Piramal Pharma: A Strong Buy with 35% Upside Potential

Piramal Pharma shares surge on bullish outlook

Piramal Pharma: A Strong Buy with 35% Upside  Shares of Piramal Pharma surged over 5% in early trading on December 17 after JM Financial initiated a “Buy” recommendation with a target price of ₹340 per share, indicating a potential 36% upside from the previous close.

According to JM Financial’s report, Piramal Pharma‘s newly commercialized molecules are gaining traction. A recovery in the US biotech sector anticipated in H2FY25 is expected to further boost performance. The company’s Contract Development and Manufacturing Organization (CDMO) segment is projected to grow at a CAGR of 17% over the next three years, with an expected +23% EBITDA CAGR driving steady cash flow and improving its net debt position.

JM Financial estimates Piramal Pharma’s topline growth at approximately 15% over FY24-27, with margins likely to expand by 360 basis points.

At a recent analyst meet, Piramal Pharma outlined its ambitious roadmap to achieve $2 billion in revenue by CY30, supported by rising demand in its CDMO business for innovation-driven projects. In Q2FY24, the company’s net profit surged 3.5 times year-on-year to ₹22.59 crore, compared to ₹5.02 crore in the same quarter last year.

Additionally, Piramal Pharma announced an $80 million strategic investment to expand its fill-finish facility in Lexington. The expansion, set to double the plant’s capacity, is expected to be operational by the end of FY27.

Piramal Pharma: A Strong Buy with 35% Upside

Piramal Pharma’s share price surged 4.5% in early trade on December 17, reaching ₹262.80, following a ‘Buy’ recommendation from domestic brokerage firm JM Financial. The brokerage set a target price of ₹340, signaling a 36% upside from the previous close of ₹251.

JM Financial’s positive outlook stems from the anticipated strong growth in India’s CRDMO (Contract Research, Development, and Manufacturing Organization) industry, where Piramal Pharma holds a competitive edge. The company’s CDMO segment is projected to grow at a 17% CAGR over the next three years, driven by factors such as a robust pipeline of Phase III projects, newly commercialized assets (one with revenue potential exceeding $100 million), and a turnaround in its CRO operations.

The report highlights Piramal Pharma’s unique strengths:

• A balanced mix of CRO and CDMO services (30:70).
• Global manufacturing presence across the US, UK, and India.
• Strong commercial capabilities in intermediates, APIs, and formulations.
• Diversified customer base and geographic reach.

JM Financial estimates that the CDMO business, which contributes 58% of Piramal’s FY24 revenues (₹47 billion), will support a 15% revenue CAGR and 23% EBITDA CAGR from FY24-27. This growth is expected to drive cash flow to ₹4.8 billion by FY27 and improve the net debt/EBITDA ratio, addressing investor concerns about the company’s debt position.

The brokerage also notes that India’s CRDMO sector is benefiting from favorable tailwinds, such as the China+1 strategy, cost leadership, and a revival in biotech funding, positioning Indian companies to capitalize on big pharma interest. Globally, the CRDMO market is expected to grow at a 9.1% CAGR, expanding to $302 billion by 2028, with India poised for significant market share gains.

At its current market price, Piramal Pharma trades at a 38% discount to peers, with FY26/27 EV/EBITDA multiples at 21x and 17x, respectively, underscoring its attractive valuation. JM Financial believes that steady growth across its CDMO and CHG segments will improve margins and unlock significant value for investors.

Piramal Pharma: A Strong Buy with 35% Upside: Piramal Pharma has emerged as a ‘consensus buy’ among analysts, with all ten analysts covering the stock recommending a “buy” rating. Shares of the company are projected to surge by 35% from current levels, according to JM Financial, which set a price target of ₹340 per share, the highest on the street.

JM Financial expects Piramal Pharma’s EBITDA to grow at a 23% CAGR, ensuring steady cash generation. The stock currently trades at 21x EV/EBITDA for FY26 and 17x for FY27, reflecting a 38% discount compared to its listed peers.

The company’s Contract Development and Manufacturing Organization (CDMO) business, its largest revenue segment, is anticipated to drive this growth. Factors such as the expected recovery in the US biotech sector in H2FY25 and traction from newly commercialized molecules are key drivers behind the 17% CAGR forecasted for the CDMO business over the next three years.

The stock closed 1.1% higher on Monday at ₹252, having already gained 81% in 2024. Other brokerages, including Motilal Oswal, have also issued a positive outlook, with price targets as high as ₹310 per share.

JM Financial’s report underscores Piramal Pharma’s potential for strong performance, driven by its global CDMO capabilities, competitive advantages, and improving financial metrics.

Piramal Pharma: A Strong Buy with 35% Upside: Piramal Pharma shares surged by 6.7% on Tuesday, December 17, 2024, reaching an intraday high of ₹268 per share, following JM Financial’s initiation of coverage with a ‘Buy’ rating and a target price of ₹340. This target implies a 35.4% upside from the previous close of ₹251.15.

Analysts at JM Financial predict that India’s Contract Research, Development, and Manufacturing Organization (CRDMO) industry will double by FY28 compared to FY23 levels, making India a prominent destination for global innovators seeking partnerships. Piramal Pharma is well-positioned among its Indian CDMO peers due to its differentiated offerings, global manufacturing footprint, and comprehensive capabilities.

Key Growth Drivers

1. CDMO Business (58% of Revenue):
   • The segment remains Piramal’s core growth engine, with a 30:70 ratio of CRO to CDMO services.
   • Piramal’s global manufacturing footprint across the US, UK, and India, along with its commercial capabilities spanning intermediates, APIs, and formulations, gives it a competitive advantage.
   • The CDMO segment is expected to grow at a 17%+ CAGR over the next three years, supported by:
     • A turnaround in the CRO business,
     • A strong pipeline of Phase III projects,
     • Newly commercialized assets, one of which has a revenue potential exceeding $100 million.
2. Complex Hospital Generics (30% of Revenue):
   • This segment focuses on high-margin products like inhalation and injectable drugs, which have high entry barriers.
   • Piramal holds significant market shares in key products such as Sevoflurane (40% share) and Baclofen (70% in the USA).
   • With new capacity for Sevoflurane in India and an injectable pipeline of 24 products, the segment is projected to achieve an 11% CAGR from FY24-27.
   • Beyond FY27, growth will be driven by 505(b)(2) products.
3. Indian Consumer Healthcare (12% of Revenue):
   • Piramal has a strong pan-India presence with a diverse portfolio of 25+ brands, including power brands like CIR, Lacto Calamine, Little’s, Polycrol, and Tetmosol.
   • While high advertising and promotional costs have impacted margins, analysts project a 13% CAGR over the next three years, driven by:
     • The scale-up of power brands, which grew 18% YoY in H1FY25,
     • New product launches,
     • Multi-channel marketing efforts.

Valuation and Outlook

Piramal Pharma: A Strong Buy with 35% Upside JM Financial forecasts a 23%+ EBITDA CAGR, which will aid in steady cash generation and address investor concerns about Piramal’s debt position. At its current price, the stock trades at 21x FY26 EV/EBITDA and 17x FY27, a 38% discount to its listed peers. Analysts value the company on a sum-of-the-parts (SoTP) basis, resulting in a target price of ₹340.

Piramal Pharma’s differentiated businesses, global reach, and robust growth potential across key segments position it as a standout player in the CRDMO and pharma sectors.