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Subdued Q2 amid drag in ARV APIs…

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 and building biologics CDMO

Q2FY22 Results: Laurus Labs reported tepid Q2FY22 results.

* Sales were up 5.7% YoY to | 1203.5 crore  EBITDA in Q2FY22 was at | 345.1 crore, down 7.7% YoY with margins at 28.7%

* Consequent PAT was at | 201.9 crore (down 16.7% YoY)

What should investors do? Laurus Lab’s share price has grown by ~5.6x over the past five years (from ~| 94 in December 2016 to ~| 523 levels in Oct 2021).

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

Target Price and Valuation: We value Laurus at | 670 i.e. 28x P/E on FY23E EPS

Key triggers for future price performance:

* Formulations: Product launches in anti-diabetic (FY23) & CV portfolio (FY24) in the US & Europe. Brownfield project to double capacity by FY22

* API: Robust order-book in anti-diabetic, CV & PPI, brownfield capacity addition (FY22) & has leadership position in APIs like ARVs, CVS, Onco, etc

* Synthesis: Well-positioned to meet fast growing global demand for NCE drug substance and drug products. Setting up dedicated R&D centre (operational FY23) & greenfield manufacturing unit (FY24)

* Biologics: Expanding the biologics CDMO at scale. Commercial scale-up of the new fermentation capacity (food proteins)

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

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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