Laurus Labs rallies 5% on credit rating upgrade; stock hits record high

Shares of Laurus Labs (Laurus) surged 5 per cent and hit a record high of Rs 656.95 on the BSE in intra-day trade on Friday after the credit rating agency CARE Ratings upgraded the company’s long-term banking facilities to CARE AA from CARE AA- with a stable outlook. The stock of the pharmaceutical company surpassed its previous high of Rs 641.95, touched on June 8, 2021.

“The revision in the ratings assigned to the bank facilities of Laurus  is on account of significant improvement in the total operating income and profitability margins during FY21 (refers to the period April 01 to March 31) driven by volume sales under Formulation Dosage Forms (FDF) and Generic Active Pharmaceuticals Limited (API) such as antiretro-viral and oncology segment, generation of healthy cash accruals providing the adequate liquidity comfort, continued incremental demand from existing clientele in non-ARV (Anti-retroviral) segment, completion of strategic acquisitions to augment growth in formulation and synthesis division,” CARE Ratings said in a press release.

The ratings continue to derive strength from experienced promoters having long-term presence in the pharma industry, strong product portfolio with perceptible presence in ARV, Oncology and Hepatitis C therapeutic segments, reputed and geographically diversified customer base with strong flow of repeat business mitigating the sustainability of revenue risk, comfortable capital structure and improved debt coverage indicators, regulatory approvals from various regulators for the manufacturing and Research and Development (R&D) facilities of Laurus and stable outlook for the pharmaceutical industry.

Meanwhile, in its financial year 2020-21 (FY21) annual report, the company said,“All the four businesses have a robust growth outlook driven by improving demand and supported by capacity expansion plans lined up. The synthesis business is expected to stage strong growth over the next 2 years with sustained new client additions. Laurus Bio is also expected to grow substantially over the next four-five years and would make us a fully integrated player in the pharmaceutical and biotechnology space”.

The management said the company is seeing improved footing in its formulation segment, apart from the tendering business, and are expanding capacities to meet the demand. The brownfield expansion project for the formulation segment will be operational in a phased manner from August 2021 and will be fully operational by the end of 2021-22. The company is also planning to add a block for High Potency API (HPAPI) to support growth in the synthesis segment which is driven by new client additions and increasing commercialisation of products.

Going ahead, Laurus has charted a definite growth trajectory that involves strengthening its presence in the non-ARV space, fortifying its position in the formulations and synthesis segments and tapping the new area of biologics (through Laurus Bio). The company is looking to build new capacities/facilities that would propel its growth in the coming years.

The ratings are, however, constrained by elongated operating cycle, concentration of revenue in terms of product and therapeutic segments & customers, ongoing capex for addition in capacity for formulations, APIs and for developing R&D capability, exposure to regulatory risk and foreign exchange fluctuation risk, CARE Ratings said. CLICK HERE TO READ FULL REPORT

In the past three months, the stock has zoomed 85 per cent as compared to 9 per cent gain in the S&P BSE Sensex. At 09:56 am, it was trading 4 per cent higher at Rs 650, against 0.06 per cent rise in the benchmark index. A combined 2.8 million shares have changed hands on the counter on the NSE and BSE, so far.