Piramal Pharma - Setting Precedence For Profitable Growth: ICICI Securities

ICICI Securities Report

Piramal Pharma Ltd.’s innovative contract development manufacturing organisation segment is seeing early signs of improvement in biotech funding and the management is focusing on improving capacity utilisation of existing sites and scale up innovation CDMO business.

Better inflow of early-stage molecules, coupled with scaling up of late phase three products (33 molecules in phase three) to ensure faster growth of the segment ahead.

Complex hospital generics business has faced a hurdle due to limited supplies from third party contract manufacturers and price erosion, owing to which the company is expanding capacities ($85-90 million capex in FY25E) in India to better tackle competition and is also conducting additional studies (opex of $8–9 million in FY25E) to improve product acceptability.

Momentum in ICH business will be maintained; the company has forayed into men’s grooming segment and its brand CIR is has been well received in adults’ hygiene segment. Management has curbed advertisement expenditure at 13% of ICH revenue and profitability improvement is the key focus for this segment.

The company also aims to incur maintenance capex of Rs 3–3.5 billion while net debt to Ebitda will be reduced from less than three times currently to ~1x by FY30.

We raise our FY26E Ebitda and PAT estimates by ~2% /3% each, respectively. Steady new order inflow in CDMO business and commercialisation of pipeline projects may drive revenue/Ebitda/PAT CAGR of ~15%/27%/373% over FY24–26E with 326bps improvement in margin to ~17.9% in FY26E.

The stock is trading at 22.7 times/17 times for FY25E/FY26E EV/Ebitda. The stock has risen ~30% in the last two months; hence, we lower our rating to Add (from Buy) with a revised SoTP-based target price of Rs 245 per share (Rs 200 earlier).

Key downside risks:

Failure to commercialise innovative products; regulatory hurdle; and high product concentration.

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