Laurus Labs Q3 Results Review - Operating Deleverage Drags Earnings: Motilal Oswal

Motilal Oswal Report

Laurus Labs Ltd. reported another quarter of lower-than-expected earnings. There has been a delay in the ramp-up of sales from the contract development and manufacturing organisation and non-anti retroviral segments.

Laurus Labs continued to incur operational costs on expanded capacity, which is yet to be utilised optimally. This has affected its performance adversely for Q3 FY24.

We cut our profit after tax estimates by 56%/30%/20% for FY24/FY25/FY26 factoring in:

1. a gradual pick-up in animal health contracts,

2. a delay in scale-up of non-ARV formulation, and

3. a moderation in pricing of the Non-ARV API products.

We value Laurus Labs at 25 times 12 months forward earnings to arrive at our target price of Rs 440.

Laurus Labs would incur a cumulative capex of Rs 28 billion over FY22-24, across CDMO, non-ARV formulation, and non-ARV active pharma ingredient segments.

Further, it is undergoing a validation phase for products in the animal health segment, and capex for the crop science segment.

Further, it is building a product pipeline in the non-ARV formulation segment.

While the ramp-up is expected to be gradual, considering the historical asset-turn of 1.3 times, the business potential can be Rs 36 billion over the next three-four years. Reiterate 'Buy'.

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