Buy Laurus Labs Ltd for the Target Rs 1,980 by Motilal Oswal Financial Services Ltd
A blockbuster beat led by CDMO momentum CDMO strength drives 21%/16% FY27/28 EPS upgrade
* Laurus Lab (Laurus) delivered yet another outstanding quarter with a 14%/31%/53% beat on revenue/EBITDA/PAT. The performance was driven by the CDMO and formulation (FDF) segment.
* Interestingly, Laurus has achieved the highest-ever quarterly revenue and EBITDA in 1QFY27.
* The CDMO segment’s revenue growth was supported by commercial supplies and late-stage clinical project supplies. In addition, one customer received global regulatory approval for a product, with offtake expected to scale up going forward.
* Given the strong prospects for the CDMO business, Laurus has guided FY27 capex of INR20b. The company remains on track to build a commercial-scale peptide block in Vizag.
* The order book was healthy, with sales run-rate remaining steady in the ARV segment during the quarter.
* We raise our earnings estimate by 21%/16% for FY27/FY28, factoring in:
a) a robust outlook for the CDMO segment, backed by multiple contracts across human health, animal health, and crop science
b) new launches in the FDF segment, and c) improved operating leverage.
* We value Laurus at 65x 12M forward earnings to arrive at a TP of INR1,980. Laurus continues to invest in manufacturing assets backed by contracts with leading pharma customers. It is also expanding its capabilities in differentiated technologies like biologics as well as ADCs. We expect a 24% earnings CAGR over FY26-28. We reiterate BUY on the stock.
Strong mix boosts profitability across the board
* Laurus’ 1QFY27 revenue grew 29.1% YoY to INR20.3b (our est. INR17.8b), driven by robust CDMO growth and sustained Generics business.
* Gross Margin (GM) expanded ~330bp YoY to 62.7%, driven by a better divisional mix.
* EBITDA margin expanded ~720bp YoY to 31.5% (our est: 27.5%), majorly driven by better gross margin.
* EBITDA grew 67% YoY to INR6.4b (our est. INR4.9b).
* Adj PAT grew 129.3% YoY to INR3.7b (our est: INR2.4b).
* R&D stood at INR830m (4% of revenue).
Highlights from the management commentary
* Management raised its FY27 capex guidance to ~INR20b (vs. the initial guidance of ~INR15b), driven by incremental capacity investments to meet rising customer demand.
* The additional investments are earmarked for multiple human health and animal health programs, directed toward API/intermediate manufacturing capacity.
* Commercial-scale fermentation capacity (400+ KL) and downstream processing expansion remain on track for commissioning by end-CY26, with management expecting the precision fermentation business to witness a meaningful ramp-up over the next 12-18 months as multiple customer programs are commercialized.
* Management expects most of the non-commercial CDMO business (45% of revenue), currently driven by Phase III supplies, to transition into commercial manufacturing following regulatory approvals. One of the products has received global regulatory approval, driving the commercial scale-up of the contract.
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