Laurus Labs hits 52-week low, tanks 7% on margin concerns

Laurus has witnessed severe pricing pressure and lower volumes in its ARV formulations portfolio for five quarters now, resulting in significant pressure on core margins, say analyst.

Shares of Laurus Labs hit a 52-week low at Rs 419 as they slipped 7 per cent on the BSE in Tuesday’s intra-day trade in an otherwise firm market on margin concerns. The stock of pharmaceutical company fell below its previous low of Rs 433.20, touched on January 28, 2022.

At 09:43 am; Laurus Labs traded 6.3 per cent lower at Rs 422, as compared to 0.29 per cent rise in the S&P BSE Sensex. The trading volumes at the counter jumped over four-fold with a combined around 3.2 million shares changing hands on the NSE and BSE.

Laurus Labs is a fully integrated pharmaceutical and biotechnology company, with a leadership position in generic Active Pharmaceutical Ingredients (APIs) and a major focus on anti-retroviral, Hepatitis C, and oncology drugs. The company also develops and manufactures oral solid formulations, provide contract research and manufacturing services (CRAMS) to Global pharma companies, and produce specialty ingredients for nutraceuticals, dietary supplements and cosmeceuticals.

According to analysts at Kotak Securities, Laurus has witnessed severe pricing pressure and lower volumes in its ARV formulations portfolio for five quarters now, resulting in significant pressure on core margins. Once Paxlovid contribution recedes in 2HFY23, the impact of lower ARV pricing should start reflecting in weaker overall margins, despite some respite hereon from higher capacity utilization, lower raw material prices and backward integration initiatives, the brokerage firm said in its stock update.

“We believe Laurus’ troubles on ARV pricing and looming cessation of Paxlovid sales are being underappreciated. Ex-Paxlovid, it reported just a around 19 per cent EBITDA margin in 1HFY23. Even as volumes pick up, Laurus’ ARV realization will stay under pressure, as it bids for winner-takes-all tenders and lower long-term tender prices. As Paxlovid sales recede, the true extent of the margin hit will unravel,” analysts said.

While announcing July-September quarter (Q2FY23) results on October 21, 2022, the management of Laurus said looking forward to H2FY23, they expect the company to deliver a strong underlying revenue growth and stable EBITDA margins of around 30 per cent in FY2023.

Price erosion in ARV and deleveraging of FDF facility impacted EBITDA margins, extent of price erosion – around 20 per cent and 50 per cent volume de-growth. The management expects significant competitive landscape change in ARV, API, formulations and expects prices erosions to have bottomed out. It expects growth in H2FY23.

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, analysts at ICICI Securities had said in result update. The brokerage firm said it remain positive on the company’s growth story, especially in the CDMO space.

Technical View

Bias: Negative

Target: Rs 305

Support: Rs 421; Rs 404

Laurus Labs has been on a downtrend since August 2021, after the stock hit a life-time high at Rs 723.75. In the following 15 months the stock has cracked over 42 per cent till date.

The stock is now seen testing its major trend line support on the monthly chart at Rs 421-odd level, below which the next immediate support is Rs 404 - the lower-end of the Bollinger Bands on the monthly chart.

In case, the stock fails to honour this support zone, the stock could then decline all-the-way to Rs 305 level - which is where 50-MMA (Monthly Moving Average) stands. On the positive front, in case, the stock does stabilizes at the support range, a bounce can to Rs 540 seems possible.
 

For now, the daily chart indicates that the stock is likely to face downward pressure as long as the stock traded below Rs 434.

(With inputs from Rex Cano)