Piramal Pharma to see 13% CAGR in revenue, 40% in Ebitda in FY23-26: Jefferies

Piramal Pharma is expected to see substantial compound annual growth rate (CAGR) in its revenue and Ebitda projected at 13% and 40%, respectively, over the fiscal years 2023-2026, according to investment banking and capital markets firm Jefferies India.

Following Piramal Pharma’s strong performance in the second quarter of FY24, investor interest has surged, with a particular focus on the potential for a significant turnaround in the latter half of FY24 and beyond, a Jefferies report pointed out.

Equity analysts Alok Dalal and Dhawal Khut from Jefferies projected Piramal Pharma’s revenue to reach a staggering Rs 10,164.6 crore by FY26. The shifting valuation numbers show that the company’s growth trajectory is promising, with the EV/Rev ratio going down from 2.8x in 2023 to a favourable 1.9x in 2026.

The report also projected an operating cash flow (OCF) of Rs 1,350 crore in FY25, coupled with a strategic capital expenditure approach, resulting in an anticipated free cash flow (FCF) of Rs 500 crore. Analysts believe this will significantly reduce net debt/Ebitda to Rs 24,394.4 crore/Rs 18,297.48 crore by FY25/FY26.

High expectations surround Piramal Pharma’s margins, with forecasts indicating a shift from low teens to high teens by the end of FY26. This transformation is attributed to a stronger Contract Development and Manufacturing Organization (CDMO) order flow and increased contribution from the innovation business, the report said.

Jefferies also emphasised the importance of owning overseas facilities, especially for high-value, low-volume products, with certain differentiated capabilities exclusively available abroad. Acknowledging the inherent opacity of the CDMO business model, analysts recommended monitoring annual growth guidance and commentary from peers to gauge the outsourcing landscape, suggesting tracking press releases from innovators mentioning CDMO partnerships.

Jefferies maintained a high conviction Buy rating, projecting a fair value framework of Rs 180-185 by March 2025, indicating a substantial 50% upside. The analysis further highlighted optimism surrounding Piramal Pharma's CDMO business, with expectations of improvements from the second half of fiscal year 2024. The robust complex hospital generics business is highlighted as a steady cash cow, and the consumer health business is anticipated to turn Ebitda-positive in FY24 with robust high-teens revenue growth, the report said.

“We expect company margins to reach high teens by end FY26 from low teens in Q2 mainly led by stronger CDMO order flow leading to superior capacity utilization and higher contribution from innovation business (45% contribution to CDMO revenue in FY23). We expect the company to strongly leverage on capabilities like ADCs, peptides etc. in the coming years which should improve CDMO margins to high teens level from low double-digit today,” the analysts said in the report.

“We expect complex hospital generics margins to remain stable in 22% range as new launches offset potential price erosion while OTC business margins should move towards high single-digit levels by FY26 from low single-digit today. The main driver of overall margins will be CDMO in our view,” the analysts said. In addition to the base case, Jefferies provides an upside scenario of 43% growth and a downside scenario with a 24% reduction, offering investors a comprehensive view of the risk/reward landscape. 

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