Laurus Labs plunges 15% as analysts warn of overvaluation; buy, sell, hold?

Laurus Labs share slipped 15 per cent at Rs 510.60 a piece on the BSE in Monday’s intraday trade. This came after analysts post the Q3FY25 results reckoned that the company’s valuation is at a premium to its competitors. 

 

After the Q3 results, analysts at Kotak Institutional Equities (KIE) highlighted that going forward barring the animal healthcare and later the crop science contracts in FY2026, more clarity is awaited on other human CDMO contracts. And at 65 times the FY26 price to earnings multiple, they believe that the long-anticipated earnings recovery is fully factored in.  During the quarter, 18 per cent rise in the company's topline was supported by higher Synthesis sales but was offset by the softness in APIs. Among API KIE expects the weakness in antiretroviral drugs (ARV) to sustain and decline gradually in FY2025-27E.

 

The brokerage, however, anticipates accelerating growth in the company’s Ebitda, growing at 28 per cent CAGR over FY24-27, led by  a low base, better utilizations and a higher Synthesis mix. Accordingly, KIE revised its EPS target upwards by 1-3 per cent over FY25-27.

 

“We roll forward to March 2027E to derive an SoTP-based FV of Rs420 (Rs370 earlier). At CMP, the implied valuations for Laurus’ Synthesis segment at 43X FY2027E EV/EBITDA are at a 75 per cent premium to Syngene’s FY2027E EV/EBITDA multiple, which, in our view, is untenable.  Retain “SELL” on expensive valuations,” Alankar Garude, Samitinjoy Basak and Aniket Singh of KIE said in note. 

 

Moreover, Goldman Sachs also maintained a "Sell" rating with a target price of Rs 475, citing strong Q3 results and improved margins, but concerns over valuation and unclear growth outside CDMO. Jefferies, with an "Underperform" rating and target of Rs 480, highlighted that the API business remains weak, and sustainability of growth is uncertain, according to reports. 

 

Meanwhile, those at Motilal Oswal said that the Laurus Labs handsomely beat their earnings estimates in Q3FY25 led by 89 per cent Y-o-Y growth in CDMO sales which was further backed by launch quantities. 

 

The brokerage raised its earnings estimates by 3-4 per cent for FY25-FY27, citing improved visibility in the execution of CDMO contracts, a gradual increase in ARV formulation sales, and better operating leverage. 

 

Motilal Oswal values Laurus at 40 times its twelve months forward earnings to arrive at a target of Rs 720 and estimates a strong 71 per cent earnings CAGR over FY25-27, reiterating a “BUY” call on the stock.

 

“After six quarters of earnings decline, Laurus has seen strong improvement in its financial performance. Over the past 2-3 years, Laurus has invested considerably in the CDMO segment to build capacities to cater to customers’ manufacturing requirements. In fact, it has certain contracts in hand to be executed over the medium term. It continues to invest in fermentation capacities to enhance its CDMO offerings,” analysts at Motilal Oswal said. 

 

Financial print

 

Laurus Labs reported a sharp increase in net profit, which surged to Rs 92 crore in Q3FY25 from Rs 23 crore in the same quarter last year. This strong performance was accompanied by a 500 basis point expansion in its Ebitda margin, reaching 20.2 per cent, the highest since Q4 FY23. 

 

Revenue for the quarter rose 18.5 per cent year-on-year to Rs 1,415 crore, with a 16 per cent sequential growth. Ebitda also saw a 58 per cent year-on-year increase, reaching Rs 285.8 crore. 

 

At 12:16 PM, the stock price of the company fell by 12.42 per cent at Rs 526.55  a piece on the BSE. By comparison, the BSE’s Sensex was down 0.86 per cent to 75,538.04 level.