In the world of pharmaceuticals, it's not always about the bitter pills. Sometimes, it's about the sweet comebacks too. Enter Piramal Pharma Limited (PPL), a company that has been on quite the roller-coaster ride since its IPO in October 2022.
From being a laggard with a stock price 20% below its debut to showing signs of a promising turnaround, PPL's journey is nothing short of a gripping story.
But what’s made this pharmaceutical player tick? And is it worth keeping an eye on, despite having hit a rough patch?
Piramal Pharma, Who?
Piramal Pharma deals with everything from lifesaving drugs to everyday wet wipes. With a global presence and an end-to-end service model, PPL operates under three main business verticals:
The Stock That Went Nowhere
Now, despite having an all-round presence, why did PPL’s stock get stuck in the doldrums? It’s a tale of headwinds, high costs, and heavy debt.
Between FY21 and FY24, the company faced several challenges:
A slowdown in growth in 90% of the business of PPL - both CDMO and Complex Generics were impacted negatively
Reduced demand for surgical equipment, as COVID-19 took priority everywhere, pushing operative care far behind
Input costs shot up as the Russia-Ukraine war created havoc in global supply chains
Over that period, the company saw a revenue growth of 9% CAGR, but that with a massive decline in profitability.
EBITDA declined at a 6% CAGR, and net profit nosediving from Rs. 800 crore to a mere Rs. 18 crore, during the same period.
The company also took on more debt for inorganic expansion, pushing net debt from Rs. 2,500 crore in FY21 to nearly Rs. 4,000 crore in FY24.
Slowing growth, a hit on margins, net losses and increased debt were a perfect recipe for disaster.
Turning the Tide
Despite the past turbulence, PPL is gearing up for brighter days ahead. Here’s a closer look at the growth potential across its three business segments:
1. CDMO Business - A Prescription for Growth
The prospects for PPL in this business seem bright with strong demand outlook, and consequent operating leverage benefits. The business can see a strong revival given:
PPL remains among India’s top three CDMO players. Its manufacturing facilities, despite having undergone inspections by several international regulatory bodies, including the USFDA, haven’t seen a single Official Action Indicated (OAI)
The patented product portfolio (higher margin segment) has doubled from 9 in FY19 to 18 in FY23, now accounting for over 10% of CDMO revenue
The enhanced focus on higher-margin products and differentiated offerings makes this segment a promising growth driver expected to grow at a 13% CAGR from FY24 to FY27.
2. Critical Generics Business: Strong Pipeline and Market Leadership
PPL’s Complex Generics business is poised for substantial growth, driven by:
Its dominance, with it being the fourth-largest global inhalation anaesthesia company
A portfolio of 40 products, with plans to develop and commercialise over 35 niche products in the near future
Potential to leverage its strong relationships with US Group Purchase Organisations (GPOs) and a network of over 6,000 hospitals,
PPL aims for a 16% revenue CAGR through FY27 in this segment.
3. Consumer Healthcare: Scaling New Heights
PPL’s Consumer Healthcare segment has been fairly resilient to shocks, and can continue exhibiting high growth given:
Strong growth demonstrated even during FY21-24, when other businesses were slowing down
PPL has a strong portfolio, and boasts over a 100 product launches in recent years
It can leverage its distribution network spanning approximately 180,000 chemists and a direct-to-consumer platform, ‘Wellify’
With this, PPL’s division is anticipated to grow at a 20% CAGR through FY27. The kicker being that, currently marketing expenses are into profitability, but as the business scales, operating leverage can drive margin expansion.
Wrapping it Up!
Piramal Pharma’s current valuation might just be the silver lining. Trading at 10x its one-year forward EV/EBITDA, it’s below the industry average of 15x, thanks to recent issues.
However, as recovery appears to be on the horizon, valuations have potential to converge with the industry average.
A rebound in earnings growth, coupled with a valuation re-rating might just work wonders for the stock, and Piramal Pharma might just turn the tide in its favour!
Comments