PIRAMAL PHARMA

A NEED TO RECOVER

Piramal Pharma Limited (PPL) is a global pharmaceutical, health and wellness company headquartered in Mumbai. PPL operates in over 100 countries, focusing on innovative healthcare solutions and integrated manufacturing capabilities. It was incorporated in 2020 as a means of streamlining and consolidating the pharmaceutical operations of the Piramal Group. Before its incorporation, PPL’s business segments operated under the umbrella of Piramal Enterprises Ltd.

PPL operates in three main business segments:
1. Contract development and manufacturing organisation (CDMO): 57 per cent of the total revenue.
2. Complex hospital generics (CHG): 30 per cent of the total revenue.
3. India consumer healthcare (ICH): 13 per cent of the total revenue.

Contract Development and Manufacturing Organisation (CDMO)
• It offers end-to-end development and manufacturing solutions across the drug lifecycle. Serves customers through a globally integrated network of facilities in North America, Europe and Asia. • Derives 84 per cent of its revenue from regulated markets, particularly the U.S., Europe and Japan.
• Provides a comprehensive range of services, including drug discovery solutions, process and pharmaceutical development services, clinical trial supplies, commercial supply of APIs, and finished dosage forms.
• Offers specialised services, such as the development and manufacture of highly potent APIs, antibody-drug conjugates (ADCs), sterile fill or finish and peptide products.
• Benefits from having facilities located in both the east and the west, providing cost-efficient manufacturing infrastructure in India and proximity to customers and markets in regulated regions.
• Has a deep development pipeline of over 150 projects across multiple phases.
• Generates 50 per cent of its revenue from innovationrelated work.
• Has a diversified customer base, including big pharmaceuticals, emerging biopharmaceuticals and generics companies.
• Aims to achieve USD 1.2 billion in revenue with 25 per cent EBITDA margin by FY 2030.

Complex Hospital Generics (CHG)
• Focuses on critical care, offering products in the following categories: a) Inhalation anaesthesia, b) Injectable anaesthesia and pain management, c) Intrathecal therapy, and d) Other generic and specialty products
• Holds a global market leadership position in inhalation anaesthesia with a strong market share in the U.S. for many of its products.
• Sells products in over 100 countries, reaching more than 6,000 hospitals, surgical centres and veterinary clinics.
• Has direct sales presence in the U.S., UK, Germany, France and Italy, and partners with distributors and local collaborators to enable global product distribution.
• Is increasingly focusing on limited competition specialty products, which will help diversify the product basket and increase profit margins.
• Aims to achieve USD 600 million in revenue with more than 25 per cent EBITDA margin by FY 2030.

India Consumer Healthcare (ICH)
• Sells over-the-counter consumer and wellness products in India.
• Has a portfolio of over 150 products and SKUs across various categories, including analgesics, skin care, vitamin and mineral supplements, and digestives.
• Is present across 29 states in India.
• Has a strong presence in the e-commerce market, with online sales contributing 20 per cent to ICH revenue.
• Is transitioning from a pharmacy-dominant to an omnichannel consumer healthcare company, expanding its presence in smaller towns and modern trade outlets.
• Aims to achieve USD 200 million in revenue with a double-digit EBITDA margin by FY 2030.

Manufacturing Plants
PPL operates 17 manufacturing and development facilities across North America, Europe and India. In North America, its key sites include Aurora, Canada (linkers for antibody-drug conjugates), Riverview, U.S. (high-potency API development), Sellersville, U.S. (raw materials for inhalation anaesthesia), and Lexington, U.S. (sterile injectables). In the UK and Europe, the plant at Grangemouth, UK specialises in antibody-drug conjugates while the one at Morpeth, UK focuses on oral solid doses, liquids and hormone drugs.

In India, its major facilities include Ahmedabad (sterile injectables), Turbhe (peptide active pharmaceutical ingredients), Pithampur (AbbVie joint venture, oral solid dosage development, manufacturing and packaging), Digwal (Sevoflurane and Isoflurane production), Hyderabad (vaccines and biologics through Yapan Bio), Ennore (intermediates) and Dahej (key starting materials for anaesthesia products, with expansion plans). Other locations include Mahad and Rabale.

Financials
FY24
The company reported consolidated revenues of ₹8,171.2 crore for FY24, marking a robust 15 per cent year-on-year growth driven by strong performance in the CDMO and ICH segments. Approximately 70 per cent of the entire revenues were generated from the regulated markets, including North America, Europe and Japan, while India contributed 20 per cent. The operating profit margin (OPM) improved significantly to 14.7 per cent, up from 8.9 per cent in FY23, supported by cost optimisation measures, though the gains were partially offset by pricing pressure in the CHG segment. The company narrowed its losses, with profit after tax (PAT) of ₹-41.7 crore compared to a larger loss of ₹-240.8 crore in FY23, reflecting notable progress.

Q2FY25
The company reported consolidated revenue from operations of Rs2,242 crore for Q2FY25, reflecting a 17 per cent year-onyear growth, inclusive of foreign exchange gains or losses. The revenue was primarily driven by the CDMO segment, contributing 59 per cent of the total with ₹1,324 crore, marking a 24 per cent increase. The CHG segment accounted for 28.7 per cent at ₹643 crore, up 9 nine, while the ICH segment contributed 12.3 per cent with ₹277 crore, growing 8 per cent year-on-year. The EBITDA rose to ₹403 crore, a 28 per cent increase, with the EBITDA margin improving by approximately 150 basis points to 18 per cent, supported by operating leverage, cost optimisation measures and a favourable revenue mix.

The company recorded a share of net profit from associates of ₹17 crore, down 10 per cent year-on-year, while its PAT reached ₹23 crore, a significant recovery from the loss of ₹5 crore in Q2FY24. The key performance drivers included robust growth in the CDMO segment, driven by innovation-focused projects and on-patent commercial revenues, steady volume growth in inhalation anaesthesia products within the CHG segment in the U.S. and emerging markets, and strong double-digit growth in power brands within the ICH segment, aided by trade, media efforts, and over 30 per cent growth in e-commerce sales, which now account for 20 per cent of the ICH revenues.

Positive Developments
Notable developments included the announcement of an USD 80 million expansion at the Lexington facility to enhance sterile fill-finish capabilities amid rising demand and the release of the FY24 Sustainability Report, highlighting progress in sustainable operations and alignment with global frameworks like GRI, SASSB and UNGC.

Parent Company and Subsidiaries
1. Parent Company: Piramal Enterprises Ltd.
2. Subsidiaries: PPL has a total of 21 wholly owned subsidiaries. The list is as follows:

Associate Companies
PPL also has two associate companies:
1. AbbVie Therapeutics India Private Limited: This is a joint venture with AbbVie that has emerged as a market leader in the ophthalmology therapy area in India. PPL has a 49 per cent stake.
2. Yapan Bio Private Limited: It operates in the biologics and bio-therapeutics as well as the vaccine segments. PPL has a 33.33 per cent stake.

Valuation
The company appears significantly overvalued compared to the industry standards, with a PE of 585 against the industry average of 32. Negative earnings growth makes the PEG ratio calculation impossible, further emphasising valuation concerns. Its EV | EBITDA of 24.2 times indicates high valuation. Weak profitability is evident in its low ROCE (5.49 per cent) and ROE (0.22 per cent), while a debt-to-equity ratio of 0.61 reflects moderate leverage. These metrics highlight challenges in growth, profitability and valuation, raising caution for potential investors.

FII Holdings Foreign institutional investor (FII) holdings in Piramal Pharma Limited have shown a consistent decline from 41.29 per cent in December 2022 to 31.73 per cent by September 2024. This reduction highlights a significant shift in FII confidence over time. While domestic institutions have absorbed the supply from FIIs, the continued FII selling could signal caution, especially given the broader Indian market concerns over persistent FII outflows. Such selling pressure introduces potential risks to the investors.

Conclusion
Based on PPL’s stretched valuations (PE of 585 times versus the industry average of 32 times), persistent losses, weak profitability metrics (ROCE: 5.49 per cent, ROE: 0.22 per cent), high debt levels and declining FII holdings (31.73 per cent), we find the stock’s financial performance weak. Although operational improvements and CDMO growth provide some positives, the current valuations remain unjustifiable. Hence, we recommend AVOID.