Laurus Labs up 7% on stable sales, better margin guidance for H2 FY25

Laurus Labs share price surged 7 per cent to Rs 478.95 on the BSE in Friday's intraday trade, in an otherwise weak market, after the management maintained its guidance of stable sales in FY25. It also guided earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin of 20 per cent for FY25.

 

The company said expectations of a better second half of the current financial year (H2FY25) is based on facility ramp up, delivery of late-phase NCE projects, and Ebitda margins improvement. Considering H1FY25 Ebitda margin of 14.5 per cent, the ask rate would be 25 per cent for H2FY25.

 

At 12:39 PM, Laurus Labs shares were trading 6 per cent higher at Rs 473.05 amid heavy volumes. The average trading volumes on the counter jumped over five-fold today with a combined 13.5 million equity shares of the company changing hands on the NSE and BSE till the time of writing of this report. The stock had hit a 52-week high of Rs 517.90 touched on September 10, 2024.

 

The pharmaceutical company's reported net profit declined 46 per cent for the July-September quarter (Q2) of financial 2024-25 (FY25) to Rs 20 crore compared to Rs 37 crore in the year-earlier period on the back of lower sales in antiretroviral (ARV) and oncology active pharmaceutical ingredient (API) business. Revenue from operation remained flat at Rs 1,224 crore as robust growth in contract development and manufacturing organization (CDMO) vertical offset lower sales in ARV and Oncology API business.

 

The management said the company expects to see sustained demand in contract manufacturing organizations (CMO)/CDMO services, supported by ongoing operational excellence and expanding platform capabilities. The management further said the company remains committed to deliver key new chemical entity (NCE) opportunities in H2, which is in-line with full year growth outlook.

 

Gross margins maintained at 55.2 per cent due to favorable CDMO mix and process optimisation. Operating results were affected by lower utilisation of assets as the management continues to prioritise resources towards delivering several complex projects at various clinical phases. With a better H2 performance, supported by facility ramp up, and margin improvements, the management expects reduction in net debt leverage by end of the year.

 

The new small molecules R&D facility opened leveraging advanced capability to meet expanded global partner needs and early phase enquiries. USFDA audit for API manufacturing facility in Hyderabad concluded with Zero Form-483 observations, the company said.

 

The CDMO business experienced improvement in Q2FY25 and will likely scale up in the coming quarters given the contracts at hand. The scale-up in sales from the CDMO segment and strong operating leverage are expected to drive strong performance for H2FY25. Given the improving demand tailwind and increasing contribution expected from the CDMO segment over the next 3-4 years, Motilal Oswal Financial Services value Laurus at 35x 12M forward earnings to arrive at target price of Rs 530. It reiterated a 'Buy'.

 

Laurus Labs, in its FY24 annual report, anticipates robust growth in FY25, driven by leveraging its established capabilities to secure medium to long-term contracts and commercial opportunities in late-phase NCE projects. This positive outlook is further supported by the industry's favourable environment. The brokerage firm expects a ramp-up of growth projects and the commissioning of new assets, which will contribute significantly to revenue streams.