Piramal Pharma’s CDMO recovery and operating leverage drive 1QFY27 earnings beat

Investment View and Valuation

Motilal Oswal Financial Services retained its BUY recommendation on Piramal Pharma after a better-than-expected 1QFY27 operating performance. Broad-based growth across CDMO, Complex Hospital Generics and India Consumer Healthcare, together with improving operating leverage, supports the broker’s view that the company is returning to profitability. However, conversion of CDMO requests for proposals into commercial business remains important for a stronger outlook.

The broker raised its FY27 and FY28 estimates by 6% and 4%, respectively, reflecting higher other income, Sevoflurane traction, more profitable India Consumer Healthcare growth and increased Riverview payload-linker business. It forecasts adjusted profit after tax of Rs 1.1 billion in FY27 and Rs 3.0 billion in FY28, following losses in FY26.

The Rs 230 target price is based on a sum-of-the-parts valuation using 12-month forward EV/EBITDA multiples of 23 times for CDMO, 11 times for Complex Hospital Generics and 13 times for India Consumer Healthcare.

1QFY27 Financial Performance

Piramal Pharma reported consolidated revenue of Rs 22.7 billion in 1QFY27, up 17.4% year on year and 7% above Motilal Oswal’s estimate of Rs 21.3 billion. EBITDA increased 82.9% year on year to Rs 2.0 billion, exceeding the broker’s Rs 1.4 billion estimate by 41%.

EBITDA margin expanded by 310 basis points year on year to 8.6%, despite a 160-basis-point contraction in gross margin to 61.6%. Lower employee costs, down 220 basis points as a proportion of sales, and lower other expenses, down 250 basis points, drove the operating leverage. The reported net loss was narrower than estimated, aided by higher other income.

Segment Performance and Growth Drivers

All operating segments grew in 1QFY27, with CDMO delivering a recovery after four quarters of year-on-year decline.

CDMO

CDMO revenue grew 19% year on year to Rs 11.9 billion, reflecting execution at Indian and overseas sites and marking a revival after four quarters of year-on-year decline. Management attributed the strong start partly to a higher opening order book, retained its CDMO guidance and expects the business to remain weighted towards the second half of FY27. Guidance may be revisited after 2QFY27 results.

The business was geographically balanced, with about 48% of CDMO revenue generated outside India. The key uncertainty is that customer decision-making timelines for converting requests for proposals into commercial business remain prolonged.

Complex Hospital Generics

Complex Hospital Generics revenue increased 17% year on year to Rs 7.4 billion, supported by higher offtake in markets outside the United States. Management retained its segment guidance while acknowledging continuing competition from Chinese players. Actions taken over the past year are beginning to yield results, especially in Rest of World markets. Motilal Oswal also highlighted encouraging Sevoflurane traction beyond the United States as an earnings driver.

India Consumer Healthcare

India Consumer Healthcare revenue grew 15% year on year to Rs 3.5 billion. Power brands grew 23% and accounted for 53% of Consumer Healthcare sales. E-commerce sales rose 40% and contributed 28% of segment sales.

The company launched i-choose as a master brand for its women’s intimate-care portfolio. It continued to spend around 12% of sales on media and trade promotion while expanding distribution. Premiumisation, selective price increases and cost optimisation helped offset raw-material inflation. Motilal Oswal expects Consumer Healthcare revenue to grow at a 12% compound annual rate over FY26 to FY28.

Management Guidance and Capacity Expansion

Management reiterated FY27 guidance for early-to-mid-teens year-on-year revenue growth and capital expenditure of US dollar 120 million to US dollar 135 million. The company incurred about US dollar 21 million of capex in 1QFY27.

• The Riverview payload-linker expansion is commercially available and customer projects are underway. Management sees potential for single- to low-double-digit US dollar million revenue over time.
• The Lexington expansion remains on track for completion by end-CY27.

Key Risks

• Delayed conversion of CDMO requests for proposals into commercial business.
• Chinese competition in hospital generics.
• Raw-material inflation.