 "Labs, Science, Laurus")
The stock of pharma company Laurus Labs shed 5.5 per cent in trade after muted December quarter results and expectations of slower sales in key segments. Lower sales and higher finance costs have led to a cut in earnings estimate. This could keep the stock, which is down 13 per cent from its highs in January, under pressure.
Muted show in Q3 FY24 was the trigger for stock prices declining. Revenues in the quarter fell by 22.6 per cent year-on-year (y-o-y) to Rs 1,194 crore and sequentially the fall was at 2.4 per cent. It is the company’s fourth consecutive quarter of y-o-y fall in sales.
The lower-than-expected revenue was on account of a big miss in the synthesis segment, which accounts for 18 per cent of the company’s top line. Revenues in this segment fell 67 per cent over the year-ago quarter and coupled with a high base of last year led to decline. Adjusted for Covid-19 drug Paxlovid, sales in the December quarter were 6 per cent higher y-o-y. What supported overall sales was the performance of the formulation segment, which grew 47 per cent and was led by recovery in anti-retroviral (ARV) sales amid stable price trends and scale up of non-ARV sales. The company expects the second half of FY24 to be better.
The fall in overall sales and the lack of leverage hit operational performance. Coupled with investments it meant that operating profit was down 55 per cent over the year-ago period and 3.4 per cent sequentially. Even as gross margins expanded by 90 basis points (bps), operating profit margins sank over 900 bps to 15.2 per cent.
Higher working capital led to negative operating cash flow of Rs 100 crore in the December quarter. The net debt of the company increased sequentially by Rs 500 crore in the quarter.
Alankar Garude, an analyst at Kotak Securities, said the company’s ARV sales fell 13 per cent annually over FY21 and FT23. It does not expect the business mix to pivot significantly toward synthesis in the near term, with ARV staying relevant at 35 per cent of sales even in FY2026E (49 per cent in third quarter of FY24). With earnings per share (EPS) cuts of 8-39 per cent over FY24-26, the brokerage has a sell rating on the stock.
While Motilal Oswal Research has also cut its EPS by 20-56 per cent over FY24-26 to factor the gradual pick-up in animal health contracts, a delay in scale-up of non-ARV formulation and a moderation in pricing of the Non-ARV API products, it has reiterated its buy rating for Laurus. While the ramp-up is expected to be gradual, considering the historical asset-turn of 1.3 times, the business potential can be Rs 3,600 crore over the next 3-4 years, said analysts led by Tushar Manudhane of the brokerage.
Choice Broking has an add rating for Laurus and believes that FY25 would be a critical year as the company expects gradual improvement in revenues, margins and net profit then.
