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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 owns 11 manufacturing units (six FDA approved sites) with 74 DMFs, 32 ANDAs filed (15 Para IV, 11 first to file) and 192 patents granted.

• Laurus acquired Richore Life Sciences to diversify in recombinant animal origin free products, enzymes as well as building biologics custom synthesis

Q4FY23 Results: Mixed set of numbers with a sharp fall in margins.

• Revenues were in line, down 3.1% YoY at | 1,381 crore

• EBITDA de-grew 28% YoY to ~| 286 crore while EBITDA margins corrected ~716 bps YoY to 20.7%. PAT came in at | 105.3 crore for the quarter

What should investors do? Laurus Lab’s share price has grown at 41.26% CAGR over the past three years.

• We downgrade from BUY to HOLD as we monitor the progress on execution of the custom synthesis front (post the windfall) in the backdrop of ongoing capex as also margins front, which were below-par during the quarter.

Target Price and Valuation: Valued at | 300 i.e. 23x P/E on FY25E EPS of | 13.0.

Key triggers for future price performance:

• Synthesis: Recalibrated approach towards global demand for NCE drug substance with supplies for an animal health contract starting in H2FY24. Setting up dedicated R&D centre and three greenfield manufacturing units (FY24, FY25)

• Formulations: Product launches in CV portfolio (FY24) in the US & Europe with target opportunity at ~US$40 billion. Gradual traction from Unit-2, which increased the company’s total capacity to 10 billion units

• API: Decent order-book in anti-diabetic, CV & PPI amid capacity expansion in high growth therapeutics with total reactor volume of +7000 KL

• Biologics: Expanding the biologics custom synthesis at scale. Commercial scale-up of the new fermentation capacity (food proteins). Ramp up of new capacity R2

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

• Granules India is a vertically integrated company that manufactures API, intermediates and finished dosages with vision to play on its strength of economies of scale and expansion into more complex products/forms.

• BUY with a target price of | 355

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