We remain positive on PIEL on superior execution across pharma segments and an increasing retail-focused lending book.
Piramal Enterprises (PIEL) has built a differentiated and robust business model in the pharma space, with an established presence in Contract Development and Manufacturing Outsourcing (CDMO, 60% of pharma sales), Complex Hospital Generics (CHG, 30% of pharma sales), and India Consumer Products (ICP, 10% of pharma sales). 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. The company 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. Reiterate ‘buy’.
PIEL has delivered consistent performance, with 15%/33% 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 past 10 years. However, the growth trajectory took a brief pause, particularly in CHG segment over the past six months. This is largely due to disruption on account of Covid-19. With demand factors being structurally intact and PIEL resilient in its performance, a revival in the growth trajectory is underway over the near to medium term.
While Covid-19 has led the CHG segment to take a temporary back seat in terms of growth, it has aided increased order book in the CDMO segment. This has enabled PIEL to undertake better business in the CDMO segment, and paved the way to further showcase its capabilities to innovator pharma companies. We expect 17% sales CAGR from the CDMO segment over FY20-23E v/s ~13% CAGR seen over FY11-20 on, strong order-book, and offerings spanning research as well as manufacturing.
The CHG segment comprises injectables, inhaled anesthetics, intrathecal spasticity and pain management, and selected anti-infective products. A strong distribution network in this segment puts PIEL in a sweet spot to maintain its growth momentum on a structural basis. The reduced numbers of elective surgeries had impacted performance of this segment over the recent past (14% YoY decline in 1HFY21). With vaccine development happening at a rapid pace to prevent Covid-19, we expect elective surgeries to pick up over the medium-term. Considering the impact of the pandemic on FY21, we expect ~5% revenue CAGR from this segment over FY20-23E.