Kotak Institutional Equities has struck a bullish note on Piramal Pharma with its latest research, reiterating a BUY recommendation and projecting a fair value of Rs305 per share against a current market price (CMP) of Rs206. The report highlights complex operational setbacks, formidable turnaround prospects, and what could be a game-changing ramp-up in the company’s contract research, development, and manufacturing organization (CRDMO) and complex hospital generics (CHG) businesses. The path forward, while not without risk, promises a striking upswing for patient investors as Kotak expects a sharp improvement in financials, buoyed by operational leverage and growth in differentiated offerings.

Piramal Pharma: A Recovery in the Making

Kotak Institutional Equities has reaffirmed its BUY stance on Piramal Pharma, attributing the recommendation to an anticipated operational turnaround and expanding EBITDA margins over FY2025-28E. Although the stock began FY2026 on a downbeat note—affected by inventory destocking and timing issues in key segments—the report sees the company poised for robust margin expansion and revenue growth, underpinned by improving demand at overseas sites and innovation-led growth.

Numbers That Matter: Where the Stock Stands

Piramal Pharma is currently trading at Rs206, significantly below Kotak’s unchanged fair value target of Rs305 per share.

• CMP: Rs206
• Target (12-month FV): Rs305
• 52-week Range: Rs164 - Rs308
• Market Cap: Rs273 billion (US$3.1 billion)

Key Valuation Multiples:

• FY2026E P/E: 266x
• FY2027E P/E: 56x
• EV/EBITDA for FY2027E: 14.6x
• RoE improvement forecasted to 5.7% by FY2027E

Growth Guidance:

• FY2026E: Mid-single-digit revenue growth and mid-teen EBITDA margins expected, despite a soft Q1
• FY2027E: Acceleration to mid to high-teen topline growth with 19-20% EBITDA margins

Challenging Start: Q1 Pressures and Segment Headwinds

The first quarter of FY2026 was lackluster, with revenue slipping 1% YoY and 30% sequentially, while EBITDA tumbled a massive 48% YoY and 81% QoQ due to timing delays in high-margin segments and inventory de-stocking in key molecules like rimegepant sulphate.

• Q1 revenue: Rs19.3 billion (-1% YoY, -30% QoQ)
• Q1 EBITDA: Rs1.1 billion (-48% YoY, -81% QoQ)
• The sharp EBITDA miss was pinned on lower sales in CHG and destocking effects. PAT was a reported loss of Rs817 million

High-margin CHG and core CRDMO segments suffered from operating deleverage. Importantly, growth in overseas CRDMO facilities and accelerated demand for differentiated offerings set the stage for a comeback.

Strategy Blueprint: Catalysts for a Multi-Year Turnaround

Piramal Pharma is emerging as a formidable CRDMO force, thanks to a decade of heavy investment anchored in backward integration and unique capabilities.

• Firm leadership in the CHG segment, with double-digit growth expected as new orders phase in for the second half of FY2026
• Leveraging sevoflurane lines to seize inhaled anesthetics opportunities, especially in RoW markets
• Organizational focus on scaling utilization at existing facilities over new builds

Kotak expects these factors to yield a 12% CAGR in overall sales between FY2025 and FY2028, alongside a substantial ~520 basis points surge in EBITDA margins.

Pivotal Segments: CRDMO, CHG, and ICH in Focus

CRDMO is set for a 17% sales CAGR (FY2026-28E) as overseas facilities ramp up, while Complex Hospital Generics and Indian Consumer Healthcare (ICH) drive steady expansion.

• CRDMO (Contract Manufacturing): Saw mid-teens YoY growth in Q1 (ex-de-stocking impact)
• CHG (Complex Generics): Expected to bounce back in H2 FY2026, guiding towards double-digit growth
• ICH: Power brands grew 18% YoY in Q1, with a growing digital and e-commerce footprint

Customer concentration risks are being mitigated via diversification, while differentiated offerings (e.g., ADCs, HP APIs, peptides) now represent about half of CRDMO sales.

Operational Challenges and the Search for Margin Expansion

Despite near-term headwinds, Piramal Pharma is positioned for a dramatic margin boost anchored in improved business mix and scaling efficiency at overseas plants.

• Gross margins should hold at 64-65% in the medium term, fueled by higher on-patent commercial product mix
• EBITDA margins, depressed in early FY2026, are set to recover with the rebound in CHG business and improved utilization in US and European sites
• Cost rationalization and interest expense management are additional levers for margin restoration

Financial Risks: Leverage and Concentration are Key Watch Areas

Kotak flags two prominent risks for investors: rising net debt and product concentration. As of Q1 FY2026, net debt-to-EBITDA stands elevated at 2.6x.

• Product risk: Sevoflurane and rimegepant sulphate together account for roughly 25% of consolidated sales and 40% of EBITDA
• Leverage is expected to moderate beyond FY2026 as profitability rebounds and debt is gradually paid down

Investor Takeaway: Positioned For a Breakout, But Mind the Bumps

For investors, Piramal Pharma represents a classic recovery play with a multi-year growth curve backed by sector megatrends in contract manufacturing and specialty pharma.

• Target price of Rs305 implies 48% upside from current levels, supporting a BUY call for those seeking high-conviction mid-cap pharma exposure
• Key catalysts: strong orderbook conversion in CRDMO/CHG segments, margin recovery, new product launches, and overseas facility utilization
• Monitor: Quarterly execution consistency, customer diversification, and progress on debt reduction

Piramal Pharma – Snapshot (as of July 29, 2025)

Bottomline for Investors: Kotak’s report on Piramal Pharma hinges on a strong cyclical upturn, margin-rich segment recovery and management’s capability to deliver on operational leverage.