Shilpa Medicare: Scaling up the complexity ladder; Buy stock, says Nuvama

Nuvama has initiated coverage on Shilpa Medicare with a 'Buy' rating and a target price of Rs 1,200, valuing the stock at 40 times September 2028 estimated earnings per share. At the current market price, the stock trades at 30 times FY28 estimated price-to-earnings. The brokerage expects Shilpa Medicare to deliver 25 per cent revenue growth compounded annually, 33 per cent EBITDA growth compounded annually and 39 per cent PAT growth compounded annually over FY26-29E.

Nuvama said Shilpa Medicare is moving beyond its traditional active pharmaceutical ingredient business towards a more complex, research-driven pharmaceutical model. The brokerage expects formulations and biologics to account for around 60 per cent of revenue by FY29, supported by launches including generic Rotigotine, generic Abraxane, generic Xtandi, Aflibercept and Nivolumab.

The brokerage said investments across formulations, biologics and contract development and manufacturing are now moving towards commercialisation after a period of aggressive capital expenditure. Its CDMO pipeline includes more than 25 projects, providing visibility beyond FY29.

In the active pharmaceutical ingredient business, Nuvama expects growth to accelerate following a largely flat FY22-26 period. The company is expanding non-oncology capacity and has more than 15 new oncology APIs, while peptides and polymers are expected to provide incremental growth. The brokerage estimates the API business to clock 11 per cent revenue growth compounded annually over FY26-29E.

Nuvama expects the biologics business to grow 39 per cent compounded annually, excluding milestones, over FY26-29E, driven by Aflibercept in India and Nivolumab in Europe. The brokerage estimates FY29 Nivolumab sales at USD 20 million.

Another key opportunity is recombinant human albumin, with Nuvama estimating peak European sales of Rs 9 billion and assigning Rs 44 per share of net present value to the opportunity.

The brokerage expects EBITDA margins to improve to around 34 per cent by FY29 from 28 per cent in FY26, while return on capital employed could rise to around 19 per cent from 10 per cent. Net debt to EBITDA is expected to decline to 0.1 times by FY29 from 1.4 times in FY26, supported by operating cash flow and free cash flow generation of around Rs 16 billion and Rs 9 billion, respectively, over FY27-29E.

The key risks include competition, albumin delays, potential USFDA challenges and delays in Unicycive's OLC approval.