Piramal Pharma Ltd
NSE:PPLPHARMA
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Earnings Call Analysis
Q2-2025 Analysis
Piramal Pharma Ltd
In the recent earnings call, Piramal Pharma Limited reported a 17% year-on-year growth in revenue during the second quarter, which translates to strong operational performance across all its business verticals. The EBITDA margin improved to 18%, marking an expansion of approximately 150 basis points from the previous year. This growth was largely driven by the Contract Development and Manufacturing Organization (CDMO) segment, which received significant revenue boosts from innovation-related projects, especially in patent commercial manufacturing. In their Consumer Healthcare (CHC) business, they noted solid performance, particularly in the U.S. and emerging markets.
Piramal's CDMO business saw a remarkable revenue increase of 24% year-on-year, and the segment is showing consistent growth accompanied by margin improvements, overcoming challenges posed by the COVID-19 pandemic and geopolitical issues in FY '22 and FY '23. The CDMO segment’s growth is attributed to increasing traction in innovation-related work. They also highlighted a strategic investment of $80 million to significantly expand their facility in Lexington, aiming to double its current capacity by FY 2027, which would help fulfill growing market demands and enhance their service offerings.
The management reiterated their target of achieving early teen revenue growth along with similar growth in EBITDA for the full fiscal year. This reaffirms their earlier guidance despite achieving strong numbers in the first half. They expect the EBITDA for the second half of the year to exceed that of the first half due to better product mix and operational leverage. However, they remain cautious about potential external factors affecting these forecasts, including fluctuating foreign exchange rates.
Piramal is focusing on expanding its product portfolio with innovative and specialty products in response to increased market demand. They highlighted their success with differentiated products and are looking to develop further products that can meet specific market needs. The recent release of their Sustainability Report emphasizes their commitment to environmental responsibilities, aiming for reduced greenhouse gas emissions in line with global standards.
Despite the overall positive outlook, the company acknowledged challenges in the domestic and international markets, particularly regarding pricing pressures in the generics space. They are actively enhancing their supply chain constraints and investing in vertical integration to strengthen their market position, especially in the complex hospital generics division. This strategic response aims to maintain healthy EBITDA margins while navigating through competitive pressures.
Piramal has been capitalizing on the e-commerce growth trend, with online sales growing over 30% year-on-year in the first half of the fiscal year. They have increased their presence on numerous e-commerce platforms, positioning themselves well to launch new products effectively. This strategy reflects their broader aim to transition to an omnichannel consumer healthcare presence.
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[Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Mr. Gagan Borana from Piramal Pharma Limited. Thank you, and over to you, sir.
Thank you, Steve. Good evening, everyone. I welcome you all to our post results earnings conference call to discuss our Q2 and H1 FY '24 results. Our results material have been uploaded on our website, and you may like to download and refer them during our discussion. The discussion today may include some forward-looking statements, and these must be viewed in conjunction with the risks that our business faces.
On the call today, we have with us Mr. Nandini Piramal, Chairperson, Piramal Pharma; Mr. Peter De Young, CEO of Global Pharma; and Mr. Vivek Valsaraj, CFO of our company. With that, I would like to hand it over to Mr. Nandini Piramal to share our thoughts.
Good day, everyone, and thank you for joining us on our post results earnings call. Before I begin, I'd like to thank all of you who attended our Investor Day on the 24th of September. For those of you who could not attend, please make a copy of the detailed presentation and the recording is available on our website. I'm pleased to share we've delivered yet another quarter of healthy revenue growth accompanied by margin expansion thereby carrying forward the momentum which we have built over the last few quarters.
Our revenues during the quarter grew by 17% year-on-year, with an EBITDA margin of 18% and indicating an expansion of about 150 basis points year-on-year. This has been primarily driven by consistent growth in our CDMO business which has witnessed an uptick in revenues from innovation-related work, especially from on patent commercial manufacturing. In the CHC business, we continue to witness good volume growth in our innovation and tesa portfolio in the U.S. and emerging markets. In the [indiscernible] business, our fine brands continued to grow at a strong double-digit rate backed wire trade and media efforts.
Thus, we have seen a good overall performance across all our business verticals. During the quarter, we released our FY 2024 Sustainability Report, giving an overview of our progress in the area of sustainable operations. The report follows GRI standards and is aligned with the SSP and UNGC framework. It also highlights our commitment to reduce our greenhouse gas emissions in line with the science-based targets initiative, 1.5-degree decolonization possible.
Moving on to business-specific highlights. Starting with our CDMO business. This was another robust quarter for our CDMO business with year-on-year growth -- revenue growth of 24%, accompanied by EBITDA margin expansion. This is consecutive quarter of strong growth and margin expansion for our CDMO business, both the challenging times that we faced in FY '22 and FY '23 in account of the COVID 19 pandamic, geopolitical disturbances, high inflation environment and suppressed by tech funding environment.
The growth has been mainly led by strong traction in innovation-related work, particularly the on-patent commercial manufacturing projects. Leveraging our strong execution capabilities and the global network of facilities, we continue to emerge as a trusted partner for our customers and are seeing a steady inflow of new orders. In terms of the market outlook for the CDMO industry, the overall biotech funding has improved over the previous years, but remains uneven across months.
Regulatory changes such as the VioSecURE Act, and consideration for supply chain diversification are driving customer inquiries in visit. However, we continue to see a wider request for proposal processes and the delayed decision-making by the customer. We expect these tailwinds of improved biotech funding and supply chain diversification to gradually play out over the medium term. And are, therefore, making adequate investments in our capacities and capabilities, especially in the areas of differentiated service offerings such as ADC, HPAPI, Stereosonic [indiscernible].
We have recently announced a strategic investment of $80 million to expand after also finished facility in Lexington. This will more than double our current capacity of the plant and is expected to commercialize by the end of FY 2027. The site specialized and sterile compounding liquid filling and lyophilization of sterile injectable products, playing a vital role in Piramal's integrated antibody drug conjugate development and manufacturing programs, ADselarate.
The injectables market has shown a steady expansion in recent years, and there's a current demand supply gap. This expansion will enable the Lexington site to capitalize on this opportunity and establish itself as a key player in the segment. Multiple customers plan to commercialize an exposed expansion of this facility. Our generic API business has seen a good pickup in demand during the first half of the financial year, complementing our growth in innovation-related work, driven by robust revenue growth, coupled with our continuous efforts towards cost optimization, operational excellence initiatives was seeing a steady improvement in our CDMO business EBITDA margins.
Going ahead, we will continue to focus on customer delight with superior execution, which will help us drive cross-selling opportunities in repeat business. Our global network of facilities, along with strong product management skills aims to increase the share of integrated projects. With timely CapEx investments, we look forward to capitalizing on growth opportunities, which, however, as they pan out in the CDMO industry.
Moving to our complex hospital generics year and in the first half of the year, we continue to see a steady volume growth in inhalation and sever products in the U.S. and emerging markets. the volume growth backed by vertical integration and cost optimization initiatives has helped us to support healthy EBITDA margins in our CHG business.
To further grow our [indiscernible] franchise in the rest of world markets, we have embarked upon our capacity expansion plans at our facilities in the [indiscernible] hedge. We're putting up new manufacturing lines of [indiscernible] in the equal facility, which will complement our currency restoring manufacturing testament in the U.S. also to ensuring vertical integration of this expanded capacities, we're also increasing the Careemanufacturing capacity at the [indiscernible] in Gujarat.
In the injectable Pain Management System, our growth remained slow due to supply constraints. However, we are taking multiple initiatives to strengthen the supply chain and these initiatives are gradually yielding results. In the intrathecal segment, we continue to defend our leadership position in the Baclofen market in the U.S. with over 70% market share.
Going forward, we are investing in portfolio expansion to build a portfolio of differentiated and specialty products, which can leverage our existing customer relationships and sales force to drive long-term profitable growth. We have witnessed good success in differentiated products such as Gablofen, Mitigo, Neatricon and would like to build on our experience.
Moving on to our India Consumer Healthcare business. In our ICH business, our brands delivered a strong growth of 18% during the quarter and half year, taking its contribution to 48% of sales. Brands such as [indiscernible] Little and technical delivered a strong double-digit growth rate, while the growth in high range was impacted due to is being bought under price control. We continue to invest in medium trade promotions to support the growth in our power brands. Our new product launches have also played an important role in driving growth in recent times.
Over the last 4 years, we have launched close to 200 new products in SKU, which we pilot on the e-commerce channel before rolling them out in the general trade. Our sales in the e-commerce platform has seen the significant contributors to our growth with online sales growing by over 30% year-on-year during the first half of the financial year contributing to about 20% of ICS.
We also present -- were also present on over 22-plus leading e-commerce platform, which allows us to accelerate our new product launches. Our focus is on improving the profitability of e-commerce, led by pricing mix and investment optimization. Going forward, we're looking to widen our distribution network transitioning from a pharmacy dominant to an omnichannel consumer health care company. We're looking to expand our presence in smaller towns and also maximize our distribution across hyper super stand-alone modern trade outlet.
Summarizing the quarter. Our businesses have delivered a good order performance during the quarter in first half of the financial year. Our CDMO business is growing well with an increasing share of innovation-related work differentiated services and integrated orders. Our CHC business continues to see a good volume-led growth in innovation and [indiscernible] products. while our power brands and consumer business are growing at a healthy rate.
The EBITDA continues to outgrow the revenue growth, driven by operating leverage and cost optimization initiatives. We reiterate our guidance for the year to deliver early [indiscernible] growth in revenue and EBITDA and meaningful improvement in PAT. We hope to continue this momentum as we strive to achieve our long-term target of becoming a USD 2 billion revenue global pharma, health and wellness company by F1 30 with a 25% EBITDA margin and a 1x net debt-to-EBITDA ratio.
With this, I'd like to open the floor for the Q&A. Thank you.
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. First question is from the line of Vinod Jain from WF Advisors.
Yes. My question is only related to the taxation. Why is that incident so high in the quarter?
So Vinod, incidentally, the quantum of revenue and profitability from taxpaying jurisdictions in the first half has been high. And this is -- compared to our overseas, this has been high because of which the absolute value of tax outflow is high, which is reflected in the quarter's financials.
[Operator Instructions] The next question is from the line of Yaseer.
Yes. I mean, could you help us sort of understand the opportunity for Neoatricon in terms of the market size and in terms of the opportunity that Piramal has and the marketing agreement that we have with BCOPharma.
So we don't describe a lot of detail beyond what would already be in the public domain. But what we would like to highlight is that this particular product the gap for dosing of a certain age of infants and neonatals, which the alternatives require some manual effort by the health care practitioner to do the dosing, which could result in dosing errors or adverse events related to the dosing errors.
So this is going to have exclusivity with the regulator because we invested along with the partner into developing the data to allow this presentation, and we're in the process of developing the market access and launch strategies as we speak.
And so we would anticipate this to benefit us in the coming quarters, and we would show it up in aggregate numbers, but we don't typically describe individual product market sizes or specific arrangements we have with individual partners such as [ BCO ] that you mentioned.
But we remain excited about the product because we think it is an example of the differentiated or specialty product offering because of the nature of the presentation we're going to be offering, can't be offered by other people, and it solves a problem that was previously present.
[Technical Difficulty] Are we Expecting to launch a few more parts of these kind [Technical Difficulty]
So I think [indiscernible] described in the Investor Day that this is our plan to start to add more products of this category to our offerings. If you look at some of our already present offerings, you could you could argue that Gablofen and Mitigo would also be in the same category. And so this would be the third one of this streak or this category, and we would expect to have our pipeline provide more of those in the future. These do take a bit longer to implement and they do take a little bit more on the investment side.
And this is a renewed focus in line with our new strategy that came along as Jeff joined our organization. And so we would anticipate this to play out more in the medium to long term, and we would expect a string of these to happen, but they won't all be in successive quarters.
The next question is from the line of Gopinath from PNR Investments.
I want to know what is the amount that the company has paid to the Piramal family as royalty in this quarter?
So, Gopinath, as per the agreement that we had, the royalty paid is 0.75% of the turnover of the company, and this is benchmarked and validated as [indiscernible] and approved by the Audit Committee as per the precisions required.
Can I know the amount, please?
Just hold on. INR 15 crores.
The next question is from the line of Yash Darak from RSP Ventures.
So the employee expenses is around INR 580 crores and it is now INR 560 crores. Is it the [Technical Difficulty] for the FY '25 year? Or are you expecting it to increase?
Yes, can you please repeat, your voice is cracking up a bit.
Was your question related to employee costs?
Yes, yes, yes. Is the [indiscernible] continue?
No. So are you referring to the run rate?
Yes, of the employee costs.
;
Probably, it will be in this range. There may be some ups and downs depending upon any provision for incentives for the quarter, but broadly, it will be in this range.
with regards to effective tax rate, can you guide on to the whole year [indiscernible]
So yes, firstly, the tax that we pay is standard in line with the tax applicable in the respective jurisdictions. So 25% for India and likewise for U.S. Currently, the tax looks high because the outflow of profitability and hence, tax in those jurisdictions where we operate has been higher.
Overall, the effective tax rate will be higher as we have guided during the beginning of the year to be in the range of 50-plus percentage. It may be slightly higher than that, but it will still be higher. Okay.
The next question is from the line of Abdulkedar from ICIC Securities.
So if you could just provide some color on how the innovative CDMO order book is shaping up. And I know vis-à-vis where we were a couple of quarters ago. And in terms of new inquiries, what are the kind of inquiries are we talking about receiving from the customers? And when we talk about the tearful finish, is the GLP-1 will finish also something what we may target in the near future as well?
So first of all, we've had a reasonably good order flows over the last few quarters, as we indicated on prior calls and in particular, for our on patent commercial products, which has been enabling our current performance. That being said, we have also mentioned, and I think the trend is continuing that biotech funding is is impacting some of the earlier stage or development projects for some of our potential and current clients. And so I think that overall trend that we described in the beginning of the year has continued without any major change because the funding environment hasn't materially changed from, let's say, at the beginning of the calendar year to now.
That being said, we have a lot of customer inquiries, a lot of customer visits and the number of open RFPs would be materially higher than last year. And we think that's in part due to both the macro trends of the higher funding this year versus last year and the geopolitical de-risking that clients are or potential clients are evaluating.
And as such, we see they're running wider processes for potential alternative CDMO partners and they're also taking longer to decide. We expect this to culminate in decisions in the coming quarter and quarters and we anticipate an improvement in the order flow translating to order booking, but we can't exactly predict when because of the factors I just mentioned
Specifically in the area of sterile we see strong demand, both with customers that have already placed their product at our Lexington site and anticipate increased volumes as they progress through the clinic registration and launch.
And in addition, it's one of our sites with the highest number of open RFPs across our network because of a little bit of a supply/demand inbound at the moment, in part driven by, as you mentioned, the GLP scenario. That being said, that side does lie out and liquid for sterile, but it does not vials, but it does not have the particular dosage formats most used for GLP-1. So we would have an indirect benefit, not a direct benefit from that opportunity at that site.
Got it, sir. And the next question is on the guidance. When you're talking about -- I mean, I think we are being a little conservative when we talk about reiterating our earlier guidance of early teen growth in revenue and EBITDA, considering we have done well -- or we have done quite better as compared to that already in the first half. So any reason for being idle conservative? Or we may look forward to upgrade our guidance in quarters ahead?
Firstly, as Nandini mentioned, we are reiterating our annual guidance of what we gave at the beginning of the year. In the first half, we benefited from some favorable phasing of orders and some ForEx gain, some of which could change the or could change depending upon how the currency moves in the subsequent part of the year. In absolute value, the H2 EBITDA will continue to be higher than what it was in H1 and the way it has been in the prior years. A large portion of the one-off spends that we have flagged in our consumer [indiscernible] generics business, which we had guided at the beginning of the year will actually get spent some time in.
And quarter 3 will also see some variation in the mix, which may have an impact on the margins within cost but quarter 4 will continue to be the largest quarter that we have. So as of now, we believe that we will be able to meet the guidance is, of course, going to be an endeavor to try and exceed, but we are not changing the guidance at this point in time.
Got it. And a final one on the bookkeeping side. So we talk about the mix improving towards way more business. But if I look at the gross margins for the quarter, there has been, I say, nearly 220 bps dip in your gross margins on a Y-o-Y basis. So could you help me understand the reason for the shift in gross margins for the quarter.
Abdul, the previous year quarter 2 gross margin is not very representative. So I don't know if you were on the call last year in quarter 2, we had called out to say that the gross margin in the previous year was an aberration due to a high quantum of inventory overhead leading to a credit in the P&L, which subsequently got reversed in the subsequent quarters. If you look at our half year gross margin, you will see that it was 65%, which is in line with the previous year and more representative of what the normalized gross margins will be.
The next question is from the line of Harsh Bhatia from Bandhan Mutual Funds.
Just in terms of the comment for Q3, the variation in terms of the mix -- so when you look at the Q2 numbers, this is a very normalized level of business that we are seeing across all the segments? Or has there been any change or variation in the numbers I understand that your H2, as you mentioned, will be heavier than H1, but has there been any certain specific movement in Q2? Or is this in line with your anticipation.
Harsh, the business and especially the CDMO part of the business does tend to get a little lumpier across the quarter. So typically, in the prior year, you would have seen that Q3 and Q4 tend to be bigger quarters has come back to Q1 and Q2. This time within quarter 2, we've had a more mix of major products leading to a different margin profile, which could possibly change within quarter 3.
So over the quarters, there may be some variations. As always, earlier to look at the YTD figures. So when we look at our quarter 3 as well, we should actually look at the 9-month figure to get a more normalized view of our performance.
Okay. And just to clarify 1 or 2 quarters back, we had this price cut or rather driving pressure on the hospital generics space from the competitor. So is there some impact on this quarter as well? Because I believe in the last 2 quarters will get certain impact from that particular space?
I think as we may have discussed on our prior earnings call, I don't know if you were on that, I think you were the pricing event happened with a particular product in the U.S. with 1 GPO and that event happened and became effective more in the Q3 of last fiscal year over that period of that quarter.
And so then when you do year-on-year comparisons that will show up 4 quarters afterwards. And so we would anticipate that most of that would have been the year would have passed at the end of this quarter.
So there is some element of that incremental costing in pricing pressure in this quarter as well? Or that has already been conserved.
for that particular pricing event that we discussed, this would be the quarter that just ended, it would be the last quarter with a full quarter would have been impacted. There may be some partial effect next quarter.
Could you quantify the amount that you would have taken, if it's possible?
We don't typically do that level of granularity on individual price contracts. So I would advise against that 1 then, that was a factor that will show up in our commentary for 4 quarters. And I think now we're probably going to move beyond that.
And lastly, on this Lexington capacity expansion, you have made a comment on the press release, customer led $18 million expansion just start of raising, is there some amount of CapEx that is going to be supported by the customer or other customers? Or is it going to be entirely done through our balance sheet. It's done through accruals and loans.
The mention behind that is that this is not speculative CapEx, which is built in anticipation of future orders. This is CapEx that -- we already have customers who have trusted us with their most important programs at the site. And in order for us to meet the volume forecast they anticipate as they progress, we would need the expansion to accommodate that. And so in partnership with them, we have pursued the extension, but they are not providing us with the CapEx funding for it. That's through accruals and bank loans.
Yes. That's very helpful. to clarify what you made as a statement to the earlier question with the other participant. I mentioned as an indirect benefit from that particular opportunity in terms of the GLP-1 and the supply-demand situation. The indirect part of it is because you are indicating to the part of the value chain -- or is there some other reason? I'm not able to...
generally been a lot of capacity soaked up from the innovators wanting to fill-finish capability for their GLP-1 from CDMOs internal capacity and even certain corporate many actions that have changed the availability of [indiscernible] alternatives, and that has created a little bit of a capacity gap in the market.
And some lines have been retooled or repurposed for those requirements. And some of those actions may have made certain alternative CDMOs less attractive to potential clients. And so we're seeing that demand in parts spill over to what we're doing at our facility for vials.
But to be clear, we can't make prefilled surges or cartridges at that facility, and so we wouldn't directly participate. Does that help explain it?
Okay. Okay. Okay. So this is purely a fill-finish expansion [indiscernible]
yes.
the next question is from the line of Bharat from Quest Investment.
Congratulations on the excellent performance. My question -- first question is related to -- can you share the mix of our discovery business and commercial and...
Bharat, can you just repeat the question once again?
In our CDMO business, the contribution of the mix of discovery and commercial business.
The discovery typically is about 5% of the total. Another 25% is development. So discovery development together is 30% and the balance 70% is commericial.
We get those numbers once a year. We don't have because there can be lumpiness between quarters. So we find it more effective to give an annual update on that. So the numbers that [indiscernible] shared with for the fiscal year ending March.
And based on our pipeline, how do we see by the next couple of years, how this will change will mix will move?
So Bharat given the fact that commercial business typically tends to be much higher in value, the mix will not significantly alter over the period. It's the sheer size of commercial business that will still remain a dominant part of the business.
Okay. And one bookkeeping question. If you try to derive, I mean, from control and standalone, we see that our rest of the all subsidiaries, despite there is a Y-o-Y sales growth, but EBITDA margin has declined. So can you throw more light on that? What has really happened in other subsidiaries or that EBITDA margin has declined Y-o-Y?
So it's more a question of skewness in sales between H1 and H2. The stand-alone components had a higher quantum of sales happening. The consolidated overseas components will have higher quantum of sales and EBITDA happening in H2. And typically, that's been case in prior years as well. They do have a higher and Q4 component. So progress in the store, you will see that improving.
So my question was, I mean, if I compare it to this current year or current quarter Y-o-Y, then there is a decline also what I've observed.
It is because of the students being more skewed towards the later part of the year. There will be some correction that you will see in the subsequent quarter.
Sorry. My question is related to last year's Q2 EBITDA margin was rest of the subsidiary was higher than the reported in the current quarter.
Yes, Bharat, I'm explaining the same thing that the state is more towards H2 than it was in the prior year because of the is more a Okay.
Sir, I'll take it separately.
[Operator Instructions] The next question is from the line of [ Shaizad Shroff ] [indiscernible] Advisors.
Just had one. I was looking at your annual report, and I wanted to understand a couple of line items within your other income. One is your write-back of liability is no longer payable and the other is miscellaneous income. So I just wanted to understand what these items are? And how should we think about it going forward? Are they referring -- Yes, that's it.
So basically, as we analyze and review provisions over a period of time, there will be certain provisions which are no longer required, which typically gets reversed in the other income. And that happens periodically depending upon what provisions get [indiscernible] of the same.
With respect to miscellaneous income, there is a host of other things which could come in. It could be interest income on the investment that you make to pass your cash or it could be related to some other state of scrap or other items. So this could vary at most of other items that are included there.
The next question is from the line of Ashish Kabra an Individual Investor.
Hello. Can you have me, sir?
Yes.
Congratulations on great serve numbers. I just want to just build on that, that you said that Q3 and Q4 are on a historical level, they are better than Q1 and Q2. But since this year's Q2, you said that the mix was different. Do you still think that Q3 and Q4 of this financial will be greater than Q1 and Q2.
Yes, Ashish, the absolute value of EBITDA generated in Q3 and Q4 this year will be higher than the absolute value [indiscernible] generated in Q1 and Q2.
Okay, sir. And sir, 1 thing the way Piramal Pharma is growing, the guidance that you gave for FY '30, can you -- do you feel that in subsequent years, we have to actually you have to relook at the guidance and that can be met before FY '230?
Let's get closer to that, then we'll see -- and if we have to revise upward, then we will do that. But right now, we will keep it as it is.
Congratulations on a great set of numbers.
[Operator Instructions] As there are no no further questions from the participants. I now hand the conference over to Mr. Gagan Borana for the closing comments.
Thank you very much. We appreciate you taking time to join us for today's call. In case you have any further queries, please get in touch with us. Thank you. Have a good day.
On behalf of Piramal Pharma Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.