Laurus Labs hits 4-month low; stock slips 14% in 3 days post mixed Q2FY23

Despite mixed Q2FY23 performance, brokerages retain their 'buy' rating on Laurus Labs with a target price in the range of Rs 610 and Rs 630 per share.

Shares of Laurus Labs declined 6 per cent to hit four-month low of Rs 450 apiece in Tuesday’s intra-day trade, on the back of heavy volumes. The stock traded at its lowest level since June 23, 2022.

At 02:15 PM; the stock quoted 5 per cent lower at Rs 456.75, as compared to 0.19 per cent decline in the S&P BSE Sensex. The trading volumes on the counter jumped nearly five-fold as around 6.5 million shares exchanged hands on the NSE and BSE.

In the past three days, the stock of pharmaceuticals company slipped 14 per cent and reported a miss on earnings for the September quarter (Q2FY23), led by lower-than-expected ARV formulation (FDF) sales. However, the Synthesis and Non-ARV API segment remained on robust growth track, which offset weakness in ARV sales.

Laurus Labs’ revenues grew 30.9 per cent year-on-year (YoY) to Rs 1,575 crore in Q2FY23, primarily led by strong performance in custom synthesis business followed by APIs. EBITDA margins, on the other hand, declined 19 bps to 28.5 per cent, mainly due to higher raw material expenses. The company’s profit after tax increased 15.6 per cent YoY to Rs 233 crore.

Going ahead in the second half 2023, Laurus Labs expects to deliver a strong underlying revenue growth and stable EBITDA margins of around 30 per cent in FY23.

"Though the ARV FDF performance was very weak, impacted by lower volumes and adverse pricing but we expect good reversal in H2. We have developed a Novel Delivery for Pediatric HIV treatment and expect to file NDA shortly. This should significantly enhance the company’s market position," said the company.

While the performance was subdued for the quarter, analysts at Motilal Oswal Financial Services (MOFSL) believe that the company remains on track to leverage its integrated capability in synthesis segment, extend relationship with clients, and have differentiated product pipeline in Non-ARV formulation. The brokerage firm maintains ‘buy’ rating on the stock with target price of Rs 610 per share.

Analysts at ICICI Securities, meanwhile, said that they will continue to remain positive on the counter and retained a 'buy' rating on the stock with a target price of Rs 630 per share, amid incremental contribution from custom synthesis with visible order-book.

"The company’s synthesis business is well-positioned to meet fast growing global demand for NCE drug substance and drug products with ongoing supplies for seven commercial products," the brokerage firm said.

Though price erosion in ARV and deleveraging of FDF facility impacted EBITDA margins, the management expects significant competitive landscape change in ARV, API, formulations and expects prices erosions to bottom out.

“The management expects a recovery from next quarter onwards on the back of two big launches in Europe. Oncology API revenues suffered this quarter due to less offtake of a key product, expected to show growth in H2FY23. We remain positive on the company’s growth story, especially in the CDMO space,” analysts at ICICI Securities added.