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Piramal Pharma’s reported performance in Q1FY25 was above our estimates driven by healthy YoY growth across the segments. Revenue stood at INR 19,511mn (+11.6% YoY and -23.6% QoQ) majorly driven by growth in the CDMO business which saw a growth of 17.7% YoY, due to sustained order inflow. EBITDA at INR 2,045mn (+54.5% YoY and -61.4% QoQ) and margin at 10.5% (+291bps YoY and -1028bps QoQ), due to better product mix, ongoing cost optimization measures, and better product procurement. The company reported adj. PAT of INR (886)mn (+10.1% YoY and 177.2% QoQ). The company continues with the guidance of achieving early teen growth on revenue and absolute EBITDA front in FY25 and maintaining the capex at the current level.

* CDMO business: During the quarter, CDMO business contributed INR 10,570mn (54.1% share of revenue), which saw a growth of 17.7%YoY and de-growth of 35.9% QoQ, due to continued growth momentum in the new order inflow, especially for commercial manufacturing of on-patent molecules. Piramal has also increased the contribution of innovation-related work to about 50% of the CDMO revenues compared to 35% five years back. 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.

* CHG & ICH Business: CHG business contributed INR 6,310mn (32.3% share), with a growth of 2.3% YoY and a decline of 5.4% QoQ. The decline was due to US price erosion, especially on the sevoflurane, which offset the volume growth during the quarter. 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’s business segment saw a growth of 10.5% YoY and 10.9% QoQ to INR 2,640mn, which was driven by power brands and strong traction in the e-commerce channel (37% YoY). The company launched 7 new products and 10 new SKUs in the quarter. The management expects consumer products to deliver better EBITDA margins.

* Margin profile: During the quarter, Gross margin came at 65.4% (+127bps YoY/+518bps QoQ), due to better product mix and product procurement. EBITDA margin came at 10.5% (+291bps YoY/-1028bps QoQ), benefitting from the cost optimization measures. The margins are lower in every Q1, but will progressively improve in the coming quarters. The company expects absolute EBITDA for FY25 to grow in the early teens, and achieve a 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 185 and recommend a BUY rating.

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