Motilal Oswal has issued a BUY call on Piramal Pharma with a revised target price of Rs 310, indicating a 21% upside from its current market price of Rs 256. This recommendation stems from strong operational performance, notably in the CDMO (Contract Development and Manufacturing Organization) segment, which has driven better-than-expected growth. The company’s FY25 guidance remains firm despite ongoing supply chain issues in specific areas. The report values Piramal Pharma through a sum-of-the-parts (SOTP) approach, with optimism on continued growth in CDMO, complex generics, and consumer products segments.

Investment Rationale: Target Price and Valuation

Target Price (TP): Rs 310 Motilal Oswal has assigned a target price of Rs 310, valuing the company through an SOTP approach with distinct multipliers for each business segment: 20x EV/EBITDA for CDMO, 12x for Complex Hospital Generics (CHG), and 13x for India Consumer Products (ICP). This price target reflects Piramal Pharma’s strategic initiatives and growth potential across all segments.
Valuation Basis:
The SOTP approach highlights the anticipated growth in each segment, which contributes uniquely to the company’s valuation. The increasing demand in the CDMO and CHG sectors is central to these valuations, alongside consistent growth in consumer products.

Operational Performance Highlights

**CDMO Segment – Growth Driver:** - The CDMO segment, accounting for 59% of revenue, recorded 24% YoY growth, driven by rising demand for specialized manufacturing solutions. - The company is expanding capacity at its Lexington facility, with an $80 million investment projected to double sterile fill-finish capacity by FY27.
Complex Hospital Generics (CHG) Segment:

CHG, contributing 29% to total revenue, saw a 9% YoY growth.
Future plans include launching differentiated generics and 505(b)(2) products across US and EU markets, projected to stimulate medium-term growth.
India Consumer Products (ICP) Segment:

The ICP division, making up 12% of total revenue, grew by 8% YoY.
Strategic efforts to enhance distribution and expand rural reach are underway, aiming for a more omnichannel consumer base.

Financial Performance and Key Metrics

Revenue Growth: 17% YoY Piramal Pharma achieved a total revenue of Rs 22.4 billion for Q2 FY25, exceeding Motilal Oswal’s estimates. The revenue growth was driven mainly by the CDMO segment, underscoring its dominant role in the company’s financial landscape.
Gross Margin: Contracted to 64.5%
Despite a contraction in gross margin due to shifts in product mix, the company demonstrated resilience in managing costs, resulting in an EBITDA margin expansion to 15.2%.

Profitability: Adjusted profit surged 4.5x YoY to Rs 226 million
Enhanced profitability resulted from stronger EBITDA and increased other income. The report anticipates a sustained growth trajectory, with FY26 PAT forecasted to rise to Rs 7 billion from Rs 560 million in FY24.

Segment-Specific Insights and Expectations

CDMO Segment: A Key Growth Pillar

Piramal Pharma’s CDMO segment remains its largest revenue contributor, fueled by heightened demand for on-patent molecule manufacturing.
The division is expected to register an 18% CAGR over FY25–27, achieving a projected revenue of Rs 75.7 billion by FY27.
The Biosecure Act’s implications and shifting global sourcing away from China are anticipated to generate sustainable long-term growth, making CDMO a high-potential area.
Complex Hospital Generics (CHG): Diversifying with Differentiated Offerings

CHG sales, projected to grow at a 13% CAGR to Rs 34 billion by FY27, will benefit from strategic product launches in regulated markets, enhancing its global footprint.
Key drivers include an expanding pipeline of complex and differentiated generics tailored for US and EU markets, further supported by planned facility upgrades in Dahej and Digwal.
India Consumer Products (ICP): Leveraging Brand Power for Growth

With a projected 13% CAGR, the ICP segment is set to reach Rs 14 billion by FY27.
Increased advertising, product diversification, and a shift to an omnichannel distribution strategy are central to this growth, particularly as the company aims to expand its rural presence.

Strategic Initiatives and Future Growth Drivers

Capacity Expansion and Capital Investment:
To support its ambitious growth objectives, Piramal Pharma is enhancing its Lexington facility’s capacity with an $80 million investment, expected to be commercialized by FY27. This expansion aligns with the anticipated increase in demand for sterile fill-finish products in the CDMO sector.

Pipeline Expansion in Complex Hospital Generics:
The CHG division is reinforcing its product offerings with 24 new pipeline products, targeting an addressable market valued at over $2 billion. This approach, combined with a focus on emerging market growth, positions the company well in competitive international markets.

Challenges and Revised Estimates

Supply Chain and Financial Leverage Considerations
The report slightly revises FY25–27 earnings estimates to account for higher-than-anticipated financial leverage and ongoing supply chain disruptions in the injectable pain management area. Growth expectations are recalibrated with a 6% reduction in FY25 and more modest adjustments for FY26 and FY27.

Market Outlook and Industry Dynamics
The rising inquiries and site visits within the CDMO industry in India reflect a positive shift, supported by global realignment in supply chain strategies. This trend offers Piramal Pharma a competitive advantage due to its established infrastructure and strategic partnerships across the CDMO landscape.

Conclusion: A Strong BUY with Medium to Long-Term Upside

Motilal Oswal’s recommendation reinforces Piramal Pharma’s growth potential, particularly in the CDMO sector, while highlighting opportunities in complex generics and consumer products. The company’s strategic investments, combined with a diversified product portfolio, create a compelling case for investors seeking exposure in healthcare and pharmaceutical services. With a target price of Rs 310, investors can expect substantial gains as Piramal Pharma continues to build on its differentiated capabilities and expand its market presence.