Add Laurus Labs Ltd For Target Rs. 1,025 By Choice Broking Ltd
CDMO Transition to Drive Long-Term Growth
We believe LAURUS is evolving from a traditional Generics player to a CDMO (Synthesis)–led model, with the segment targeted to reach ~50% of revenues in the long term. Given the higher-margin profile of CDMO and operating leverage as new manufacturing assets ramp and current underutilization narrows, we expect sustained margin expansion. A strong CDMO order pipeline reinforces our long-term growth view. We raise our earnings estimates by 2.6%/7.2% for FY26E/FY27E, introduce FY28E, and revise LAURUS’ valuation to 50x (from 40x) the average of FY27–FY28 EPS, reflecting stronger growth visibility relative to peers and anticipated expansion in margins and return ratios. This results in a revised TP of INR 1,025 (Q4FY25: INR 750) while maintaining our BUY rating. A sanity check on the PEG ratio (0.95) further supports the upward revision of our valuation multiple.
Strong Beat Across Metrics; CDMO Momentum Sustains Performance
? Revenue grew 31.4% YoY / declined 8.8% QoQ to INR 15.7 Bn (vs. consensus estimate: INR 14.7 Bn).
? EBITDA surged 123.2% YoY / fell 9.1% QoQ to INR 3.8 Bn; margins expanded 1,002 bps YoY / remained flat QoQ at 24.3% (vs. consensus: 20.3%).
? APAT jumped 1,175.1% YoY / declined 30.5% QoQ to INR 1.6 Bn (vs. consensus estimate: INR 1.3 Bn).
CDMO Segment Poised for Long-Term Upside
The CDMO segment sustained robust growth (+130.4% YoY / +6.9% QoQ), supported by strong mid-to-late-stage deliveries. A solid pipeline, coupled with rising traction from big pharma projects, underpins substantial long-term growth potential. New manufacturing assets have begun contributing to revenue, with the segment currently accounting for 31% of sales. Management expects this share to scale up to 50% over the long term, further supporting EBITDA margin expansion, which in the near term is expected to remain at 25-26%.
Generics Recovery Expected from FY26 Onward
The Generics (API + Formulations) segment is expected to recover from FY26 as price erosion stabilizes and API order books translate into sales. Additionally, new formulation contracts expected by end-CY25 should further support growth. We remain confident in the company’s ability to deliver a strong recovery in this segment.
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