Motilal Oswal
Piramal Enterprises (Buy)
Target: ₹1,750
CMP: ₹1,565.50
Piramal Enterprises (PIEL) has built a differentiated and robust business model in the pharma space, with presence in contract development and manufacturing outsourcing (CDMO-- 60 per cent of pharma sales), complex hospital generics ( CHG -- 30 per cent) and India consumer products (ICP-- 10 per cent).
PIEL has delivered consistent performance, with 15 per cent/33 per cent revenue/EBITDA CAGR in the pharma space over FY11-20, led by strong traction/steady improvement in the CHG/CDMO segment. With the addition of high margin products and strong operating leverage, it has been able to grow EBITDA at a much higher rate than sales growth over the past 10 years. However, the growth trajectory took a brief pause, particularly in CHG segment over the past six months.
After some aberration in the recent past, it is back on the growth path in the pharma space. Its order book has strengthened in the CDMO segment. PIEL has re-strategised its business, subsequently introduced new products and increased its distribution reach, thereby driving enhanced revenue growth in the ICP segment. We expect CHG segment to revive gradually as elective surgeries are yet to return to normalcy. We remain positive on PIEL on superior execution across pharma segments and an increasing retail-focused lending book.