Piramal Pharma Limited (PPL) is part of the Piramal group of companies. The pharmaceutical product portfolio of the company can be categorized into contract development and manufacturing organizations (CDMO), complex hospital generics (critical care), and consumer healthcare (OTC). The company has a presence in more than 100 countries and has manufacturing plants in India, the UK, and North America. Around 76% of the company’s overall revenue in FY21 came from North America, Europe, and Japan. The entire pharma business was earlier operated under Piramal Enterprises Limited until February 2020. However, in March 2020, the Board of Directors of PEL approved the transfer of the entire pharmaceutical business to its wholly-owned subsidiary, Piramal Pharma Limited. Furthermore, on October 7, 2021, the Board of PEL approved the demerger of PPL into a separate listed entity. PEL owns 80% in PPL and the Carlyle group holds the balance of 20%. Post the demerger, the entire pharmaceuticals business will get vertically demerged from PEL and consolidated under PPL, with the promoters holding a 35% stake, other shareholders holding 45%, and the balance of 20% being held by the Carlyle group.

Detailed Results:
- The company registered a revenue growth of 11% in Q3.
- CDMO business grew by 14% and 12% respectively during Q3 & 9M.
- Complex Hospital Generics grew by 6% during the quarter and 9% for 9M.
- India Consumer Healthcare businesses registered a robust growth of 37% for the quarter and 19% for 9M.
- The normalized EBITDA margin during the quarter was 10% due to higher raw material costs, energy prices, wage inflation, and marketing costs.
- The board of directors of the Company has approved the recommendation to allot equity shares for an amount up to Rs.1,050 crores.
Investor Conference Call Highlights
- The capex that has gone live in the last few months includes a new In-Vitro lab at an Ahmedabad PDS site, capacity expansion at a peptide facility at Turbhe, and capacity addition at the Grangemouth facility in the US.
- The company had a successful US FDA inspection at its Riverview facility in the US while At the Sellersville and Lexington facilities inspection, it received 483 with the VAI classification. The company continues to maintain a zero OAI status across its sites in the last 12- years.
- In the Injectable Pain Management segment, performance was impacted by supply constraints at its CMO. It has 34 SKUs currently in the pipeline & launched two new products during the quarter
- Power brands grew by 39% & contribute 41% to total consumer healthcare sales in the first nine months. Littles grew 66% YoY and Lacto Calamine grew 44% over the last year and nine months, powered by new launches and traction, and e-commerce.
- The company spent about 15% of its revenue on media and trade promotion.
- The company launched 21 new products, and 25 new SKUs during the nine months of FY’23. New products launched over the last two years contributed about 17% of consumer business sales. E-commerce currently contributes about 14% of total consumer business sales
- CDMO’s growth was impacted largely because of continued delays in decision-making by customers due to the macroeconomic environment and pipeline prioritization based on the limited availability of capital coupled with softer demand for generic API and the vitamins portfolio.
- To address the muted revenue growth, the company is increasing the productive selling capacity of its business development team, increasing the number of proposals velocity and win rate, targeting new customers, and new markets in both our CDMO and CHG business, Capacity expanding to address the supply constraints in CDMO & hospital generics business, both in the injectable pain and inhalation anesthesia portfolios.
- Capex for 9M stood at $100 Mn.
- The company is not looking to dispose of its loss-making US & UK plants.
- The company’s margin erosion is majorly due to higher fixed costs & inflation in inputs & energy prices.
- The company will plan to reduce its debt level post-Q2FY24.
- The expected turnover for the new facilities for peptide as well as the new Riverview facility is up to 2.5 times.
- The CDMO biz is equally split between Big pharma, Biotech & Generic Pharma.
- The revenue from CBMO for 9M has mostly been from the generics segment.
- The management explains that if they do successful completion of clinical trials of a molecule, then the company almost always pursues commercial production with the company only.
- The management states that each of its 15 sites has separate capabilities & is not necessarily fungible.
- The inventory levels are higher to service the demand for its biggest quarter i.e. Q4.
- The company’s rationale for the acquisition of A)CCPL was to ensure supply of critical input which was scarce in the market, B)Hemmo Pharmaceuticals was to enter into its molecules which have higher margins & C)Sellersville was to provide onshore services in North America.
Analyst’s View
Piramal Pharma is the 4th biggest domestic player in CDMO. The company had a very poor quarter with major losses owing to lower revenue growth coupled with higher fixed costs & inflation in inputs. The company recently passed approval to raise up to 1050 Crores. It remains to be seen how the company will tackle the slowdown in decision-making by its CDMO customer coupled with the inflationary environment, weak demand in US & UK, high debt levels & lower equity valuation at the time of raising funds. However, given the company’s strong pedigree & past track record coupled with decent growth prospects of the Indian CDMO industry, the company remains an interesting stock to keep track of.