Laurus Labs Q1 Results Review- Lower ARV Formulations, Reduced Operating Leverage Hurt Earnings: Motilal Oswal

Motilal Oswal Report

Laurus Labs Ltd. posted a weak Q1 FY25 due to deviation in buying of anti retroviral formulations and deferral of some orders in the other active pharma ingredient segment. Lower raw material costs led to a sharp improvement in gross margin (450 basis points YoY/530 bp QoQ), offsetting the adverse impact of lower revenue in Q1.

We cut our earnings estimates by 8% each for FY25/FY26 factoring in:

1. lower off-take of ARV products,

2. a gradual uptick in the contract development manufacturing organisation segment, and

3. a front-loading of opex related to expanded/new facilities.

We value Laurus Labs at 31 times 12 months forward earnings to arrive at our target price of Rs 505.

Laurus Labs continues to implement efforts towards the CDMO capex (chemical synthesis for human drugs/animal health/crop science).

Considering that exhibit/validation batches are underway, we expect commercial batches to commence over the medium term. Accordingly, the operating leverage would improve with the scaling up of batches from H2 FY25. The customer funding to the formulation facility for higher off-take further provides confidence on its efficient manufacturing capabilities. Reiterate Buy.

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