Explained: Why Orchid Pharma surged 2000% and then crashed 70% - CNBC
· Last year it was Ruchi Soya making headlines as a “wealth creator” following an 8000-plus percent rise in its stock price within six months of relisting under a new promoter. This year, Orchid Pharma appears to be a claimant for that title, despite the stock having lost two-third of its peak value so far. Like Ruchi, Orchid Pharma too is in its second avatar after passing through the National Company Law Tribunal (NCLT) portal.
· What’s common to both companies is that public shareholding is negligible. Not the companies’ fault really, since the debt resolution plan under the bankruptcy process does away with the previous capital structure. But it does make it easy to assign any valuation to the company because there is hardly any stock with public shareholders.
· Through this article, we try to decode why Orchid Pharma shares have been so volatile over the past few months.
First up, what is happening in Orchid Pharma shares?
· After the restructuring process, Orchid Pharma shares relisted on the bourses on November 3 last year. It closed at Rs 18 on the day of its relisting, and within five months, the price soared to a record-high of over Rs 2600.
Wow, how come?
· There are hardly any public shareholders in the company. Previously, the paid up equity capital of the company was around Rs 88 crore, consisting of around 8.8 crore shares of Rs 10 face value each. Under the resolution plan, the equity capital was reduced by 99 percent to around Rs 40.8 lakh consisting of around 4.08 lakh shares of Rs 10 face value. These 4.08 lakh shares were given to banks by converting a part of their loans into equity.
· With the new promoters infusing fresh funds in the company, their stake stood at a little over 98 percent. Effectively, public shareholding stood at less than 2 percent.