On Friday’s early trade, the stock price of this leading pharmaceutical and biotechnology company dropped by 4 percent to an intraday low of ₹440 per share following Goldman Sachs’ initiated sell rating on the stock, with a 23% downside.
The global investment banking and securities firm, Goldman Sachs has initiated coverage on Laurus Labs with a “sell” rating, setting a price target of ₹350, which represents a 23% decrease from the current price of ₹452 per share.
The brokerage highlights that between April and September 2023, the company derived 19% of its revenue from the contract development and manufacturing business (CDMO) unit, experiencing a 55% drop in revenue compared to the same period last year due to a high base. Goldman Sachs notes that this segment lacks immediate growth catalysts.
Furthermore, the margin on earnings before interest, tax, depreciation, and amortisation (EBITDA) narrowed to 15.3% in the December quarter, down from 26.1% in the same period last year. Despite the company’s optimism that the margin will improve to around 20% as sales increase, analysts remain cautious.
Additionally, Laurus Labs plans to invest ₹1,000 crore in expanding its capacity, but the benefits of this expenditure may not materialize before March 2026, or even later, contrary to street expectations of earlier monetization of the new capacity.
Moreover, Goldman Sachs anticipates slower growth for Laurus Labs in the current financial year compared to its peers such as Alkem Laboratories, Zydus, and Lupin. The note also mentions that Laurus competes with much larger peers like Sun Pharma, Cipla, and Dr. Reddy’s Laboratories in certain segments.
At 11:50 a.m., Laurus Labs Ltd shares were trading at ₹452.85 a share, down 1.32 percent from the previous close price on the National Stock Exchange, and the company has a market capitalization of ₹24,396 crores.
Laurus Labs Limited is a pharmaceutical and biotechnology company. The company offers an integrated portfolio of Active Pharma Ingredients (API) including intermediates, Generic Finished dosage forms (FDF), and Contract Research services to cater to the needs of the global pharmaceutical industry.
The Company operates across three main divisions- Laurus Generics, Laurus Synthesis, and Laurus Bio. It also operates in two distinct geographic segments, with revenue derived from customers within India and revenue generated from customers outside India. Its API products are distributed in 56 countries worldwide.
Over the past year, the company saw a notable decline in revenue, experiencing a 23 percent decrease from ₹1,545 crores in Q3 FY23 to ₹1,195 crores in Q3 FY24. This decline was mirrored in net profit, which dropped by 88 percent during the same period, falling from ₹203 crores to ₹23 crores.
Revenue distribution within the company’s operations is as follows: 36% from the Synthesis segment, 43% from APIs, 19% from Finished Dosage Formulation, and a mere 2% from the bio segment.
The Company manages a total of 12 manufacturing facilities, seven of which are FDA approved, spread across locations such as Vishakhapatnam, Hyderabad, Bangalore, and Atchutapuram. These facilities collectively have the capacity to produce approximately 7500 KLPA.
Looking ahead, the Company plans to invest around ₹2.5 billion in capital expenditure in the coming years, with approximately 60% of this investment allocated to API/FDF. A third of this investment will focus on commercial and development initiatives within CDMO, which are already in progress and expected to contribute starting from FY25.
In terms of geographical revenue breakdown, the company generates 72% of its revenue from India and 28% from international markets.
Over the past six months, Laurus Labs shares have seen a 12% increase, and over the past year, shares have surged by 40%.
Written by Omkar Chitnis
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