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Strong performance driven by formulations…

About the stock: Laurus Labs operates in the segment of Generic APIs & FDFs (formulations), custom synthesis and biotechnology. Major focus in APIs is on ARV, oncology and other APIs.

* It has eight manufacturing units (five FDA approved sites) with 61 DMFs, 27 ANDAs filed (two Para IV, seven first to file), 292 Patents filed (150 granted)

* Laurus acquired Richore Life Sciences to diversify in area of recombinant animal origin free products, enzymes as well as building biologics CDMO.

Q1FY22 Results: Laurus Labs reported robust Q1FY22 results.

* Sales were up 31.1% YoY to | 1278.5 crore

* EBITDA in Q1FY22 was at | 395.4 crore, up 42% YoY with margins at 30.9%

* Consequent PAT was at | 241.4 crore (up 40.5% YoY)

What should investors do?

Laurus Lab’s share price has grown by ~7.3x over the past five years (from ~| 94 in December 2016 to ~| 688 levels in June 2021).

* We continue to remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value Laurus at | 785 i.e. 28x P/E on FY23E EPS

Key triggers for future price performance:

* Laurus is evolving as a strong vertically integrated player with strong order book visibility and incremental traction from custom synthesis

* Laurus is developing a robust generic pipeline for the developed markets & plans to double the capacity to 10 billion units/annum in the next 18 months

* Laurus supplies APIs to nine out of 10 largest generic pharma companies and has leadership position in APIs like ARVs, CVS, oncology, etc.

Alternate Stock Idea: Apart from Laurus, in healthcare coverage we like Granules.

* Granules India is a large-scale vertically integrated company that manufactures API, intermediates and finished dosages

* BUY with a target price of | 430.

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