Laurus Labs hits record high; rallies 17% in 7 days post Q1 results

The management holds a positive outlook across all four businesses -- FDF, APIs, Synthesis and Bio -- and believes the outlook remains robust driven by improving demand and supported by capex

Shares of Laurus Labs hit a record high of Rs 705.95, up 4 per cent on the BSE in the intra-day trade on Monday, having rallied 17 per cent in the past seven trading days, after the company announced the financial results for the first quarter of financial year 2021-22 (Q1FY22).

The stock of pharmaceutical company surpassed its previous high of Rs 698 touched on June 29, 2021 amid a positive outlook across all four businesses -- FDF, APIs, Synthesis and Bio -- by the management. It believes the outlook remains robust driven by improving demand and supported by capacity expansion plans planned.

On June 29, 2021, Laurus Labs reported 31.1 per cent year-on-year (YoY) growth in revenue at Rs 1,278.5 crore, mainly driven by 95 per cent YoY jump in CRAMS (contract research & manufacturing services) business to Rs 195 crore and strong traction in formulations to Rs 521 crore with growth of 48 per cent YoY. Net profit grew 40 per cent YoY at Rs 241 crore.

The company said its growth was driven by sustained strong momentum across all business segments; particularly FDF (Finished Dosage Forms) and Synthesis. The gross margins expanded 250 basis points (bp) YoY at 56.7 per cent on the back of a better product mix and improved sales from all the segments. On sequential basis, gross margins expanded 120 bps but net profit declined 19 per cent over the previous quarter.

Laurus Labs operates in the segment of Generic APIs (Active Pharmaceutical Ingredient) & FDFs (formulations), custom synthesis and biotechnology. Major focus in APIs is on ARV (anti-retroviral), oncology and other APIs. Laurus acquired Richore Life Sciences to diversify in area of recombinant animal origin free products, enzymes as well as building biologics contract development and manufacturing organization (CDMO).

"Laurus has built its Custom Synthesis business steadfastly over the past decade on the firm foundation of its chemistry skills. With the groundwork having already been laid out, new project additions are expected to increase at a faster rate than seen before. This is evident from the fact that while it took around a decade to reach 40 projects in Custom Synthesis up to FY20, it added 10 new projects in FY21, implying a 25 per cent increase in active projects YoY," said analysts at Motilal Oswal Financial Services.

It added: Furthermore, a dedicated R&D center and two greenfield manufacturing facilities could cater to the larger commercial-scale requirements of clients. This would enable multi-fold growth in revenues at betterthan-company levels as well as in Formulations business margins.

Considering enhanced growth prospects in CDMO (Synthetics/Biologics) and NonARV FDF/API, consistent compliance, and lower financial leverage, we revise the PE multiple to 24x (from 18x earlier). Accordingly, we revise our target price to Rs 800 on a 12M forward earnings basis, the brokerage firm said with a 'Buy' rating.

Meanwhile, those at ICICI Securities opine Laurus is evolving as a strong vertically integrated player with strong order book visibility and incremental traction from custom synthesis. Laurus is developing a robust generic pipeline for the developed markets & plans to double the capacity to 10 billion units/annum in the next 18 months. Laurus supplies APIs to nine out of 10 largest generic pharma companies and has leadership position in APIs like ARVs, CVS, oncology, etc. The brokerage firm also has a ‘Buy’ rating on the stock and value Laurus at Rs 785.