Piramal Pharma Ltd. could be on the cusp of a substantial earnings recovery, with Quest Investment Managers predicting the stock may soon reclaim its earlier peaks. Rakesh Vyas, Quest's CIO and portfolio manager, highlights a fading destocking drag, robust growth in the core Contract Development and Manufacturing Operations (CDMO) business, and significant operating leverage as key catalysts for future profitability.
Navigating Past Challenges
The company experienced a challenging period, particularly in FY26, following an unusually strong FY25. The prior year saw a significant boost from a key product supplied to a major pharmaceutical client. However, this tailwind reversed in FY26 as inventory corrections led to a 'destocking drag,' impacting both revenue and overall earnings.
Vyas notes that while the past year was difficult, a substantial portion of this correction was accounted for by the end of the last fiscal year. This suggests that the most severe impact of the reset may now be behind Piramal Pharma, paving the way for a more stable and upward trajectory.
CDMO: The Core Growth Engine
Despite the recent earnings disruption caused by specific product volatility, the underlying CDMO franchise continues to demonstrate healthy expansion. Quest's analysis indicates that this core business segment is growing at an impressive 15-20%, signaling its fundamental strength and resilience.
The fund house views Piramal Pharma as a preferred investment to capitalize on the broader CDMO opportunity within the pharmaceutical sector. Quest remains optimistic about globally diversified manufacturing platforms with scalable CDMO capabilities, even while maintaining a cautious stance on certain segments of the US generics market.
Operating Leverage to Boost Profitability
The real upside for Piramal Pharma, according to Quest, is anticipated to stem from significant margin expansion, rather than solely from a normalization of its top-line revenue. Operating from a lower base, the company is well-positioned for a return to a stronger growth path, which could translate into disproportionately higher profit growth.
Vyas emphasized the substantial operating leverage inherent in Piramal Pharma's business model, which is expected to drive meaningfully higher EBITDA growth. He projects that EBITDA recovery is likely to commence this year, with a significant increase projected for the next fiscal year, thereby strengthening the investment case for a stock rerating.
Path to New Highs
While Piramal Pharma's stock currently trades below its previous highs, despite a positive run over the past two quarters, Quest believes improved earnings visibility could bridge this gap. The investment firm is betting on the stock's potential to reclaim its earlier peaks, provided that CDMO growth remains sustained and the projected EBITDA recovery materializes as expected.
For investors, the message is clear: if the company's core CDMO business continues its robust growth and the anticipated margin expansion plays out, Piramal Pharma's recent rally could signal a sustained long-term uptrend rather than just a short-term trading opportunity.