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Piramal Pharma(PIRPHARM) reported performance in Q4FY24 was below our estimate due to a higher tax rate, whereas the revenue was in line with expectations. Revenue stood at INR 25,524mn (+18% YoY and +30% QoQ) majorly driven by the CDMO business which saw a growth of 28.3% YoY and 45.4% QoQ, due to continued growth momentum in new orders, especially for commercial manufacturing of on-patent molecules and CHG business which saw good volume growth in the Inhalation Anesthesia portfolio in the USmarket. EBITDA at INR 5,299mn (+50.9% YoY and +97.5% QoQ) and margin at 20.8% (+453bps YoY and +706bps QoQ), as all the three business segments delivered higher EBITDA margins through operating leverage, cost optimization, and operational excellence initiatives. The company reported adj. PAT of INR 1,149mn (+129.2% YoY and +326% QoQ). The company has been guided to achieve early teen growth on revenue and absolute EBITDA front in FY25 and maintain the capex at the current level.

* CDMO business: In Q4FY24, CDMO business contributed INR 16,490mn (64.6% share of revenue), which saw a growth of 28.3%YoY and 45.4% QoQ, due to continued growth momentum in new orders, especially for commercial manufacturing of on-patent molecules. Piramal witnessed an increase in the innovation-related work which saw an increase from 45% in FY23 to 50% in FY24. The business saw an increase in profitability which was driven by growth in the revenue, favorable revenue mix, normalization of raw material cost, and cost optimization initiatives. The key challenge in this business segment is the biotech funding environment impacting early-stage orders in the discovery and development of drugs. The order inflow will drive the growth momentum in the CDMO business, and it will grow better than the CHG business segment.

* CHG & ICH Business: CHG business contributed INR 6,670mn (26.1% share), with a decline of 5% YoY and growth of 15.8% QoQ. The growth was driven by good volume growth in the Inhalation Anesthesia portfolio in the US market, but this was partly offset by lower market prices because of an increase in the competition. CHG business will be incurring non-recurring expenses in FY25 on regulatory product transitions and business continuity to ensure the stability of supplies in the future. ICH business segment saw a growth of 15.5% YoY and de-growth of 5.6% QoQ to INR 2,380mn, the growth was driven by new product launches and growth in the power brands. The management expects consumer products to deliver better EBITDA margins. ? Margin profile: During the quarter, Gross margin came at 60.3% (-93bpsYoY/-527bps QoQ), impacted due to higher inventory in the quarter. EBITDA margin came at 20.8% (+453bps YoY/+706bps QoQ), improved due to lower operating expenses as the promotional expenses in the ICG business were lower. The company expects absolute EBITDA for FY25 to grow in the early teens, and achieve 24-25% margin level in the next 3-5 years.

* Outlook & Valuation: We remain optimistic about Piramal Pharma due to its growth momentum in the CDMO business segment which is expected to continue, further optimize Net Debt to EBITDA ratio, India consumer product to deliver a better EBITDA margin, early teen growth in the revenue and absolute EBITDA front, and commercialization of additional inhalation anesthesia capabilities to capture the RoW market. We value the stock based on SoTP methodology to arrive at a target price of INR 180 and recommend a BUY rating.

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