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Growth Deferred, Value Intact

Piramal Pharma reported a mixed performance in Q4, with Revenue, EBITDA, and PAT growing by 8%/6%/23% YoY, respectively. While revenue and EBITDA were in line with expectations, PAT missed estimates due to significantly higher tax outgo. The topline growth was primarily driven by the CDMO and ICH segments, which grew by 8% and 15%, respectively. The CDMO segment benefited from select commercial orders from an innovator pharma client. However, management has indicated that these orders may taper off meaningfully in FY26, with a potential rebound expected in FY27. As a result, the company has issued conservative guidance for FY26—mid-single-digit revenue growth and a slight decline in EBITDA margins. A recovery to mid-to-high teen revenue growth and 19–20% EBITDA margins is anticipated in FY27. Excluding the impact of these commercial orders, the base business is expected to grow in the mid-teens, with margin improvement led by the CHG and ICH segments in FY26. Despite a soft outlook, we maintain a BUY rating on the stock. We believe the current expectations are already factored in following the recent correction. Moreover, with a growing pipeline of 31 Phase 3 projects and potential scale-up in 18 existing commercial programs, the recent dip presents a compelling entry opportunity—especially as the stock trades at a ~60% discount to Divi’s. We revise our target price to INR 295, implying an upside of 41% from current levels.

* CDMO (65% of rev.): The CDMO business delivered a moderate 8% YoY growth on a large base in Q4. On an annual basis, the strong growth of 15% YoY was driven by innovation work. Differentiated offerings within the CDMO segment now contributes 49% to total CDMO revenue in FY25, up from 37% in FY23. This has been enabled by consistent investment in different capabilities such as ADC, HPAPI, peptide, sterile fill/finish, hormones, and on-patent API development. On-patent manufacturing generated USD 179mn in FY25, up from USD 52mn in FY23. CDMO business is typically sticky in nature, with multi-year contracts. Though the recovery in biotech funding is lumpy at the time being, the management believes Piramal is on track to deliver USD 1.2bn CDMO business with 25% EBITDA margins by FY30.

* US on-shoring: The company is currently awaiting more clarity on Trump2.0 policies before committing to on-shoring operations. However, there has been an uptake in bookings for the US onshore capacity. Piramal also announced a USD 90mn investment at two US sites – Lexington and Riverview. The company has a lot of customers with products in development stage, Pirmal has decided to add commercial-scale sterile injectable capabilities in Lexington to meet the incremental demand when these products reach commercial stage. Expansion in Riverview is for bioconjugates’ development and commercial-scale capabilities; most of the ongoing capacity expansion has already been booked out. The incremental capacity at Riverview will be ready by FY26.

* Complex Hospital Generics (25% of rev.): The segment was impacted by price erosion and hence managed a moderate 6% YoY growth in Q4. Though, the company maintained its leadership in key products in the US market and has been witnessing traction in the non-US markets. Piramal was facing capacity constraints in supplying anaesthesia to the RoW markets. For the same, it has added a new manufacturing line in the Digwal facility. The growth ahead is expected from increased utilization of this new capacity towards serving the non-US markets.

* ICH (10% of rev.): 20% growth in power brands, along with new launches, enabled ICH segment to deliver a stong 15% YoY growth in Q4. The company also increased its penetration in tier-2 towns. On the negative side, I-Pill (a key power brand) saw regulator mandated price cuts during the year.

* Financial highlights: - Revenue grew 8%YoY to INR 27.5bn (3.7% miss)

* The full year GM of 65% is the new normal going forward - EBITDA came in at INR 5.6bn, up 6%YoY (in line)

* EBITDA margin stood at 20.4% (-40bps YoY & 62bps beat). CHG and ICH margins are growing in line with FY30 aspiration. The margin impact is from CDMO business. But it will go back to 19 to 20%.

* PAT was at INR 1.5bn, up 23.5% YoY (miss due to higher taxes)

* Overall, the operations stood levered at 2.7x Debt to EBITDA. Debt is further likely to go up in FY26. However, the Debt to EBITDA ratio will come below 1.5x by FY30

* Capex: USD 120-140mn in F26. The USD 90mn for 2 facilities in US is included in this - Asset turnover for brownfield expansion will be around 1.5-2x

* Tax rate: Depends on mix of geographies. More revenue from overseas facilities will lower the tax rate as the company can use the carry forwarded losses. By FY30, tax rate will move towards 24-25%

* Our view and valuation: Incorporating these developments, we have revised our revenue / EBITDA growth estimates for FY26 and FY27 to 5%/ -4% and 25%/63%, respectively. Despite a soft outlook, we maintain a BUY rating on the stock. We believe the current expectations are already factored in following the recent correction. Moreover, with a growing pipeline of 31 Phase 3 projects and potential scale-up in 18 existing commercial programs, the recent dip presents a compelling entry opportunity—especially as the stock trades at a ~60% discount to Divi’s. Using SOTP methodology, we arrive at a target price of INR 295, implying an upside of 41% from current levels.

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SEBI Registration Number is INM000010361