24 October 2024

2QFY25 Result Update | Healthcare

Piramal Pharma
Estimate change CMP: INR256 TP: INR310 (+21%) Buy
TP change
Rating change Operating performance above est.; FY25 guidance intact
 Piramal Pharma (PIRPHARM) delivered better-than-expected operational
Bloomberg PIRPHARM IN performance in 2QFY25 fueled by superior traction in the CDMO segment
Equity Shares (m) 1326
M.Cap.(INRb)/(USDb) 339.2 / 4 (59% of sales). Following earnings deterioration in FY23/FY24, PIRPHARM is
52-Week Range (INR) 260 / 88 exhibiting healthy recovery in 1HFY25. Considering the advancement in
1, 6, 12 Rel. Per (%) 23/75/146 clinical development of certain CDMO projects, the company is investing
12M Avg Val (INR M) 1179
Free float (%) 65.1
USD80m to double its sterile fill-finish capacities at the Lexington site.
 We trim our FY25/FY26/FY27 estimates by 6%/3%/4% to factor in: 1)
Financials & Valuations (INR b)
higher financial leverage, and 2) ongoing supply-chain issues in the
Y/E MARCH FY25E FY26E FY27E
Sales 91.9 106.5 123.9 injectable pain management segment. Compared to 15%/37% YoY
EBITDA 14.3 19.0 23.5 revenue/EBITDA growth for 1HFY25, we expect 11%/15% YoY growth in
Adj. PAT 3.2 6.9 10.0 revenue/EBITDA to INR50b/INR9b in 2HFY25.
EBIT Margin (%) 7.3 10.4 12.2
 We value PIRPHARM on an SOTP basis (20x EV/EBITDA for the CDMO
Cons. Adj. EPS (INR) 2.4 5.2 7.5
EPS Gr. (%) 471.2 114.7 45.2 business, 12x EV/EBITDA for the complex hospital generics (CHG) business,
BV/Sh. (INR) 69.0 74.7 83.1 and 13x EV/EBITDA for the India consumer products (ICP) business) to
Ratios arrive at our TP of INR310. With enhanced inquiries on the CDMO front at
Net D:E 0.5 0.4 0.4
RoE (%) 4.0 8.0 10.6 industry level in India, we believe PIRPHARM is well poised to benefit from
RoCE (%) 3.8 6.4 8.0 its differentiated capabilities and capacities. Further, it is increasing its
Payout (%) 17.6 17.6 17.6 offerings in the CHG segment through an established global network.
Valuations
Accordingly, we expect its PAT to scale up to INR7b by FY26 from INR560m
P/E (x) 105.9 49.3 33.9
EV/EBITDA (x) 26.7 20.0 16.2 in FY24. Reiterate BUY.
Div. Yield (%) 0.1 0.3 0.4
Segmental mix impact more than offset by higher operating leverage
FCF Yield (%) 0.0 0.0 0.0
EV/Sales (x) 4.2 3.6 3.1  PIRPHARM’s revenue rose 17% YoY to INR22.4b (our est.: INR22.1b) for the
quarter. The CDMO segment’s (59% of total sales) revenue rose 24% YoY
Shareholding pattern (%)
As On
to INR13.2b. The CHG (29% of total sales) revenue rose 9% YoY to INR6.4b.
Sep-24 Jun-24 Sep-23
Promoter 35.0 35.0 35.0 The ICP (12% of total sales) revenue grew 8% YoY to INR2.8b.
DII 13.8 31.0 26.1  Gross margin contracted 220bp YoY to 64.5% due to product mix change.
FII 32.2 13.9 14.7  However, EBITDA margin expanded 130bp YoY to 15.2% (our est: 11.8%),
Others 19.1 20.2 24.2 due to lower staff costs/other expenses (down 200/150bp as a % of sales).
FII Includes depository receipts
 EBITDA grew 28.6% YoY to INR3.4b (our est.: INR2.6b) for the quarter.
 Adj profit came in at 4.5x YoY to INR226m (our est: INR255m) for the
quarter, fueled by improved EBITDA and higher other income.
 For 1HFY25, its revenue/EBITDA grew 15%/37% YoY to INR42b/INR5.5b,
while adj. loss for 1HFY25 declined 29% YoY to INR662m.
Highlights from the management commentary
 The company has reiterated its full-year guidance of early-teen growth in
revenue and EBITDA.
 The company expects 2H to be better than 1H. Having said this, 3QFY25
margins could get hit due to a one-off opex in CHG business.
 PIRPHARM is seeing a rise in order inquiries and site visits, driven by the
Biosecure Act and supply chain diversification efforts. This is expected to
help the company gradually secure more business over the medium term.

Tushar Manudhane - Research Analyst ([email protected])

Research Analyst - Akash Manish Dobhada ([email protected] | Viraj Shah ([email protected])
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Piramal Pharma

Income statement (INR m)

FY24 FY25E FY24 FY25E FY25E % var.
1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE 2QE
Revenues 17,489 19,114 19,586 25,524 19,511 22,418 21,956 27,950 81,712 91,835 22,119 1%
growth YoY(%) 18.0 11.1 14.1 18.0 11.6 17.3 12.1 9.5 15.4 12.4 15.7
Expenses 16,165 16,457 16,902 20,224 17,467 19,001 19,137 21,954 69,749 77,558 19,519
CDMO 8,980 10,680 11,340 16,490 10,570 13,240 12,701 17,865 47,490 54,376 12,816 3%
CHG 6,170 5,890 5,760 6,770 6,310 6,430 6,509 7,308 24,590 26,557 6,538 -2%
ICP 2,390 2,560 2,520 2,380 2,640 2,770 2,747 2,777 9,850 10,934 2,765 0%
EBITDA* 1,323 2,657 2,684 5,299 2,044 3,416 2,820 5,997 11,963 14,276 2,600 31%
margin (%) 7.6 13.9 13.7 20.8 10.5 15.2 12.8 21.5 14.6 15.5 11.8
growth YoY(%) 55.5 54.0 124.1 50.9 54.5 28.6 5.1 13.2 64.2 19.3 -2.1
Depreciation 1,736 1,845 1,863 1,961 1,846 1,922 1,900 1,886 7,406 7,554 1,850
EBIT -413 812 821 3,338 198 1,494 920 4,110 4,557 6,722 750 99%
Other income 383 492 615 264 195 611 700 694 1,754 2,200 430
Interest expense 1,185 1,099 1,059 1,142 1,070 1,076 980 794 4,485 3,920 962
Share from Asso. Co 144 191 140 120 224 173 210 193 595 800 162
PBT -1,071 396 516 2,580 -452 1,201 850 4,203 2,421 5,802 380 216%
EO Expenses/(gain) - - 323 310 - - - - 633 - -
Taxes -85 345 93 1,262 436 975 280 920 1,615 2,611 125
Tax Rate (%) 8.0 87.3 47.8 55.6 -96.4 81.2 33.0 21.9 90.3 45.0 33.0
Reported PAT -986 50 101 1,008 -888 226 569 3,284 173 3,191 255 -11%
Adj. PAT -986 50 350 1,146 -888 226 569 3,284 560 3,191 255 -11%
Change (%) NA LP LP 128.6 NA 348.2 62.7 186.6 NA 469.7 405.0
E: MOFSL Estimates

Key takeaways from the management commentary

 The tax rate for 2QFY25 has been elevated due to higher taxes in some
jurisdictions.
 Overall, the biotech funding has improved over the last one year; however, the
same has remained uneven across the months.
 PIRPHARM is expanding the capacity at its Lexington unit to more than double
from its current size. This expansion is expected to be commercialized by the
end of FY27.
 The entire capex of USD80m for the Lexington facility would be funded by the
company.
 In ICH business, the growth in i-range was adversely impacted due to regulatory-
mandated price reductions.
 PIRPHARM is looking to widen its distribution network, transitioning from a
pharmacy dominant to an omnichannel in the consumer healthcare business.
Further, it is planning to expand its presence in smaller towns and rural areas.
 In CHG business, the injectable pain management growth remained subdued
due to supply chain issues.
 The company expects the ETR for the full year to be over 50%.

31 January 2024 2
 Piramal Pharma

Efforts across segments underway to further boost earnings

CDMO: Positive industry outlook/differentiated offerings to sustain growth

momentum
 In 1HFY25, CDMO sales grew 21% YoY to INR23.8b, driven by steady order
inflows mainly for commercial manufacturing of on-patent molecules and YoY
improvement in demand for API business.
 With improving biotech funding and a shift in sourcing from China due to the
Bio-secure Act, medium- to long-term opportunities will be created. To
capitalize on this, PIRPHARM is building differentiated capabilities.
 Further, to improve profitability, the company is increasing the contribution
from innovation-related work and differentiated offerings and improving
operational efficiency.
 Additionally, the company is expanding its capacity at the Lexington facility by
investing USD80m. It expects the same to commercialize by the end of FY27.
 We expect 18% sales CAGR over FY25-27 to INR75.7b in this segment.
CHG: Building niche pipeline/expanding reach to fuel growth
 In 1HFY25, CHG sales grew 6% YoY to INR12.7b, primary on account of volume-
led growth in IA in the US and EM markets, partly offset by pricing pressure.
 PIRPHARM is launching new products, including 505(b)(2), complex and
differentiated generics, in the US/EU markets in FY25, which would drive
growth. Additionally, the company has 24 new products under various phases of
development, with an addressable market of over USD2b.
 Moreover, the company intends to increase its IA market share in ROW in FY25.
It plans to commercialize the additional line at the Digwal facility and KSM
manufacturing facility at Dahej in FY26, supporting medium-term growth.
 EBITDA margin is improving due to a better product mix and cost optimization.
 We expect the CHG segment to post 13% sales CAGR to INR34b over FY25-27.
Expanding reach/investing in brands to drive growth in ICH
 In 1HFY25, ICH sales increased 9% YoY to INR5.4b. This was driven by strong
growth in power brands (up 18% YoY), offset by an adverse regulatory impact of
price reductions on i-range.
 Additionally, in 2QFY25, e-commerce sales grew 32% YoY and accounted for
20% of ICH revenues vs. 16% in 2QFY24.
 In addition to new launches, PIRPHARM is investing in power brands by
increasing advertisement spending. Further, the company plans to expand its
reach in smaller towns and rural areas.
 We expect the ICH segment to post 13% sales CAGR to INR14b over FY25-27.
Reiterate BUY
 We trim our FY25/FY26/FY27 estimates by 6%/3%/4% to factor in: 1) higher
financial leverage, and 2) ongoing supply-chain issues in the injectable pain
management segment. Compared to 15%/37% YoY revenue/EBITDA growth for 1H,
we expect 11%/15% YoY growth in revenue/EBITDA to INR50b/INR9b in 2HFY25.
 We value PIRPHARM on an SOTP basis (20x EV/EBITDA for the CDMO business,
12x EV/EBITDA for the complex hospital generics (CHG) business, and 13x
EV/EBITDA for the India consumer products (ICP) business) to arrive at our TP of
INR310. With enhanced inquiries on the CDMO front at industry level in India,
we believe PIRPHARM is well poised to benefit from its differentiated
capabilities and capacities. Further, it is increasing its offerings in the CHG
segment through an established global network. Accordingly, we expect its PAT
to scale up to INR7b by FY26 from INR560m in FY24. Reiterate BUY.

24 October 2024 3
 Piramal Pharma

Story in charts
Exhibit 1: Expect 18% sales CAGR in CDMO over FY25-27 Exhibit 2: Expect 13% sales CAGR in CHG over FY25-27

CDMO sales (INRb) Complex Hospital generics sales (INRb)

25 28 32 36 40 40 47 54 64 76 14 17 19 17 20 23 25 27 30 34

FY18

FY19

FY20

FY21

FY22

FY23

FY24

FY25E

FY26E

FY27E
FY18

FY19

FY20

FY21

FY22

FY23

FY24

FY25E

FY26E

Source: MOFSL, CompanyFY27E Source: MOFSL, Company

Exhibit 3: Expect 13% sales CAGR in ICH over FY25-27 Exhibit 4: Expect 16% CAGR in total sales over FY25-27

ICH (INRb) Total sales (INRb)

3 3 4 5 7 9 10 11 12 14 43 48 54 58 67 72 82 92 107 124
FY18

FY19

FY20

FY21

FY22

FY23

FY24

FY25E

FY26E

FY27E
FY18

FY19

FY20

FY21

FY22

FY23

FY24

FY25E

FY26E

FY27E

Source: MOFSL, Company Source: MOFSL, Company

24 October 2024 4
 Piramal Pharma

Financials and valuations

Consolidated - Income Statement (INR m)
Y/E March FY22 FY23 FY24 FY25E FY26E FY27E
Total Income from Operations 65,591 70,816 81,712 91,858 1,06,528 1,23,949
Change (%) NA 8.0 15.4 12.4 16.0 16.4
EBITDA 9,497 7,286 11,963 14,291 19,012 23,463
Margin (%) 14.5 10.3 14.6 15.6 17.8 18.9
Depreciation 5,862 6,767 7,406 7,554 7,932 8,328
EBIT 3,635 520 4,557 6,737 11,080 15,134
Int. and Finance Charges 1,983 3,442 4,485 3,920 3,367 2,890
Other Income 2,758 2,251 1,754 2,200 2,350 2,210
Share of net profit of associates 590 543 595 800 840 895
PBT bef. EO Exp. 5,001 -128 2,421 5,817 10,903 15,349
EO Items 151 1,074 633 0 0 0
PBT after EO Exp. 4,850 -1,202 1,788 5,817 10,903 15,349
Total Tax 1,090 663 1,615 2,618 4,034 5,372
Tax Rate (%) 22.5 -55.2 90.3 45.0 37.0 35.0
Minority Interest 0 0 0 0 0 0
Reported PAT 3,760 -1,865 173 3,199 6,869 9,977
Adjusted PAT 3,879 -798 560 3,199 6,869 9,977
Change (%) NA NA NA 471.2 114.7 45.2
Margin (%) 5.9 -1.1 0.7 3.5 6.4 8.0

Cons Balance sheet (INR m)

Y/E March FY22 FY23 FY24 FY25E FY26E FY27E
Equity Share Capital 11,859 11,933 13,230 13,230 13,230 13,230
Other equity 55,107 55,802 65,884 69,084 75,953 85,929
Net Worth 66,966 67,735 79,114 82,313 89,182 99,159
Minority Interest 0 0 0 0 0 0
Total Loans 41,283 56,421 47,102 47,102 47,102 47,102
Deferred Tax Liabilities 1,920 2,193 2,292 2,292 2,292 2,292
Capital Employed 1,10,169 1,26,349 1,28,507 1,31,707 1,38,576 1,48,552
Gross Block 36,288 42,652 49,908 51,688 54,787 59,251
Less: Accum. Deprn. 5,862 6,767 7,406 7,554 7,932 8,328
Net Fixed Assets 30,426 35,885 42,503 44,135 46,856 50,923
Goodwill on Consolidation 10,305 11,075 11,226 11,226 11,226 11,226
Intangible assets 33,053 33,382 31,672 31,672 31,672 31,672
Capital WIP 6,732 8,529 5,657 5,657 5,657 5,657
Total Investments 3,123 2,334 2,611 2,611 2,611 2,611
Curr. Assets, Loans&Adv. 36,043 43,078 49,535 51,397 58,295 66,847
Inventory 13,888 16,814 21,759 22,667 26,312 30,243
Account Receivables 17,853 17,993 21,344 23,153 25,684 29,204
Cash and Bank Balance 3,290 3,076 4,826 3,971 4,694 5,794
Loans and Advances 1,013 5,195 1,606 1,606 1,606 1,606
Curr. Liability & Prov. 13,172 13,600 19,501 19,796 22,546 25,188
Account Payables 10,264 11,927 15,384 15,679 18,429 21,071
Other Current Liabilities 2,445 1,074 3,358 3,358 3,358 3,358
Provisions 464 599 759 759 759 759
Net Current Assets 22,871 29,478 30,034 31,601 35,749 41,659
Deferred Tax assets 2,973 3,493 3,865 3,865 3,865 3,865
Misc Expenditure 687 2,172 940 940 940 940
Appl. of Funds 1,10,169 1,26,349 1,28,507 1,31,707 1,38,576 1,48,552
E: MOFSL Estimates

24 October 2024 5
 Piramal Pharma

Financials and valuations

Ratios
Y/E March FY22 FY23 FY24 FY25E FY26E FY27E
Basic (INR)
EPS 2.9 -0.6 0.4 2.4 5.2 7.5
Cash EPS 8.2 5.0 6.7 9.0 12.4 15.3
BV/Share 56.1 56.8 66.3 69.0 74.7 83.1
DPS 0.4 0.5 0.1 0.4 0.8 1.1
Payout (%) 15.6 NA 57.0 17.6 17.6 17.6
Valuation (x)
P/E 87.3 NA 604.6 105.9 49.3 33.9
Cash P/E 31.4 51.2 38.3 28.4 20.6 16.7
P/BV 4.6 4.5 3.9 3.7 3.4 3.1
EV/Sales 5.7 5.5 4.7 4.2 3.6 3.1
EV/EBITDA 39.7 53.8 31.8 26.7 20.0 16.2
Dividend Yield (%) 0.1 0.2 0.0 0.1 0.3 0.4
FCF per share 0.0 0.0 0.0 0.0 0.0 0.0
Return Ratios (%)
RoE 5.8 -1.2 0.8 4.0 8.0 10.6
RoCE 9.2 3.7 0.5 3.8 6.4 8.0
RoIC 5.8 1.4 0.8 6.2 11.1 14.6
Working Capital Ratios
Asset Turnover (x) 0.6 0.6 0.6 0.7 0.8 0.8
Inventory (Days) 77 87 97 90 90 89
Debtor (Days) 99 93 95 92 88 86
Creditor (Days) 57 61 69 62 63 62
Leverage Ratio (x)
Net Debt/Equity 0.5 0.8 0.5 0.5 0.4 0.4

Cons Cash flow statement (INR m)

Y/E March FY22 FY23 FY24 FY25E FY26E FY27E
OP/(Loss) before Tax 4,410 -1,675 1,198 5,817 10,903 15,349
Depreciation 5,862 6,767 7,406 7,554 7,932 8,328
Interest & Finance Charges 1,983 1,983 1,983 1,983 1,983 1,983
Direct Taxes Paid -1,694 -1,694 -1,694 -1,694 -1,694 -1,694
(Inc)/Dec in WC -3,013 -2,710 -2,520 -2,422 -3,425 -4,810
CF from Operations 7,664 4,839 10,046 12,251 14,742 16,385
Others 0 0 0 0 0 0
CF from Operating incl EO 7,664 4,839 10,046 12,251 14,742 16,385
(Inc)/Dec in FA -8,571 -9,451 -7,104 -9,186 -10,653 -12,395
Free Cash Flow -907 -4,612 2,941 3,066 4,089 3,990
(Pur)/Sale of Investments -485 -3,751 2,724 0 0 0
Investment in Associate -7,907 0 0 0 0 0
Others -1,158 -186 40 0 0 0
CF from Investments -18,121 -13,388 -4,340 -9,186 -10,653 -12,395
Issue of Shares 0 0 10,359 0 0 0
Inc/(Dec) in Debt 9,830 11,558 -9,965 0 0 0
Interest Paid -1,388 -2,710 -4,618 -3,920 -3,367 -2,890
Dividend Paid -500 -670 0 0 0 0
CF from Fin. Activity 7,942 8,178 -4,224 -3,920 -3,367 -2,890
Inc/Dec of Cash -2,515 -371 1,482 -854 722 1,100
Opening Balance 2,620 3,290 3,076 4,825 3,971 4,693
Closing Balance 105 2,919 4,557 3,971 4,693 5,793
Unrealized loss / (gain) on forex 747 52 178 0 0 0
Term Deposit with Banks 2,438 105 90
Total Cash & Cash Eq 3,290 3,076 4,825 3,971 4,693 5,793

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

24 October 2024 6
 Piramal Pharma

Explanation of Investment Rating

Investment Rating Expected return (over 12-month)
BUY >=15%
SELL < - 10%
NEUTRAL > - 10 % to 15%
UNDER REVIEW Rating may undergo a change
NOT RATED We have forward looking estimates for the stock but we refrain from assigning recommendation

*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30 days take
appropriate measures to make the recommendation consistent with the investment rating legend.

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Disclosure of Interest Statement Piramal Pharma

Analyst ownership of the stock No
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This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures
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For U.S.
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under applicable state laws in the United States. Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by MOFSL, including the products and

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 Piramal Pharma

services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act
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The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer,
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The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to
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that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make
their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment
by any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in
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be suitable for all investors. Certain transactions -including those involving futures, options, another derivative products as well as non-investment grade securities - involve substantial risk and are not
suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures
of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject
to change without any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its
associates, their directors and the employees may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document.
They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as
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Investment in securities market are subject to market risks. Read all the related documents carefully before investing.

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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 - 71934200 / 71934263; www.motilaloswal.com.
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Registration details of group entities.: Motilal Oswal Financial Services Ltd. (MOFSL): INZ000158836 (BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412 . AMFI:
ARN .: 146822. IRDA Corporate Agent – CA0579. Motilal Oswal Financial Services Ltd. is a distributor of Mutual Funds, PMS, Fixed Deposit, Insurance, Bond, NCDs and IPO products.

Customer having any query/feedback/ clarification may write to [email protected]. In case of grievances for any of the services rendered by Motilal Oswal Financial Services Limited (MOFSL) write to
[email protected], for DP to [email protected].

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