Pharma foray gives a booster shot to PI Ind; Q4 earnings in focus

PI Health Science Ltd, the pharma arm, acquired Therachem Research Medilab’s (TRM US) assets in the US and its subsidiaries in India—TRM India and Solis Pharmachem, and also agreed to buy certain US assets of TRM US. It also wholly-acquired Italy’s Archimica SpA.

Consequently, a key overhang is out of the stock’s way. What’s more, analysts are upbeat about this move given the comfort it is seen providing on valuations and earnings outlook. “We view the combined sales/Ebitda of ₹640/170 crore for a consideration of ₹700 crore as a lucrative deal, with an implied EV/Ebitda of 4.2x,” said a Nuvama Research report. Factoring in acquisition-led growth, the research house has raised its FY24/25E EPS by 9/11%.

The PI Industries’ management expects the deals to be completed in Q1FY24 and become earnings-accretive with immediate effect. The transactions will be made in cash and funded via qualified institutional placement proceeds and internal accruals.

The acquisitions will give the company’s pharma segment a boost in active pharmaceutical ingredient (API) and contract development and manufacturing organization (CDMO) space. “PI Industries’ recent acquisition will help it create a differentiated position in the pharma sector by leveraging its core competencies through partnerships with prominent innovators. For instance, TRM is into manufacturing APIs with specialization in the rare diseases segment,” said Sneha Poddar, AVP retail research, broking and distribution at Motilal Oswal Financial Services. Moreover, this diversification helps in paring concentration and seasonality risks. The company gets over 80% of its revenue from exports and the rest from the domestic market, both predominantly into agrochemical products, which is a seasonal business.

Now, investors would await the company’s March quarter (Q4FY23) earnings. It is likely to put up a decent show in Q4 with about 20% year-on-year (y-o-y) revenue growth and 24% Ebitda margin, estimates Prabhudas Lilladher.

For FY24, management commentary on the product launch pipeline will be key.

Meanwhile, in the last one year, the PI Industries stock has sharply outperformed the benchmark index Nifty50, with returns of 17%.

Timely closure of the new deals and meaningful expansion of operations in the newly-acquired entities would be among factors that would decide the stock’s further re-rating.