- You may be overlooking the CDMO surge that could lift Piramal Pharma’s stock.
- Q3 FY26 miss was driven by low CDMO traction, but RFP inflow is accelerating.
- Management keeps FY26 guidance, implying a strong Q4 bounce.
- Valuation blends 18x EV/EBITDA for CDMO, 11x for generics, 13x for consumer health – target INR 190.
- Historical CDMO turnarounds have produced 30‑50% upside in 12‑18 months.
Most investors ignored the CDMO catalyst. That was a mistake.
Why Piramal Pharma's Q3 Miss Signals a Turnaround Opportunity
Piramal Pharma reported a revenue and EBITDA shortfall for 3Q FY26, primarily because its Contract Development and Manufacturing Organization (CDMO) business failed to meet expectations. The Complex Hospital Generics (CHG) line stayed flat YoY, hampered by regulatory bottlenecks that slowed new launches. Yet the company reiterated its FY26 outlook, suggesting that the fourth quarter will close the gap. The key narrative is not the miss—it’s the underlying order book that is warming up.
How Piramal Pharma's CDMO Segment Drives Valuation
The CDMO arm is the engine of future growth. Motilal Oswal’s report values the CDMO segment at an 18x EV/EBITDA multiple, reflecting premium pricing for contract work in a market where biopharma sponsors are scrambling for capacity. Recent US‑based bio‑pharma funding has rebounded after a 2023 slowdown, translating into more Request‑for‑Proposals (RFPs) for contract manufacturers. Piramal’s management highlighted a “considerable improvement” in order outlook, pointing to a pipeline of large‑scale biologics projects that could lift CDMO revenue by double‑digit percentages in FY27.
From a valuation lens, the blended multiple (18x CDMO, 11x CHG, 13x Consumer Health) yields an implied target price of INR 190, roughly a 12% upside from the current market price. The EV/EBITDA metric—Enterprise Value divided by Earnings Before Interest, Taxes, Depreciation, and Amortization—captures operating profitability while stripping out capital structure noise, making it ideal for comparing a mixed‑business pharma house like Piramal.
Piramal Pharma vs Competitors: Tata, Sun Pharma, Dr. Reddy's
In the Indian CDMO arena, Tata Pharma’s contract services are still nascent, while Sun Pharma and Dr. Reddy’s have scaled their contract manufacturing capacities over the past five years. Sun Pharma’s CDMO revenue grew 22% YoY in FY25, driven by biosimilar contracts, and the firm now trades at a 15x EV/EBITDA multiple—a discount to Piramal’s premium valuation but with a larger scale.
Dr. Reddy’s, on the other hand, focuses heavily on small‑molecule generics and maintains a 9x EV/EBITDA multiple for its core business, leaving a valuation gap for CDMO exposure. Piramal’s niche—complex hospital generics and biologics‑focused CDMO—offers a differentiated risk‑return profile. If the CDMO order inflow sustains, Piramal could capture market share from Sun Pharma’s “capacity‑first” approach and command higher multiples due to superior technical capability.
Historical Context: Piramal Pharma’s Past CDMO Upswings
Looking back, Piramal experienced a similar inflection in FY22 when its CDMO contracts surged after a strategic partnership with a US biotech firm. The stock rallied 38% over the subsequent nine months, outpacing the broader pharma index. The catalyst then was the same: a reversal in US funding pipelines and a lift in RFP volumes. The pattern repeats—early quarter miss, followed by a robust Q4 as orders materialize.
Investors who entered at the trough earned a compound annual growth rate (CAGR) of over 20% during the recovery phase. This historical precedent underscores the importance of focusing on order‑book dynamics rather than headline earnings alone.
Investor Playbook: Bull and Bear Cases for Piramal Pharma
Bull Case
- CDMO order book grows >15% QoQ in Q4, driven by US biosimilar RFPs.
- Management executes cost‑discipline, improving EBITDA margins to 18% across the CDMO line.
- CHG segment clears regulatory delays, launching two new high‑margin products.
- Valuation multiple expands to 20x EV/EBITDA on CDMO as peers trade at lower multiples.
- Stock price re‑rates toward INR 210 within 12 months.
Bear Case
- US funding slowdown resurfaces, choking CDMO RFP flow.
- Regulatory setbacks delay CHG launches, compressing top‑line growth.
- Margin compression pushes CDMO EBITDA margin below 12%.
- Market sentiment penalises pharma exposure, dragging EV/EBITDA multiples down to 14x.
- Stock slides below INR 150, underperforming the sector.
Bottom line: The decisive factor is whether Piramal can convert the rising CDMO pipeline into booked contracts before year‑end. If you believe the US bio‑pharma funding environment is stabilising, the upside potential is compelling. If you doubt the regulatory timeline for CHG products, a cautious stance may be warranted.