Piramal Pharma (PPL) has begun the year on a strong note. Robust order book in contract development and manufacturing organisation (CDMO) division, rising FTE demand in discovery, and normalised supply in complex hospital generics (CHG). A comprehensive analysis of recently announced NCE (new chemical entity) contracts provides further reassurance of substantial margin expansion in FY24, primarily driven by the CDMO turnaround. There is a potential upside risk to our estimates from robust demand in CHG products. We reiterate our Buy rating on PPL, with a target price of Rs 115, reflecting our confidence in its growth prospects.
Good order book to start but seasonality key to watchout for: PPL in their Q4FY23 earnings call disclosed that they are starting the year with a good order flow in their CDMO business. New orders typically take 4-5 months to execute and deliver, thus the impact from these new orders will be visible from 2HFY24. In our model, FY24 Ebitda is split between first half and second half at 35:65 due to seasonality.
Complex hospital Generics may continue to surprise: Inhalation Anesthesia has limited players in the segment due to complexity of handling Fluorinated gas and dedicated plant requirement. Contracts are typically multi-year and provides high sales visibility. Last year, PPL lost some revenues as one of their key their CMO partner could not scale up as expected, however Q4FY23 was normalised and thus we saw a 28% y-o-y growth in the division. We have factored in growth of 10.4% in the complex hospital generics but believe that there is scope of upward revision to our numbers.
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Deep dive into recently announced NCE contracts gives further confidence on CDMO turnaround: A couple of PPL’s customers made a release that they have signed a supply agreement with PPL. TheracosBio announced a partnership for a new SGLT2 inhibitor product Bexagliflozin, which has received US FDA approval for use in both humans and cats. TheracosBio’s partner Elanco Animal Health is the first company to receive US FDA approval for T2D in cats. Plus Therapeutics’ (PT) product radiotherapeutic, rhenium (186Re) Obisbemeda is in phase1 and phase2 trials for various indications and has signed 5 year agreement with PPL for supply of Liposome intermediate. Bexagliflozin is the fifth SGLT2 product to be approved and the commercial scale up for the project could start from this year while the PT project is several years away to be very impactful.
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PPL has hired 650 employees in the past few quarters and most of them are for the new capacities that have come online in Riverview, Turbhe, Aurora and Ahmedabad. New capacities in Grangemouth will come online from 2Q/3Q onwards. PPL management believes that the new employees can add $10m of sales.