Investment firm Nuvama has initiated coverage on Shilpa Medicare with a 'Buy' rating, setting a target price of Rs 1,200. The brokerage highlights Shilpa Medicare's strategic pivot from its traditional active pharmaceutical ingredient (API) business towards a more complex, research-driven pharmaceutical model, encompassing advanced formulations and biologics.
According to Nuvama, this strategic shift is expected to drive significant financial growth for the company. Over the estimated period of FY26-29, the brokerage projects a compounded annual growth rate (CAGR) of 25% for revenue, 33% for EBITDA, and an impressive 39% for Profit After Tax (PAT).
Shifting Focus to Complex Pharmaceuticals
Nuvama's analysis indicates that formulations and biologics are poised to become major revenue drivers, potentially accounting for around 60% of Shilpa Medicare's total revenue by FY29. This growth will be supported by a robust pipeline of launches, including generic versions of key drugs such as Rotigotine, Abraxane, and Xtandi, alongside biologics like Aflibercept and Nivolumab.
The company's substantial investments in formulations, biologics, and contract development and manufacturing (CDMO) are now transitioning from aggressive capital expenditure into commercialization phases. Shilpa Medicare's CDMO pipeline alone features over 25 projects, providing strong revenue visibility extending beyond FY29.
API Business and Biologics Outlook
While the focus shifts, the API business is also expected to see accelerated growth following a relatively flat period from FY22-26. Nuvama anticipates an 11% revenue CAGR for the API segment over FY26-29, driven by capacity expansion in non-oncology areas and the introduction of more than 15 new oncology APIs, with peptides and polymers offering additional incremental growth.
The biologics segment is projected for a strong 39% CAGR (excluding milestones) during the same period. This growth will primarily be fueled by the performance of Aflibercept in India and Nivolumab in Europe, with Nuvama estimating Nivolumab sales to reach USD 20 million by FY29. Another promising opportunity identified is recombinant human albumin, for which Nuvama projects peak European sales of Rs 9 billion, assigning a net present value of Rs 44 per share to this venture.
Financial Health and Risks
Nuvama expects Shilpa Medicare's financial metrics to improve significantly. EBITDA margins are forecast to rise from 28% in FY26 to approximately 34% by FY29, and Return on Capital Employed (ROCE) is projected to increase from 10% to around 19%. The company's net debt to EBITDA ratio is anticipated to decline sharply from 1.4 times in FY26 to 0.1 times by FY29, supported by robust operating cash flow and free cash flow generation, estimated at Rs 16 billion and Rs 9 billion respectively, between FY27 and FY29.
Despite the positive outlook, Nuvama acknowledges several key risks. These include intense competition in various segments, potential delays in albumin product launches, challenges from USFDA approvals, and possible delays in Unicycive's OLC approval process.