Laurus Labs gains 7% in two days on acquisition of Richcore Lifesciences

Shares of Laurus Labs rose 4 per cent at Rs 305 on the BSE on Friday, gaining 7 per cent in the past two trading days after the company said it has signed a definitive agreement to acquire a majority stake in Richcore Lifesciences Pvt Ltd (Richcore). The stock of the pharmaceutical company was trading at its highest level since November 2, 2020.

“Laurus Labs has signed a definitive agreement to acquire 72.55 per cent of Richcore’s shares from Eight Roads Ventures and VenturEast for a value of Rs. 246.7 crore,” the company said in a press release on November 25, after market hours.

This acquisition marks Laurus Labs’ entry into the broader biologics and biotechnology segments, providing the company access to its high growth areas, globally and in India. Laurus Labs will help and drive Richcore to achieve scale and improve product offerings. With this acquisition, Laurus adds a fourth revenue stream to its three existing divisions - API, Formulations and Synthesis. Following the successful closure of the transaction, Richcore will be renamed to Laurus Bio Pvt Ltd, it said.

Post event update, Motilal Oswal Securities maintains ‘buy’ rating on Laurus Labs with target price of Rs 410 per share.

“The acquisition is a step towards building a vertically integrated biotech segment and adds a new lever to growth. It particularly provides capabilities in high growth areas of Recombinant (Rh) Proteins, Enzymes and Biological Contract Development and Manufacturing Organization (CDMO),” the brokerage firm said.

“We raise our FY22E/FY23E EPS estimates by 3 per cent to arrive at our target price of Rs 410/share, on 18x 12M forward earnings, to reflect benefits of this deal accruing to Laurus. Considering the addition of technology-based high entry barriers/superior RoCE business, we expect the RICH-led CDMO business to result in a re-rating of Laurus once it starts contributing meaningfully to earnings over the next 4-5 years”, it said.