, 0% 8% Macrolides, 6% CAGR (2022-2028)= 2-5% 53-63.1
Monobactum 60
, 1% Ansamycin, 6% 48.4
47.5 48.2 45.9 47.1
Carbapenem and Penems,
48 43.3
7% Imidazole,
4%
36
(USD bn)
Penicillin,
18% 24
Others, 26%
Cephalosporins 12
, 26%
Beta lactam &
Lactamese 50% 0
2017 2018 2019 2020 2021 2022 2028
Market size
Source: Company, Nuvama Research Source: Company, Nuvama Research
Cephalosporin fastest-growing antibiotic, 5–8% over 2022–28E
Cephalosporin Market
20
17
API Market size estimated to be: USD 2-2.5bn
16
13 13 CAGR: 5-8%
12 12 12
11
12
(USD bn)
0
2017 2018 2019 2020 2021 2022 2028
North America is a dominant region with a 40% share, but Orchid has no meaningful
presence thereof. Hence, this offers a lot of room for growth. The Asia Pacific region
is the fastest growing, wherein Orchid has leveraged Dhanuka’s customer base and
is well placed to capture the growing opportunity.
ORCHID PHARMA
Base business turnaround impressive; further growth plans in place

 Following the Dhanuka takeover, Orchid’s revenue increased at an 11% CAGR
over FY20–23 against declining revenues in the past. Dhanuka’s customer base in
non-regulated markets and improved utilisation levels aided growth.
 EBITDA too tripled and PAT losses turned around into positive territory over the
period as new management executed cost-reduction plan—cutting cost by 17pp.
 Management is laser-focused on introducing new products and improving plant
utilisation on expanded capacities, evident from 80%-plus utilisation versus sub-
50% in the past and a 75% increase in both oral and sterile capacities.
 Management’s successful efforts to control cost and pay off term debt testifies
to their execution skills.
The new promoters had their task already cut out post takeover in the form of: i)
leveraging Dhanuka’s customers in EMs to improve utilisation at Orchid; ii) adding
capacities to drive growth; and iii) launching products; iv) winning back lost
businesses, and v) bringing cost discipline and reducing debt.
So far, the turnaround in the base business has been impressive as is evident from
tripling of EBITDA and PAT turning positive over FY20–23. With growth plans in
place, Orchid is confident of delivering a revenue CAGR of 20–25% over the long--
term and is targeting a high-teens’ EBITDA margin.
Revenue on the rise as Orchid leverages Dhanuka’s EM customer base
Revenue Breakup
30000 +23% core business CAGR; Para
Troubled with debt, poor service
and no new launches, revenue was IV, NCE and PLI opportunities to
24000 on a constant decline. Also lost propel revenues
INR500mn sterile sales from Pfizer
18,736 16,735
18000
Turnaround in business
(INR mn)
post Dhanuka takeover

12000 +23%
(12%) 12,386
+11%
6000
6,659
0
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
FY26E
FY27E
FY28E
FY14
Core Business Revenue Para IV products and NCE PLI (7ACA)
ORCHID PHARMA
EBITDA triples over FY20–23; potential to surge 4x by FY26
EBITDA Breakup
7500 23% 26%
Operating leverage and niche
opportunities to further drive
5900 margin
20%
Management's efforts in cost 13%
(INR mn)
4300 rationalisation well-executed 14%
6% +30% core EBITDA 8%

2700
3x
1100 1,838 2%
836
281
-500 -4%
FY26E
FY12
FY24E
FY25E
FY27E
FY28E
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY14
Core EBITDA Para IV and NCE PLI 7ACA Margin (RHS)
Improved utilisation levels and capacity addition to drive growth

Orchid Pharma, under new promoters, has been consistently working to improve
plant utilisation to drive operating leverage and improve profitability. The capacity
utilisation in existing facilities, which was lagging at <50%, has improved significantly
and is now close to 80%. The sterile capacities are already operating at 95% and oral
at 75%. Hence, it is planning to further expand capacities.
The access to Dhanuka Lab’s customers in EMs has given the much-required
impetus, which led to a bounce-back of revenues in FY23 to its FY18/FY19 levels. This
has also resulted in an increased share from EMs (60% currently versus 40% earlier),
which is likely to hold.
Oral/Sterile revenue grows 15%/8% over FY20–23 Sterile mix to be 35% with new sterile block
7000 FY20-23 100%
Oral CAGR: 15%
Sterile CAGR: 8% 36% 34% 32% 30%
5600 2065 80% 38%
1882
4200 60%
(INR nm)
1660 1656
1145
2800 40%
4444 64% 66% 68% 70%
62%
3730
1400 2924 2704 2672 20%
0 0%
FY20 FY21 FY22 FY23 H1FY24 FY20 FY21 FY22 FY23 H1FY24
Oral Revenue Sterile Revenue Oral Revenue Sterile Revenue
ORCHID PHARMA
Sterile capacities operating at 90–95% utilisation Oral utilisation too improves significantly
Sterile quantity and utilisation Oral quantity and utilisation
144 100% 300 90%
80% 240 72%

108
60% 180 54%
(MT)
(MT)
72
40% 120 36%
36
20% 60 18%
0 0% 0 0%
FY20 FY21 FY22 FY23 H1FY24 FY20 FY21 FY22 FY23 H1FY24
Sterile Quantity Sterile Utilisation Oral Quantity Oral Utilisation
Capacity to expand by 75% in both oral and sterile cephalosporin API
Capacities
1200
Sterile: 75 MT capacity added wef Nov-23 1050
Oral: 200 MT likely in Q4FY24
960
750
700
720 600
(MT)
500
480 400
350
250
200
240
0
Oral Capacity Sterile Capacity Total
As Acquired Improvement Expansion
Sterile capacities operating at 95%

Orchid’s cephalosporin plant is in Chennai and spread over 60 acres. Of this, 20 acres is
utilisation levels and oral at 75%. This has free and offers room to add additional manufacturing blocks. It has five crystalline sterile
triggered additional capacity additions. lines and one lyophilised line; there are seven oral blocks too and five intermediate
blocks with multiple lines. It has a total capacity of 900mt and approvals from all leading
agencies including USFDA and EU GMP. It also had a non-cephalosporin formulations
business that it has hived off to Orbion Pharma, in which it retained 26% of equity.
Orchid has already debottlenecked ~150mt of total capacity and is repurposing
capacity for old Gen-1 products to develop new generation products. Moreover, it
has further augmented sterile capacities by 20-25% to reach 350mt (with effect from
Nov-23) and is on track to commercialise new oral capacity of 200mt by Mar-24,
which should further aid growth, going forward.
Product launches on the cards

Orchid Pharma had failed to introduce new products in the last five-seven years
owing to its troubles with mismanagement and ballooning of debt. New
management is gearing up for new product launches and is developing/ready to
launch products of third generation (cefcapene, cefovecin where each injection
costs USD500), fifth gen (cefiderocol, ceftobiprole, ceftaroline, and ceftolozane). All
these are sterile products and the fifth generation ones are still patented, thus
opening up new and limited competition avenues.
ORCHID PHARMA
Cefovecin – USD150mn size with API cost of 6%

Cefovecin is broad-spectrum, third-generation cephalosporin antibiotic
administered by subcutaneous injection for the treatment of skin infections in cats
and dogs. Zoetis markets it under the trade name Convenia that provides a course
of treatment in a single injection. It treats skin infections caused by Pasteurella
multocida in cats, and Staphylococcus intermedius and Streptococcus canis in dogs.
The patent for the active ingredient of Convenia has expired. The formulation
patents relevant to the product line have also expired between November 2022 and
October 2023.
Orchid’s plans: The company is yet to file DMF in US market and is looking to tie-up
with an American company strong in vet products to file ANDA. Likely to be a profit
share agreement in the US. Orchid expects sales to be equally broken down from US
and Europe/ EMs. The advanced intermediate will come from Dhanuka. The 10ml
injection costs USD500.
Winning back lost businesses: getting there, albeit gradually

Prior to its acquisition by Dhanuka Laboratories, Orchid was seeing a constant
decline in revenue, which continued until FY21. This was mainly due to losing
~INR400-500mn sterile sales from Pfizer due to exclusivity, losing ~INR300-400mn
oral sales from existing clients because of poor service and failure to introduce new
products.
In Europe, Orchid will be filing DMF for a customer exclusively. Work in Europe is
done, and it believes there is lot of headroom to grow. Orchid is also contemplating
to re-enter US markets, which is dominant region in Cephalosporin API. However,
we believe it is likely to be a long journey ahead given regulatory challenges in US.
Orchid had won a customer in US with USD10mn revenue potential. However, that
customer received Form 483 from USFDA while the plant is shut.
Cost control and debt reduction testify to execution skills

While the global cephalosporin market took a hit in FY21, Orchid’s new owners
embarked on a cost rationalisation plan with employee expenses down 10% YoY and
other expenses down almost 50%. This has led to marked improvement in
profitability profile.
Term debt, which stood at INR4.27bn at the

Management has also delivered on their promise of debt reduction by selling off
time of acquisition, is nil as on Sep-23. non-core assets such as Non Penicillin Non Cephalosporin (NPNC) and Orchid
Towers. As a result, term debt, which stood at INR4.27bn at the time of acquisition,
is nil as on Sep-23.
ORCHID PHARMA
Sharp reduction in expenses post-acquisition; employee expenses down 10% and other expenses down almost 50%
60%
52%
48%
36% 34%
36% 33%
30%
27% 27%
24%
15% 14% 13%
11% 10% 11% 10% 9% 10% 9% 11% 8% 13%11% 11%
12% 9% 10%
0%
Employees Power and Fuel Other Expenses Total Expenses
FY20 FY21 FY22 FY23 H1FY23 H1FY24
Reduction in costs across multiple line items - Consumption of stores, factory maintenance, power, etc.
FY20-23
FY17 FY18 FY19 FY20 FY21 FY22 FY23
CAGR
Power and Fuel 543 507 488 474 393 527 613 9%
Consumption of Stores,Spares and Chemicals 239 230 215 207 115 127 126 -15%
Factory maintenance 156 156 173 167 114 123 145 -5%
Research & Development Expenses 376 177 140 80 23 66 64 -7%
Freight outward 142 99 48 47 92 106 70 14%
Advertisement and Sales Promotion 120 122 55 34 42 116 74 29%
Rent 129 122 122 115 15 16 10 -55%
Allowance for expected credit loss 0 107 93 27 13 37 12 -24%
Foreign Exchange Loss (net) 0 195 675 176 0 0 0
Others 652 594 453 447 239 177 211 -22%
Total 2357 2309 2462 1775 1047 1296 1323 -9%

% of Revenue 30% 34% 41% 37% 23% 23% 20%
Power and Fuel 7% 7% 8% 10% 9% 9% 9%

Consumption of Stores,Spares and Chemicals 3% 3% 4% 4% 3% 2% 2%
Factory maintenance 2% 2% 3% 3% 3% 2% 2%
Research & Development Expenses 5% 3% 2% 2% 1% 1% 1%
Freight outward 2% 1% 1% 1% 2% 2% 1%
Advertisement and Sales Promotion 2% 2% 1% 1% 1% 2% 1%
Rent 2% 2% 2% 2% 0% 0% 0%
Allowance for expected credit loss 0% 2% 2% 1% 0% 1% 0%
Foreign Exchange Loss (net) 0% 3% 11% 4% 0% 0% 0%
Others 8% 9% 8% 9% 5% 3% 3%
ORCHID PHARMA
Steady reduction in term debt as promised
4800 4270
3640
3600 3319
2530
2400 1997 2329
(INR mn)
1480
1200 810
0
0
-405
-1200
FY20 FY21 FY22 FY23 H1FY24
ORCHID PHARMA
Limited competition, NCE drugs set for leap, superior R&D capability
 Para IV opportunities in the US–gAvycaz (likely FTF) and gTeflaro—shall lift Orchid
into the big league. ANDA filing is likely in Q4FY24 and launch in end-FY25 or
H1FY26. Growth potential is huge given limited number of players and 1.5x
multiplication of net market with generics entry.
 NCE – Opportunity: Orchid Pharma is entitled to a 6–8% royalty on worldwide

sales (USD200–300mn annually), which translates to a potential annual revenue
of USD16–25mn. Orchid has retained the rights to develop the molecule for India,
and believes it would be an INR1bn-plus opportunity.
 Our conservative assumptions suggest the above opportunities altogether could

generate ~USD20mn in sales in FY26 and more than USD50mn FY27 onwards.
 The CDMO Cefiderocol opportunity on a cost-plus pricing basis with assured 20%
PBT displays Orchid’s expertise in cephalosporin and is likely to be a big growth
driver given huge potential in AMR.
Orchid Pharma boasts superior R&D skills, evident from its impressive pipeline. It
has interesting opportunities such as Teflaro (Ceftaroline), Avycaz (Ceftazidime +
Avibactum) and Enmetazobactam (NCE). Our conservative numbers suggest that
together these opportunities could contribute USD20mn in sales in FY26 or 10% of
overall sales.
Furthermore, Orchid has also entered into an exclusive manufacturing sublicense
agreement with GARDP for Cefiderocol, which is under the patent of Shionogi, for
not only manufacturing API but also formulations. This is likely to contribute
meaningfully FY27 onwards.
Para IV, NCE and PLI to propel Orchid; adding 26% to FY26E revenues
30000 Revenue Breakup

+23% core business CAGR; Para IV,
Troubled with debt, poor service NCE and PLI opportunities to propel
and no new launches, revenue revenues
24000
was on a constant decline. Also
18,736 lost INR500mn Sterile sales from 16,735
18000 Pfizer
Turnaround in business
(INR mn)
post Dhanuka takeover

12000
(12%) +23%
12,386
+11%
6000
6,659
0
FY24E
FY25E
FY26E
FY27E
FY28E
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY14
Core Business Revenue Para IV products and NCE PLI (7ACA)

Teflaro (ceftaroline –G5): USD160mn market in US

Orchid Pharma has already tied up with a marketing partner in the US. The customer
will file the ANDA, with expected filing in Q4FY24. Orchid will file a DMF with only a
few months remaining for validation batches.
Orchid has developed a non-infringing API for Teflaro. It plans to capitalise on one
patent expiring in 2031 and file P-4 ANDA in the US to introduce a global product
with first launch in India, followed by Europe and the US. Orchid’s strategy would be
to supply the API to a CDMO for manufacturing the formulation and enter into a
ORCHID PHARMA
partnership whereby the partner will market the final product and bear the litigation
risk. Currently, only Sandoz and Apotex are the filers available in the public domain.
It has a market of USD150–160mn in the US.
Avycaz (Ceftazidime /Avibactum): ~USD450mn market

Orchid launched this product in non-regulated markets, including India, in Jan-23 on
Day-1 through its partner as well as four other large Indian companies that also
launched it in India using Orchid’s API. In India, the market is nascent. Before patent
expiry, Pfizer was selling 25000 vials at INR5000 per injection. While prices have
come down, volumes could explode and become a 100,000 annual vial market.
Orchid plans to file ANDA in Q4FY24. In US,

In the US, Avycaz is still under development and the first generics are expected in
there is a possibility of Orchid being FTF. CY26 (patents running until Nov-26). Orchid has developed non-infringing API and
plans to file an ANDA by Q4FY24. Orchid could adopt a similar strategy as Teflaro
and find a marketing partner in this product. This would be a global product with a
market size of ~USD500mn. In the US, there is a possibility of Orchid being FTF.
Enmetazobactum: USD16–25mn annual royalty on global sales

Enmetazobactum: Orchid expects to earn 6– Orchid Pharma developed Cefepime Enmetazobactum (OCID 5090) and out-licensed
8% royalty on annual global sales of
global rights (excluding India) in 2013 to Allecra Therapeutics. Allecra further out
USD200–300mn. This translates to a
licensed China rights to Shanghai Haini for USD78mn in 2020, which highlights the
potential annual revenue of USD16-25mn.
huge potential of this drug, and to Advanz Pharma for Europe. Orchid has retained
the rights to develop the molecule for India, and believes it could be an INR1bn-plus
opportunity.
As per the out-licensing agreement, Orchid Pharma is entitled to a 6–8% royalty on

worldwide sales of the product (no milestones). The company expects global sales
of USD200-300mn annually, which translates to a potential annual revenue of
USD16-25mn. Orchid has retained the right to develop the molecule for India and
believes it could be a INR1bn-plus opportunity.
Status of molecule in different geographies:
 In the US, Allecra has filed NDA for Exblifep (US brand) in Jun-23 and expects
approval and launch in Q4FY24/Q1FY25 for Urinary Tract Infections (UTI). The
drug has been granted Qualified Infectious Disease Product (QIDP) status, which
can enable priority review from the FDA and enhanced market exclusivity.
 In Europe, the product was filed in Jan-Feb-23. Usually it takes six–nine months
for approval. Expected launch date is Q3/Q4FY24. It has been auto-approved for
pneumonia and UTI.
 In China, it is taking longer than expected. Could be end FY24/FY25 launch.
ORCHID PHARMA
Global peak sales of competitive antibiotic drugs
1200
960
720
(USD bn)
Not first line. WHO
reserved category.
480 1000
240 450
250
0
Piptaz Avycaz Carbapenem
Enmetazobactum is an anti-infective NCE, which has completed global phase-3

clinical trials and is in the New Drug Application phase. The product is a unique beta
lactamase inhibitor formulated with a betalactam and has been developed for
chronic Urinary Tract Infection.
Orchid Pharma did head-to-head trial with Piptaz in UTI, which is a standard of care
in the US. The global phase 3 trial revealed 20% better efficacy for Enmetazobactum
(79% versus 59% for Piptaz) with a similar safety profile.
Enmetazobactum displays 20% better efficacy… …with similar safety profile

Overall response of success at TOC Safety Data
5%
79.10% 4.3%
4.0%
4%
58.90%
3%
2%
1% 0.4%
0.2%
0%
Cefepime/Enmetazobactam Piperacillin/Tazobactam
Cefepime-enmetazobactum Piperacillin-tazobactum TESAE Drug-Related TESAE
Source: Allecra,, Nuvama Research Source: Allecra,, Nuvama Research
TESAE: treatment-emergent adverse events
Cefiderocol CDMO licence: Orchid’s expertise well displayed

Orchid entered into a sub-license agreement with Global Antibiotic Research &
Development Partnership (GARDP) to manufacture cefiderocol (both API and
formulations). The agreement is part of a project by Shionogi and Co, GARDP and
Clinton Health Access Initiative (CHAI) for providing access to cefiderocol in 135
LMICs (~70% of countries worldwide, including those with the highest AMR burden).
Given the complexity involved in manufacturing cefiderocol and access to supply 135
LMIC countries, this highlights Orchid’s expertise in cephalosporin.
ORCHID PHARMA
Cefiderocol opportunity not built into our

Plan to invest INR1bn on formulations plant; assured 20% PBT margin
numbers. Orchid plans to invest INR1bn on a
Under the agreement, Shionogi will do technology transfer to Orchid. Orchid plans
formulations plant. It will supply drug at cost
to invest INR800-1000mn to set up a new formulation plant while leveraging existing
plus pricing with assured 20% PBT margin.
facilities for its API. Orchid will supply drug at cost plus pricing at assured 20% PBT
margin. It aims to reduce cost to 80-90% to bring it down further. Orchid has also
committed to lower the price based on product volumes. It is not required to pay
any royalty and expects to launch the product in H2FY26.
Huge potential in addressing AMR
As per WHO, 1.27mn people died in 2019 from drug-resistant bacterial infections,
nearly the same as HIV/AIDS and malaria combined that same year. About 5mn
people died due to AMR (direct as well indirectly attributed), of which the company
estimates that cefiderocol could have treated 1.6mn people i.e. one-third given its
excellent coverage. Cefiderocol is an important antibiotic against the drug resistant
bacteria and can potentially become a huge opportunity.
Cefiderocol injection, sold under brand name Fetroja, is the first and only
siderophore cephalosporin antibiotic for the treatment of serious Gram-negative
infections when no other options are available. The drug was discovered by Shionogi
and approved by the FDA in 2019, European Medicines Agency in 2020, and is listed
on the World Health Organization’s (WHO) Model List of Essential Medicines. It has
a novel mechanism for penetrating the outer cell membrane of Gram-negative
pathogens by acting as a siderophore. GSK collaborated with Shionogi on the
development of cefiderocol and is foregoing its royalties from its sales in low and
middle-income countries (LMICs).
Antibiotic resistance remains big challenge
Source: Company, Lancet
ORCHID PHARMA
Low middle income countries worst affected due to AMR
120
(Deaths per 100000)

96
23.7
72 21.5 17.6
48 14.4 13.0
75.2 11.7 11.2
24 55.3 50.1 43.5 42.7 35.4 30.8.0
0
and central Asia
Southeast Asia,
South Asia
Sub-Saharan Africa
Latin America and
High Income
North Africa and

eastern Europe,
Central Europe,
east Asia, and
Middle East
Oceania
Caribbean
Not Directly Attributable Directly Attributable
Source: Lancet, Nuvama Research
Cefiderocol entails high treatment costs - ~USD12,000 for one person

Cefiderocol (Per patient)
Frequency of session 8 hours
No. of sessions per day 3
No. of vials per session of 1gm each 2
Cost of one vial (USD) 200
Cost per session 400
Cost per day (USD) 1200
No. of days session 7-14 days
Total Cost (avg 10 days) (USD) 12000
ORCHID PHARMA
7ACA PLI: Providing huge growth impetus, backward integration

 Well on its way to becoming a fully-integrated cephalosporin player by backward
integrating to KSM level through 7ACA PLI project and forward integrating into
formulations by setting up a critical care division for hospitals in India.
 PLI to entail INR6bn outlay for setting up 1,000MT 7ACA as well as a downstream
process plant, with revenue starting from H1FY26E. PLI incentive and GST refund
to ensure early payback, i.e. in two–three years.
 As per our estimates, 7ACA project revenue could be equal to current Orchid
revenue, thereby providing a huge growth impetus. We build in DCF value of
INR110 per share for this project in our fair value, contributing 12% to our TP.
Orchid is well on its way to becoming a fully-integrated cephalosporin player by

backward integrating to KSM level through 7ACA PLI project and forward integrating
into formulations by setting up a critical care division for hospitals in India. The PLI
project is housed in its wholly-owned subsidiary, Orchid BioPharma Limited (OBPL).
It anticipates to start the plant in end FY25/H1FY26.
PLI to entail INR6bn capital outlay; payback likely in two–three years

Orchid has received approval to set up a 7ACA plant for 1,000 metric tonnes (mt)
(Indian market is 4,000mt), i.e. it can cater to 25% of India demand. Total capital
outlay is likely to be INR6bn: INR5bn on setting up a PLI plant in Jammu and
additional INR1bn for downstream process. It is likely to be funded by a mix of debt
(INR4-5bn) and balance equity. Of the 1000mt capacity, Orchid plans to use:
 ~25% initially for internal consumption for reducing China dependency and
leading to complete backward integration;
 ~20% for sales to outside party; and
 the balance, i.e. 500–550mt to make value-added products of 1,000 metric

tonnes (i.e. 2x multiplier) to be sold at USD70–85 per kg (such as Cefotaxime Gen
3 sterile, Cefpodoxime gen 3 oral; cefuroxime, ceftazidime, ceftriaxone, or
cepfpirome). About two–thirds of cephs are produced from 7ACA.
Incentives to drive early payback; interest subvention to propel RoEs

Over and above, Orchid would benefit from PLI incentive, GST refund of 18% and 6%
interest subvention in Jammu. This tends to accelerate the payback period (likely in
three years). We expect it to attain 1.25x asset turnover by FY27. Furthermore,
interest subvention scheme would lead to better returns.
ORCHID PHARMA
PLI revenue breakdown; payback expected in two–three years

INR mn FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35
Total revenues 2,727 7,675 8,921 8,921 8,727 8,337 8,142 8,142 8,142 7,371
External sales (20%) 316 767 857 857 857 857 857 857 857 857
Sales (INR mn) 1,579 3,834 4,285 4,285 4,285 4,285 4,285 4,285 4,285 4,285
Installed capacity (MT) 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Utilisation 35% 85% 95% 95% 95% 95% 95% 95% 95% 95%
Price per kg (USD) 55 55 55 55 55 55 55 55 55 55
Total incentives 600 1,387 1,550 1,550 1,355 966 771 771 771 -
PLI incentive (based on
316 697 779 779 584 195 - - - -
USD50 per kg)
% of sales 20% 20% 20% 20% 15% 5% 0% 0% 0% 0%
GST incentive 284 690 771 771 771 771 771 771 771 -
% of sales 18% 18% 18% 18% 18% 18% 18% 18% 18% -
Sale from downstream

1,811 5,521 6,514 6,514 6,514 6,514 6,514 6,514 6,514 6,514
products
Price per kg (USD) 75 75 75 75 75 75 75 75 75 75
PLI EBITDA breakdown

INR mn FY26 FY27 FY28 FY29 FY30 FY31 FY32 FY33 FY34 FY35
EBITDA 755 1,913 2,174 2,172 2,044 1,652 1,458 1,459 1,460 690
Direct sales 28 84 103 100 102 99 101 102 103 103

% of sales 9% 11% 12% 12% 12% 12% 12% 12% 12% 12%
Downstream products 127 442 521 521 586 586 586 586 586 586
% of sales 7% 8% 8% 8% 9% 9% 9% 9% 9% 9%
Incentives 600 1,387 1,550 1,550 1,355 966 771 771 771 -
PLI to break China monopoly, provide backward integration

About two–thirds of cephalosporin APIs are derived from 7ACA or d7ACA (7-
aminocephalosporanic acid). The global market size is 10,000mt growing at 5%,
which is 100% controlled by China. The India market (4000mt) accounts for 40% of
global demand and Orchid’s capacity could cater to 25% of India demand.
In the Indian market, 7ACA as well as downstream products are currently imported
from China (imports estimated: INR15-20bn) of which Orchid is targeting 50% share.
This PLI will help Orchid in backward integration, reducing dependency on sourcing
from China and improving overall margins for the business.
ORCHID PHARMA
Size of 7ACA market (including downstream products)
Source: Company
Technology transfer agreement with leading multi-national biotech company
Orchid has also entered into a technology transfer agreement with a multi-national
biotechnology company having expertise in fermentation for its 7ACA project under
the PLI scheme. The same company supplies this technology to Chinese
manufacturers. Hence, Orchid has access to the latest technology.
Total incentives of ~INR7.5bn to directly flow to profit over five years
We expect ~INR3.5bn total PLI incentive over five years. PLI benefits will be based
on 20% of the sales price for the first four years of the business, then 15%/5% for
the last two years. Incentive is to be calculated based on bidding price of INR3200
i.e. USD50 per kg (current import price ~USD55. Ten year weighted average is
USD63. Lowest has gone to USD51). Prices have increased ~30% from pre-covid. In
addition, GST refund scheme in Jammu would benefit.
ORCHID PHARMA
Forward integrating into formulations to maximise gains

 Exploring to create an India-branded franchise by setting up a critical care
division. It is well placed to maximise gains given presence in two molecules of its
own—enmetazobactum and Cefiderocol.
 Enmetazobactum could be an INR1bn-plus opportunity for Orchid. In Cefiderocol,

potential marketing license could aid growth.
Orchid is exploring the idea of forward integrating into formulations. Given that it is
planning to set up a separate critical care division in India and has two products of
its own - Enmetazobactum and Cefidorocol – it is well placed to capitalise on its
strengths.
Enmetazobactum: INR1bn-plus opportunity in India
Orchid has retained the rights to develop the molecule for India. The company
believes this could be a INR1-1.5bn opportunity alone in India. The setting up of its
own distribution network in India would enable Orchid to capitalise on its core R&D
strength and maximise gains. Based on the decision on trials in India, filing, approval
and launch to take six–eight months i.e. expected launch date Q3FY25.
Deciphering Indian injectable antibiotic market
80
64
Globally used as last
resort. In India, used as
48
(INR bn)
Standard of care: Orchid first line due to nature

targeting these of market
70 patients. 20% better
32
efficacy at 1/4th price
80%
resistance
16
12-15 10 10
0
Indian injectable Ceftriaxone Piptaz Meropenem
antibiotic market
Cefiderocol: Potential marketing license could aid growth
In addition to the manufacturing license, GARDP and Shionogi would enter

separately into a marketing license sell cefiderocol across the world. Here, we
believe Orchid stands a chance to win the license given its capabilities in
cephalosporin. Furthermore, setting up of a separate distribution network in India
should help.
ORCHID PHARMA
Orchid DLL merger: Formidable player in cephalosporin APIs

 Orchid and Dhanuka’s merger shall create a large cephalosporin API company
with more than INR12bn in turnover.
 The shareholders of Dhanuka will get 161 shares of Orchid for every five shares
held, i.e. an implied equity value of ~INR5bn for Dhanuka’s standalone business
and promoter holding will increase to 74.45%
 DLL’s NPNC business is operating at 30% utilisation, providing enough headroom
for Orchid to grow.
Orchid announced a scheme of amalgamation with Dhanuka Laboratories on

December 6, 2023. The shareholders of Dhanuka will get 161 shares of Orchid for
every five shares held i.e. an implied equity value of ~INR5bn for Dhanuka’s
standalone business after cancellation of DLL’s current holding in Orchid, post-
merger.
Promoter holding to increase post-merger

Orchid Promoter Holding
Pre-Merger Post-Merger
Promoter and Promoter Group 69.84% 74.45%
Public 30.16% 25.55%
Source: Company
Strong player in cephalosporin API space with >INR12bn in turnover

Both Dhanuka and Orchid are in the cephalosporin space where Dhanuka is a leader
in emerging markets having no presence in regulated markets while Orchid’s focus
is on regulated markets. Hence, both complement each other and the resultant
entity would be able to control > 33% of the ceph exports market. The merger would
also open up opportunities for Orchid to access Dhanuka’s customers and agents
thereby widening its coverage. The combined entity would have > INR12bn
turnover.
Orchid and Dhanuka consolidated numbers for FY23 and FY24E

FY23 FY24E
Orchid DLL Combined Orchid DLL Combined
Revenue 6,659 4,473 11,132 8,398 4,697 13,095
COGS 3,846 3,430 7,276 5,100 3,602 8,701
Gross Profit 2,813 1,043 3,856 3,298 1,095 4,394
Margin % 42.2% 23.3% 34.6% 39.3% 23.3% 33.6%
Adjusted EBITDA 1,228 200 1,428 1,101 234.83 1,336
PAT 923 11 934 861 46 907
Economies of scale to kick in; NPNC business has room to grow

As the combined entity would be in a better position to bargain with common raw
material suppliers and vendors, there shall be a gain due to economies of scale.
Furthermore, DLL’s Non-penicillin non-cephalosporin (NPNC) business (INR400mn
revenues) is operating at mere 30% utilisation levels, which offers Orchid enough
headroom to improve and grow.
ORCHID PHARMA
Orchid and DLL complement each other
Source: Company
ORCHID PHARMA
Valuation
Initiating coverage on Orchid Pharma at ‘BUY/Sector Outperformer’. Our target
price of INR900 is based on 20x Dec-25E EPS, INR110 from PLI NPV and INR105 from
Para IV and NCE opportunities.
High-growth business with multiple niche opportunities to propel growth

Orchid Pharma is a play on the niche cephalosporin space marked by limited
competition and multiple growth avenues. On the current base and with new
capacity addition, Orchid is well on track to post core business revenue/EBITDA/PAT
CAGR of 23%/30%/49% over FY23–26E. In addition, Orchid has multiple
opportunities in store—PLI, two para IV opportunities, NCE – which would lead to a
big leap.
Given its high share of non-regulated markets and smaller scale, we believe it should
trade at a discount to its more established players (Divis, Laurus) that are trading at
~36x one-year forward PE. However, given the consistent turnaround in core
business, high growth potential avenues and the promoter’s credibility, we rate
Orchid higher than its peers (Glenmark Life, Granules, Aarti Drugs etc) that are
trading at ~17x on an average.
We value PLI 7ACA project at INR110/share assuming:
 35% capacity utilisation in first year, improving to 95% in third year, and
 USD55/kg rate for 7ACA (10 –year average; currently at USD63mn) and USD75/kg
for downstream products (potential for USD75–85/kg).
Our target price

INR per share
Base business (20x Dec-25 EPS) 685
PLI Value 110
Other Para IV and NCE opportunities (assuming ~50%/90% probability) 105
Target Price (INR) 900
Peer comparison; Orchid possesses vast growth potential versus peers with consistently improving RoEs
Market Cap FY23-26E CAGR ROE PE Ratio EV/EBITDA
INR bn Revenue EBITDA PAT FY24 FY25 FY26 FY24 FY25 FY26 FY24 FY25 FY26
Orchid Pharma* 37 23% 30% 49% 9% 12% 16% 42.1 23.8 11.3 33.8 20.8 9.8
Established players
Divis Labs 972 12% 16% 14% 13% 15% 17% 55.6 43.5 35.9 39.7 30.9 25.1
Laurus Labs 215 7% 6% 6% 9% 15% 18% 55.4 29.0 22.1 22.2 15.2 12.3
Concord Biotech 138 21% 25% 28% 23% 24% 24% 43.3 34.4 27.5 30.3 24.7 20.2
Average 51.4 35.6 28.5 30.7 23.6 19.2
Other players
Granules India 94 11% 11% 10% 15% 18% 18% 20.1 14.3 12.9 11.2 8.7 8.3
Glenmark Life Sciences 78 12% 15% 13% 25% 24% NA 14.0 13.0 NA 9.6 8.9 NA
Neuland Laboratories 66 18% 23% 25% 20% 19% NA 29.6 26.0 NA 18.2 16.1 NA
Aarti Drugs 43 11% 23% 29% 19% 21% 21% 20.1 15.5 12.5 11.3 9.6 8.8
Average 20.9 17.2 12.7 12.6 10.8 8.5
Source: Company, Nuvama Research, Bloomberg
* based on core business; for other considered BBG consensus numbers
ORCHID PHARMA
Financial Outlook
Base business revenue/EBITDA/PAT CAGR 23%/30%/49% (FY23–26E)
We expect Orchid’s base business to deliver revenue/EBITDA/PAT growth of
23%/30%/49% over FY23-26E. The growth shall be led by capacity expansion (+75%
addition), improved utilisation levels on expanded capacities also driving operating
leverage, launch of new products such as cefcapene, cefovecin, etc and strong
control on cost. While winning back lost business may take time in the US, Orchid
has done a lot of work in Europe and non-regulated markets.
Key numbers’ breakdown: core business and niche opportunities

FY23 FY24E FY25E FY26E
Revenue Total 6,659 8,398 10,732 16,735
Core business 6,659 8,324 10,321 12,386
PLI 7ACA project 0 0 2,727
EBITDA Total 836 1,101 1,792 3,779
Core business 836 1,049 1,448 1,838
Para IV and NCE 52 344 1186
PLI 7ACA project 0 0 755
EBITDA margin Total 12.6% 13.1% 16.7% 22.6%
Core business 12.6% 12.6% 14.0% 14.8%
Para IV and NCE 70.0% 83.6% 73.1%
PLI 7ACA project 27.7%
PAT Total 531 861 1,523 3,208
Core business 531 809 1,179 1,845
PLI 7ACA project - - 246
Core revenue to rise at 23% CAGR over FY23–26E… …driving 30% core EBITDA CAGR
30000 Revenue Breakup EBITDA Breakup
+23% core business 7500 23% 26%
Troubled with debt, CAGR; Para IV, NCE and Operating leverage and
24000 poor service and no PLI opportunities to niche opportunities to
5900 20%
new launches, revenue propel revenues further drive margin
18,736 was on a constant Management's efforts 13%
16,735
decline. Also lost 14%
(INR mn)
18000 4300 in cost rationalisation

(INR mn)
INR500mn sterile sales Turnaround in well-executed

from Pfizer business post 6% +30% core
2700 8%
12000 Dhanuka +23% EBITDA
(12%) takeover 12,386
3x
+11% 1100 1,838 2%
6000 836
6,659 281
-500 -4%
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
FY26E
FY27E
FY28E
0
FY14
FY12
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
FY26E
FY27E
FY28E
FY14
Core Business Revenue Para IV products and NCE PLI (7ACA) Core EBITDA Para IV and NCE PLI 7ACA Margin (RHS)
ORCHID PHARMA
Share of revenue from regulated on the rise

Revenue Breakup
100%
80%
59% 55% 60%
62%
60%
40%
20% 41% 45% 40%

38%
0%
FY21 FY22 FY23 H1FY24
Regulated RoW
Growth opportunities aplenty – NCE, Para IV, PLI on the cards

Over and above the base business, we expect Enmetazobactum to start contributing
from FY25E starting from non-regulated markets, followed by India and the US. The
PLI project shall provide a big jump to revenues with contribution starting from
H1FY26. Para IV opportunities too to meaningfully contribute from FY26 onwards.
We have not built in potential Orchid DLL merger, India branded franchise and
Cefiderocol CDMO opportunity with Shionogi.
Strong growth in the base business coupled with cost control should lead to core
EBITDA margin improvement of 200bp to ~14.8% in FY26E. This, coupled with above
growth opportunities should put Orchid in the 20%-plus margin territory.
Base biz PAT to grow 49% over FY23–26E RoE to improve from 8% to 20%+ in FY26
4,000 25% 30%
3,000 15% 22%

20%
12%
(INR mn)
2,000 5% 14%
+49% base biz 8% 9%
10%
6% 8%
1,000 -5%
531 3%
0%
0 -15% -3%
-697 -5%
-7%
-1,000 -25% -10% -9%
-9% -13%
FY19
FY20
FY21
FY22
FY23
FY24E
FY25E
FY26E
-20%
FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Core Business Para IV and NCE
PLI 7ACA project PAT Margin (RHS) RoCE RoE
ORCHID PHARMA
Orchid to spend ~INR8bn on capex in next few years

We anticipate that over the next two–three years, Orchid to invest ~INR8bn with
major outlay of INR6bn on PLI 7ACA project, INR1bn on Cefiderocol formulation
plant, INR500mn on oral block and remaining on maintenance.
Orchid to spend ~INR8.4bn over FY24–26E, mainly to fund PLI
6000
5250
INR8.4bn over FY24-26
4800
3600
(INR mn)
2400
1750
1400
1200 849
42 6 144
0
FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Capital Expenditure
Debt reduction impressive; term debt zero as on Sep-23

Management has also delivered on its promises of debt reduction by selling off its
non-core assets such as Non Penicillin Non Cephalosporin (NPNC) and Orchid
Towers. As a result, term debt, which stood at INR4.27bn at the time of acquisition,
is nil as on Sep-23.
Term debt down to zero as promised/guided by new management
4800 4270
3640
3600 3319
2530
2400 1997 2329
(INR mn)
1480
1200 810
0
0
-405
-1200
FY20 FY21 FY22 FY23 H1FY24
ORCHID PHARMA
Key related-party transactions (INR mn)

Nature FY22 FY23
Sale of Goods
Synmedic Laboratories 17 11
Dhanuka Laboratories Limited 77 82
Purchase of Goods
Otsuka Chemical (India) Pvt Ltd 860 1,341
Purchase of Land and Buildings
Lease rentals for Land and buildings
Advance for purchase of Land
ORCHID PHARMA
Key Risks
Delay in approval or launch of limited competition opportunities
Orchid has a number of projects/products in its pipeline like gTeflaro, gAvycaz, NCE
or PLI. Any delay in the completion or approval of these projects would lead to higher
costs and pressure on margins while also leading to loss of opportunities.
Slower uptick in PLI project

PLI project is likely to be a huge growth driver for Orchid, which could propel its
revenues. Any delay or slower uptick in utilisation of PLI capacities could derail its
growth plan.
Product concentration
Orchid’s top three products Cefixime (G-3 oral- 2000 tonnes global market),
Cefuroxine (G-2 oral) and Ceftriaxone (G-3 sterile) together contribute ~70% of its
overall revenue leading to concentration risk.
Regulatory compliance risk

Orchid is subject to various government regulations in India and outside like USFDA
inspection, licensing requirements, various permits and approvals required for
business operations. These lengthy and expensive processes can delay the launch of
new products or entry into new markets.
Price/competition risk
Addition of huge capacities by competition may lead to a fall in prices.
ORCHID PHARMA
Company Description
Orchid Pharma is one of the leading suppliers of cephalosporin APIs used as first line
treatment in infections. It has developed products across four generations of
cephalosporins and is now also developing fifth/sixth generation products. Its core
competence is in complex chemistry and development of both oral as well as
parenteral products. Its clients have been companies like Mylan, Pfizer, Momenta,
Sanofi and Cipla. It also has a presence across segments like anti-infectives, anti-
inflammatory, central nervous system (CNS), cardio vascular segment (CVS),
nutraceuticals and other oral and sterile products.
Orchid was established by Kailasam Raghavendra Rao in 1992 as an export-oriented

unit and started commercial production in 1994. After going into CDR in 2015 and
IBC in 2017, it was acquired by Dhanuka Laboratories in 2020.
History
Corporate journey and milestones
Source: Company
Current Corporate Structure
69.8%* 30.2%*
Source: Company
* Post acquisition of DLL, Dhanuka Group will hold 74.45% in the combined entity
ORCHID PHARMA
Details of key related parties

Related Parties (FY23) About and Nature of relationship
Dhanuka Laboratories Holding Company
Manufacture and marketing of pharmaceutical intermediates.
Otsuka Chemical (India) Pvt Ltd
Manish Dhanuka is director of Otsuka Chemical (india) Private Limited
Synmedic is a partnership firm in which Dhanuka Laboratories has 98% interest. It had huge
Synmedic Laboratories formulation plant in Rajasthan spread over 6 acres, which Orchid acquired as part of takeover
agreement. This is relating to Non Penicillin non ceph formulation.
Flagship of the Group founded in 1980. Listed on Stock Exchanges for 35 years with a
Dhanuka Agritech Ltd.
Market Cap of USD 600mn. Manufactures a wide range of farm input products
Dhanuka Pharmaceuticals Private Ltd. Dhanuka Pharmaceuticals was started only in Jun-2019, no revenues, and is already amalgamated.
Dhanuka Finvest Private Limited (DFPL) is an amalgamated company established on December 12,
2013 involved in other financial intermediation. This group includes financial intermediation other
Dhanuka Finvest Private Ltd.
than that conducted by monetary institutions. Ram Gopal Agarwal, Mahendra Kumar Dhanuka are
directors
Incorporated on March 6, 2006 and is manufacturing embroidered saree, silk saree, etc. Mahendra
Madhuri Designs-N-Exports Private Ltd.
Dhanuka is promoter/director
Invest Care Real Estate LLP
Golden Overseas Private Limited is a private incorporated on August 5, 2004 and is involved in
Wholesale on a fee or contract basis. [Includes commission agents, commodity brokers and
Golden Overseas Private Ltd.
auctioneers and all other wholesalers who trade on behalf and on the account of others. Mahendra
Dhanuka is promoter/director.
Incorporated on April 20, 2005 and is involved in real estate activities with own or leased property.
[This class includes buying, selling, renting and operating of self-owned or leased real estate such as
M D Buildtech Private Ltd.
apartment building and dwellings, non-residential buildings, developing and subdividing real estate
into lots etc. Mridul Dhanuka and Mahendra Dhanuka are promoters/directors.
Incorporated on March 20, 2006 and is involved in Software publishing, consultancy and supply
[Software publishing includes production, supply and documentation of ready-made (non-
Dhanuka Infotech Private Ltd.
customized) software, operating systems software, business & other applications software, computer
games software for all platforms. Mridul Dhanuka and Mahendra Dhanuka are promoters/directors.
Duke Impex Private Ltd. Incorporated on 14 June 1990. Directors: Mahendra Dhanuka and Arun Kumar Dhanuka
Incorporated on January 22, 2014 and is involved in wholesale on a fee or contract basis. [Includes
A.M. Bros. Fintrade Private Ltd. commission agents, commodity brokers and auctioneers and all other wholesalers who trade on
behalf and on the account of others. Manish Dhanuka and Arun Kumar Dhanuka are directors
Public incorporated on August 4, 1960. Mridul Dhanuka, Ram Gopal Agarwal, Arun Kumar Dhanuka
NorthernMinerals Ltd.
are directors
Growth Advertising and Marketing Pvt Ltd. Incorporated on October 23, 1987. Arun Kumar Dhanuka is a director
Liberty Sales Private Ltd. Incorporated on August 2, 1984. Directors are Arjun Dhanuka and Seema Dhanuka
incorporated on 23 April 2019 and is involved in other computer related activities [for example
Agrihawk Technologies Private Ltd. maintenance of websites of other firms/ creation of multimedia presentations for other firms etc.].
Rahul Dhanuka is a director
Star Living Infrastructure Advisors LLP
Dhanuka Chemicals – is wholly owned subsidiary of Dhanuka Agritech. Operations not started yet.
Dhanuka Chemicals Private Ltd.
Incorporated in Jun-21.
Incorporated on April 20, 2005 and is involved in real estate activities with own or leased property.
H D Realtors Private Ltd.
Rahul Dhanuka, Harsh Dhanuka, Ram Gopal Agarwal and Urmila Dhanuka are directors.
Turbos Advisers LLP
Cosmo Components Private Ltd. Incorporated on October 20, 1984. Manish Dhanuka and Mamta Dhanuka are directors
ORCHID PHARMA
Management Overview
Management team
Name Designation Brief Profile
Mr. Manish Dhanuka Managing Director Mr Dhanuka has 25 years of experience in research, evaluation, and teaching in the pharmaceutical
industry. He holds a BTech in Chemical Engineering from IIT, New Delhi and MS in Chemical Engineering
from the University of Akron, US. Before establishing Dhanuka Laboratories Ltd. in 1993, he began his
career at Ranbaxy Labs Ltd. in New Delhi and worked there for five years.
Mr. Mridul Dhanuka Whole-Time Director Mr Dhanuka is a Chemical Engineer with a Master’s in Business Administration. He is associated with
Dhanuka Group since 2005.
Mr. Sunil Kumar CFO A chartered accountant with 35-plus years of experience in varied industries as financial controller
Gupta
Dr R J Sarangdhar VP - (Unit Head - API & Three decades of experience in process development, technology transfer and more than 10 patents to
FDF) his credit
Source: Company
Board of Directors
Name Designation
Mr. Ram Gopal Agarwal Chairman and Non-Executive Director
Mr. Manish Dhanuka Managing Director
Mr. Mridul Dhanuka Whole-Time Director
Mr. Arjun Dhanuka Non-Executive & Non-Independent Director
MS. Tanu Singla Non-Executive, Independent Director
Dr Dharam Vir Non-Executive, Independent Director
Mr. Mudit Tandon Non-Executive, Independent Director
Mr. Manoj Goyal Non-Executive, Independent Director
Source: Company
ORCHID PHARMA
Industry Outlook
Global pharmaceutical market
Global pharmaceutical expenditure grew at 5.4% from USD1,138bn (INR 81,074 bn)
in 2019 to USD1,333bn (INR110,315bn) in 2022 and is expected to reach
~USD1,600tn (INR133,000tn) by 2026 growing at a CAGR of 4.8% over 2022–-26.
Global pharmaceutical spending is driven by: (i) Growing innovation addressing
several unmet health needs such as in oncology and rare diseases. (ii) Exclusivity
losses leading to introduction of launch of low-cost generics and biosimilars in the
market, making drugs more accessible for the larger population, and (iii) Improved
healthcare services as well as increased accessibility, leading to increased treatment
rates and addressing demands such as organ transplants.
Indian pharma market

India is a crucial supplier of generic drugs, supplying almost 40% of the total US
generic drug (formulation) demand and approximately 25% of the total drug
demand in the United Kingdom. According to the Indian Brand Equity Foundation
(IBEF), India also accounts for 60% of global vaccine production, contributing 70% of
WHO’s demand and exports to more than 200 countries and territories. According
to the Ministry of Commerce & Industry, India's formulations, which accounted for
nearly 77% of pharma export share in FY23, are likely to grow though there are
opportunities to address bottlenecks in APIs and KSMs manufacturing and expand
its 18% share in the pharmaceutical exports in the FY23.
Indian Pharma exports grow at CAGR of 8% over FY17-22
Indian Pharma Exports

30
24 25
24 21
19
17 17
(USD bn)
18
12
0
FY17 FY18 FY19 FY20 FY21 FY22
Export Value
Source: Company, IBEF, Frost and Sullivan
ORCHID PHARMA
India’s category wise pharma exports share: FY22

Others, 9%
API and
Intermediaries,
18%
Formulations
and Biologics,
73%
API market
API is an important segment of the Indian pharma industry, contributing to around
35% of the market. It was valued at USD17bn (INR1,377bn) in 2022 out of which
USD5bn (INR356bn) was exports while USD12bn (INR1035bn) was for formulation
manufacturing. The Indian pharmaceutical industry is the third largest in terms of
volume and 13th largest in terms of value with the highest number of USFDA-
approved plants, an estimated 665, occupying 44% of global ANDA. The API
industry's growth in India has been fuelled by adopting global standards, establishing
large-scale/extensive manufacturing plants in India, increasing incidence of chronic
disease, rising importance of generics, advancements in API manufacturing, and
rapid growth of the biopharmaceutical sector. Due to the competitive pricing
offered by Chinese suppliers, in the last few years, the Indian API industry has been
dependent on China for imports of APIs and advanced API intermediates. The Indian
domestic API market is poised to grow at 11% from 2022 to 2026.
Indian domestic API market to expand at 11% CAGR over 2022–26
Indian Domestic API Market
20 19
CAGR (2017-22): 10.3%
16 CAGR (2022-26): 11.1%
12
11
(USD bn)
12 10
8 8 8
8
0
2017 2018 2019 2020 2021 2022 2026
USD billion
Note: Excluding API exports but includes APIs and Intermediates
ORCHID PHARMA
Global antibiotics market

Antibiotics are drugs used to fight infections. The global antibiotic market stands at
~USD47bn. This is likely to grow at 2.5% CAGR over 2022–2028 mainly due to growth
in EMs and demand increase to pre-pandemic levels. The rising prevalence of
bacterial infections and the need for effective and newer antibiotics are driving the
demand for advanced antibiotics. The emergence of anti-MRSA/VRE drugs,
increasing awareness about infectious diseases, and the government's initiatives in
improving the availability of antibiotics around the world for various diseases is
further likely to augment the growth of the antibiotics market.
Beta Lactam and Beta Lactamase make up 50% of the global antibiotic market. These
are antibiotics that prevent the breakdown of beta-lactam antibiotics by blocking
the activity of beta-lactamase enzymes (also known as beta-lactamases). The Beta-
Lactam and Beta-Lactamase Inhibitors Market based on drug class can be further
segmented into Penicillin, Cephalosporin, Carbapenem, Monobactum, and
Combination.
Cephalosporin is the largest market with ~26-28% share implying USD12-13bn
market with USD2-2.5bn being API market and is estimated to be the fastest
growing. The cephalosporin antibiotic prevents the growth of the bacteria, and the
beta-lactamase inhibitor protects the antibiotic from the bacteria, increasing its
effectiveness. Cephalosporins are an antibiotic used to treat a range of bacterial
infections. These are similar to penicillin but have a better safety profile. While there
are six generations of cephaolosporins, the third generation onwards have a strong
safety profile and wide coverage of gram-negative bacteria.
Global antibiotic drug market to grow 2–5% from FY22–28
Global Antibiotic Drug Market: 2017-2028

CAGR (2022-2028)= 2-5% 53-63.1
60
47.5 48.2 48.4 47.1
45.9
48 43.3
(USD bn)
36
24
12
0
2017 2018 2019 2020 2021 2022 2028
Market size
Source: Company
ORCHID PHARMA
Cephalosporin fastest growing market, 5–8% over 2022-28
Cephalosporin Market
20
API Market size estimated to be: USD 2-2.5bn

16
CAGR: 5-8%
12
(USD bn)
8
0
2017 2018 2019 2020 2021 2022 2028
ORCHID PHARMA
Additional Data
Management Holdings – Top 10*
Chairman Ram Gopal Agarwal % Holding % Holding
MD Manish Dhanuka Quant Money Man 6.83 UTI AMC 1.07

MIT Retiree Wel 4.64 Old Bridge Capi 0.90
Whole-Time Director Mridul Dhanuka
Nippon Life AMC 1.97 Tata AMC 0.69
CFO Sunil Kumar Gupta Societe General 1.57 ICICI Pru AMC 0.53
Auditor Singhi and Co. Carnelian Struc 1.22
*Latest public data
Recent Company Research Recent Sector Research

Date Title Price Reco Date Name of Co./Sector Title
Pharma steady; diagnostics shines;
22-Nov-23 Pharmaceuticals
Sector Update
Long road to recovery ; Result
16-Nov-23 Biocon
Update
Sustainable recovery awaited ;
16-Nov-23 Ipca Laboratories
Result Update
Rating and Daily Volume Interpretation

2550 12
2040 10
8
1530
(INR)
(Mn)
6
1020
4
510 2
0 0
Jun-23
Apr-21
Jun-21
Apr-22
Jun-22
Apr-23
Dec-20
Feb-21
Aug-21
Dec-21
Feb-22
Aug-22
Dec-22
Feb-23
Aug-23
Dec-23
Oct-21
Oct-22
Oct-23
Volume ORCP IN EQUITY Buy Hold Reduce
Source: Bloomberg, Nuvama research
Rating Rationale & Distribution: Nuvama Research

Expected absolute returns
Rating Rating Distribution
over 12 months
Buy 15% 209
Hold <15% and >-5% 58
Reduce <-5% 18
ORCHID PHARMA
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Date: 2023.12.20 15:17:53 +05'30'
Adobe Acrobat version: 2023.006.20380
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Orchid+Pharma+ Initiating+Coverage Dec 23 NUVAMA

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December 2023

Base business turning around; further growth plans in place

7ACA PLI: Providing huge growth impetus, backward integration

Orchid DLL merger: Formidable player in cephalosporin APIs

Outlook and valuation: Plenty to cheer for; initiate at ‘BUY’

 Slower uptick in PLI plant utilisation could derail high-growth plans.

 Sharp fall in API prices or huge capacities from competition

 Adverse USFDA or other regulatory inspection outcomes

The Story in Charts

18000 4300 in cost rationalisation

sterile sales from Pfizer Turnaround in well-executed

4200 60% 700

2800 40% 500 Nov'23

2530 12% 14%

Source: Company, Nuvama Research

Key metrics’ breakdown–new opportunities to build on core business

Scenario analysis: base case 26%; bull 60%, stressed 18%

FY25 FY26 FY25 FY26 FY25 FY26

Target Price 590 1135 900

Important Ratios (%) Free Cash Flow (INR mn)

Assumptions (%) Key Ratios

Valuation Metrics Valuation Drivers

 Higher complexity and capital investment in the low-growth segment act as an

Manufacturing cephalosporin APIs is complex…

Orchid has the only USFDA-approved sterile plant in India

Total API Facilities USFDA approved Oral Cephalosporin Sterile Cephalosporin

…leading to limited competition

~USD2bn cephalosporin API market: Ample room for Orchid to grow

Source: Company, Nuvama Research Source: Company, Nuvama Research

Cephalosporin fastest-growing antibiotic, 5–8% over 2022–28E

Source: Company, Nuvama Research

Base business turnaround impressive; further growth plans in place

post Dhanuka takeover

Core Business Revenue Para IV products and NCE PLI (7ACA)

Source: Company, Nuvama Research

EBITDA triples over FY20–23; potential to surge 4x by FY26

Management's efforts in cost 13%

6% +30% core EBITDA 8%

Source: Company, Nuvama Research

Improved utilisation levels and capacity addition to drive growth

Oral Revenue Sterile Revenue Oral Revenue Sterile Revenue

Source: Company, Nuvama Research Source: Company, Nuvama Research

80% 240 72%

Sterile Quantity Sterile Utilisation Oral Quantity Oral Utilisation

Source: Company, Nuvama Research Source: Company, Nuvama Research

Capacity to expand by 75% in both oral and sterile cephalosporin API

As Acquired Improvement Expansion

Source: Company, Nuvama Research

Sterile capacities operating at 95%

Product launches on the cards

Cefovecin – USD150mn size with API cost of 6%

Winning back lost businesses: getting there, albeit gradually

Cost control and debt reduction testify to execution skills

Term debt, which stood at INR4.27bn at the

FY20 FY21 FY22 FY23 H1FY23 H1FY24

Source: Company, Nuvama Research

Total 2357 2309 2462 1775 1047 1296 1323 -9%

Power and Fuel 7% 7% 8% 10% 9% 9% 9%

Steady reduction in term debt as promised