Reduce Piramal Pharma Ltd For Target Rs.200 by Choice Institutional Equities Ltd
Improving Growth Outlook Offset by Profitability Headwinds
PIRPHARM's EBITDA margin and profitability remained under pressure, primarily due to higher operating expenses related to capacity expansion and elevated effective tax rates resulting from underutilisation of overseas facilities. Although the biopharma funding environment has improved, this is yet to translate into a stronger order book, which remains a key monitorable. We expect EBITDA margin of 13% in FY27E. We forecast a Revenue/EBITDA CAGR of 13%/31% over FY26–29E, broadly in line with the management's expectation that EBITDA will grow faster than revenue. We value the stock at 24x FY28E EV/EBITDA, as we believe PAT understates the company's underlying earnings potential due to continued elevated effective tax rates. Accordingly, we revise our target price to INR 200 and maintain our ‘REDUCE’ rating. The implied PEG ratio of 1.2x further supports our valuation.
Weak Profitability Trend Continues
* Revenue increased 17.4% YoY / declined 17.5% QoQ to INR 22,699 Mn (vs. CIE estimate: INR 23,276 Mn).
* EBITDA was up 82.9% YoY / de-grew 57.6% QoQ to INR 1,952 Mn; margin expanded 308 bps YoY / contracted 814 bps QoQ to 8.6% (vs. CIE estimate: 13.0%).
* The company reported a loss of INR 694 Mn in this quarter (vs. loss of INR 817 Mn in Q1FY26).
Near-term Growth Remains Subdued across Key Businesses
While PIRPHARM delivered a healthy YoY revenue growth, it declined sequentially due to seasonal factors. We project FY27E to remain relatively subdued and forecast a revenue CAGR of 13% in the next three years.
* CDMO: Improving biopharma funding and a higher volume of requests for proposals (RFPs) should support a recovery H2FY27E onwards. However, we expect growth to remain in high single digits until these RFPs translate into firm orders. We will continue to monitor the order book for signs of sustained improvement.
* CHG: The company continues to maintain its leadership in Sevoflurane, with a 48% market share. We expect continued leadership in inhalation anaesthesia and other complex products, alongside incremental contribution from Kenalog, to support growth. We forecast low-teens growth in FY27E.
? ICH: The business continues to perform well, supported by the growth of power brands, which account for 53% of segment revenue, and the ecommerce channel, contributing 28% of segment revenue. We expect this momentum to continue and forecast high-teens growth in FY27E.
Operational Improvement Tempered by Tax Headwinds
With a recovery in CDMO volumes, we expect EBITDA margin to improve to 13% in FY27E. However, overall profitability is estimated to remain under pressure due to elevated effective tax rates, driven by a higher share of profits from tax-paying jurisdictions and further exacerbated by sub-scale profitability at overseas operations.
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