CDMO momentum key to pass an inflection point…
About stock: Piramal Pharma Limited (PPL) is a carved-out Pharma entity from Piramal Enterprises limited and is a part of Piramal group of companies. The company operates in 3 major segments.
(1) Contract development and manufacturing organisations (CDMO) for both innovators and generics clients
(2) Complex hospital generics (critical care)
(3) India consumer healthcare (OTC).
PPL owns 17 manufacturing facilities across India, US and UK with capabilities in sterile, API, formulations and drug discovery & manufacturing of nutrition products.
The company holds 49% stake in AbbVie Therapeutics (JV with Allergan), and ~33% in Yapan Bio which operates in the biologics / bio-therapeutics and vaccine segments.
Investment Rationale
• CDMO growth emanating from high-value services: The company over the years have been focusing on high value services- 1) more focus towards catering to innovators, 2) incremental offering of differentiated services such as high potency APIs, antibody drug conjugates (ADC), peptides among others and 3) offering of integrated services platform leveraging on global manufacturing network. We believe these high value services are margin accretive and stickier in nature. Improved performance in FY24 was attributable to CDMO business which in turn was driven by improvement across these three parameters.
• Complex Hospital generics- a niche and steady business: This business, although generics in nature is a high entry-barrier business characterised by complexities in most of the products. The company has gained significant bandwidth via acquisitions and building up of knowledge over the years. PPL has a reach of over 6,000 hospitals and surgical centres across 100 countries. The company’s developmental pipeline remains strong with an addressable market of US$ 2 billion.
• Margin improvement, wanning balance sheet stress to the fore: streamlining of operating leverage by optimally utilising its foreign assets and improving product mix by focusing on innovative CDMO among would be the topmost priorities for the company which in a way is likely to improve margins as well as lighten the balance sheet stress to a larger extent.
Rating and Target Price
• We believe the company is at critical inflection point and expect overall improvement as the CDMO momentum continues. We assign BUY rating with a target price of ₹ 210 based on SoTP basis.
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