Piramal Enterprises hits over 2-year high after strong performance in Q1

In Q1FY22, pharma segment delivered robust revenue growth of 31 per cent YoY, led by the Complex Hospital Generics (CHG) and India Consumer Products (ICP) businesses.

Shares of Piramal Enterprises hit an over two-year high of Rs 2,856.80 after they rallied 7 per cent on the BSE in the intra-day trade on Monday on strong June quarter results. The company reported consolidated profit after tax of Rs 534 crore, up 8 per cent year on year (YoY), despite consolidated revenues coming in flat at Rs 2,909 crore YoY. The bottomline was aided by interest expenses, which declined 11 per cent YoY – on the back of meaningful decline in debt on the balance sheet and progressively lower cost of borrowings.

The stock was trading at its highest level since September 2018. It had touched a record high of Rs 3,224 on August 31, 2018.

In Q1FY22, the company’s pharma segment delivered robust revenue growth of 31 per cent YoY, led by the Complex Hospital Generics (CHG) and India Consumer Products (ICP) businesses. The Contract Development and Manufacturing Organization (CDMO) business also saw healthy momentum on the back of favorable demand in the API / Sterile Fill-Finish space.

Pharma segment reported 200 basis points improvement in Ebitda (earnings before interest, taxes, depreciation, and amortization) margin to 12.5 per cent from 10.5 per cent in Q1FY21. Ebitda expansion were driven by better capacity utilization as the business is normalizing, second Covid wave impacted less severe as compared with first wave and backward integration of raw materials.

With the completion of the Dewan Housing Finance (DHFL) acquisition around the corner, incremental disbursements in FY22 would be driven largely by the Home Loans business and the cross-selling of Piramal Enterprises’ organic products to DHFL’s large customer base, according to analysts.

Over the past two years, Piramal Enterprises has strengthened its balance sheet by running down its wholesale loan book, reduced the top 10 exposures, brought equity capital into the company through multiple means, improved the texture of its borrowings by reducing commercial papers, and fortified itself against contingencies, with ECL (expected credit loss) provisions at 5.8 per cent of AUM.

Brokerage firm Motilal Oswal Financial Services expects the financial servces business to deliver 3 per cent RoA / 9 per cent RoE over the medium term (before building in the DHFL acquisition). "Within Pharma, the outlook for the CDMO segment has improved, and Piramal Enterprises is well-placed owing to its presence across the value chain; it is entering newer markets and winning tenders in the CHG segment; and it is increasing margins in the ICP segment," the brokerage firm said with a ‘buy’ rating and a target price of Rs 3,100 per share.