Chalks out strategic goals for the future…
About the stock: Piramal Pharma Limited (PPL) is part of the Piramal group of companies. The company operates in 3 major segments. – 1) Contract development and manufacturing organisations (CDMO), 2) Complex hospital generics (critical care), 3) Consumer healthcare (OTC). PPL owns 17 development and manufacturing facilities across India, US and UK with capabilities in sterile, API, formulations, drug discovery and manufacturing of nutrition products. The company holds 49% stake in AbbVie Therapeutics, JV with Allergan, and 33.33% in Yapan Bio which operates in the biologics / bio-therapeutics and vaccine segments.
Analyst Meet Update: (Focus mainly on long term guidance)
• FY30 guidance- Doubling of revenues to US$ 2 billion with around 25% EBITDA Margins. This translates in to revenues and EBITDA CAGR of ~13% and ~23% respectively between FY24-FY30E. Higher EBITDA growth would be attributable to 1) Better overall operating leverage on the back of better capacity utilisation, 2) significant tilt towards innovative pie in CDMO services with focus on integrated and differentiated services.
• CDMO revenues to be around US$ 1.2 billion (CAGR of ~13%) with 25% EBITDA margins leveraging on its globally diversified network of facilities across 3 continents. In complex hospital generics, the company aspires to reach US$ 600 million revenues (CAGR of ~13%) with 25%+ EBITDA margins. In ICH segment the company aims to scale up revenues at a 9% CAGR to US$ 200 million in the next six years and achieve double-digit EBITDA margins by optimizing expenses.
• Piramal’s innovative CDMO segment is seeing early signs of improvement in biotech funding and the management is focusing on improving capacity utilization of existing sites and scale up innovation CDMO business.
• Net debt/EBITDA target is set at 1x and ROCE in High teens. and Tax rate at the consolidated level likely to go down over the next 3-4 years. The growth capex would be calibrated and only after considering the segmental requirement with an eye on leverage and FCF
The company has given long term guidance in an open forum breaking it segment wise. This is mainly organic growth guidance based on global capacities and capabilities (excluding some licensing requirements). The guidance also excludes potential windfall from the implications of Biosecure Act. The core of the guidance is based on offering or differentiated services, offering vertically integrated model and a tilt towards innovation related offerings. We believe the guidance is measured with scope for positive surprises.
Rating and Target price
We now value PPL at ₹ 280 based on SoTP valuations, i.e. 23x FY26E CDMO EBITDA (earlier 20x), 18x FY26E CHG EBITDA (earlier 15x), 1.5x FY26E Consumer Healthcare Sales (earlier 1x), and 10x PAT from AbbVie JV.
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