Brokerage firm Jefferies expects shares of drugmaker Piramal Pharma to go up to ₹185 by March 2025. This implies a potential upside of 55% over the next 18 months.
The firm has reiterated its "high conviction buy" stance on Piramal Pharma and said that it remains confident of the company delivering compounded annual growth rate (CAGR) of 13% in revenue and 40% in Earnings before interest, tax, depreciation and amortisation (EBITDA).
Jefferies wrote in its note that it expects Piramal Pharma to generate operating cash flow of ₹1,350 crore in financial year 2025 and expects capex spends to be in the range of ₹800 crore. This would mean a free cash flow of around ₹500 crore. "We expect a similar number in financial year 2026 too," the note said.
Piramal Pharma may use the free cash flow for reducing debt, which will bring down the net debt to ebitda ratio to 2.4 times and 1.8 times by financial year 2025 and 2026 respectively, compared to the 3.5 times currently, Jefferies said.
A combination of stronger CDMO (Contract Development and Manufacturing Organisation) order flow, leading to superior capacity utilisation and higher contribution from the innovation business will drive Piramal Pharma's margins higher towards the high teens by the end of financial year 2026 from the low teens as of the September quarter.
"We expect the company to leverage on capabilities like Antibody Drug Conjugates (ADCs), Peptides etc. in the coming years should improve CDMO margins to the high teens levels from low double-digits today," according to Jefferies.
The brokerage expects the complex hospital generics margin to remain stable around 22% as new launches offset potential price erosion. "The main driver of overall margins will be CDMO in our view," the brokerage said.
Currently, Jefferies has a price target of ₹135 on Piramal Pharma, which is the second highest on the street for the stock.
Shares of Piramal Pharma have turned positive for 2023 after a 4.4% surge on Thursday. The stock is currently trading at ₹124 and has doubled from its 52-week low of ₹61.
(Edited by : Hormaz Fatakia)
First Published: Nov 23, 2023 11:08 AM IST
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