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

PI Health Science Ltd., the pharma arm, has acquired the assets of Therachem Research Medilab (TRM US) in the US and its subsidiaries in India – TRM India and Solis Pharmachem and has also agreed to purchase certain US assets of TRM US. It also fully acquired Arcimica SpA of Italy.

As a result, a significant overhang is out of the way of the stock. What’s more, analysts are bullish about the move, noting that it provides comfort on valuation and earnings outlook. “We look at combined sales/Ebitda for a consideration of 640/170 cr 700 crore as an attractive deal, with an implied EV/Ebitda of 4.2x,” said the Nuwama Research report. Factoring in acquisition-led growth, the research house grew its FY24/25E EPS by 9/11% Have given.

The management of PI Industries expects the deals to close in Q1FY24 and be accretive to earnings with immediate effect. The transaction will be settled in cash and funded through qualified institutional placement proceeds and internal accruals.

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

Now, investors will look forward to the company’s March quarter (Q4FY23) earnings. Prabhudas Lilladher estimates it is likely to put up a decent performance in Q4 with around 20% year-on-year (YoY) revenue growth and 24% EBITDA margin.

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

Meanwhile, in the past one year, PI Industries stock has outperformed the benchmark index Nifty 50 with a return of 17%.

Timely closure of new deals and meaningful expansion of operations in newly acquired entities will be among the factors that will decide the forward rating of the stock.