Add Laurus Labs Ltd For Target Rs. 1,705 by Choice Institutional Equities Ltd
CDMO Transition Continues to Drive Growth
LAURUS continues to transition towards a CDMO-led business model and we expect the segment to contribute around 50% of revenue by FY30E. The improving business mix should also support margin expansion, with EBITDA margin anticipated to improve to 28–29% in FY27E and FY28E. However, capex is likely to remain elevated, driven by investments in peptide manufacturing capabilities, as well as capacity expansion in advanced intermediates and ADC molecules. We revise our FY27E/FY28E earnings estimate upwards respectively by 11.4%/18.3%, reflecting a stronger product mix and improved earnings outlook. We revise our TP to INR 1,705 and maintain our ADD rating. We believe the PEG ratio of 1.7x is justified by improving earnings visibility and the structural shift towards the higher-margin CDMO business
Margin Expansion Trajectory Continues
* Revenue grew 29.1% YoY / 11.9% QoQ to INR 20,263 Mn (vs. CIE estimate: INR 20,597 Mn).
* EBITDA grew 67.0% YoY / 24.6% QoQ to INR 6,383 Mn (vs. CIE estimate: INR 5,870 Mn); margin expanded 715 bps YoY / 323 bps QoQ to 31.5% (vs. CIE estimate: 28.5%).
* PAT increased 123.9% YoY / 28.4% QoQ to INR 3,621 Mn (vs. CIE estimate: INR 3,275 Mn).
Strong CDMO Momentum to Lift Mix to 50% with ~25% CAGR by FY29E
The CDMO business continues to be the company's primary growth driver, with its revenue contribution increasing to 41% in Q1FY27. We expect this to rise further to around 50% by FY30E, in line with the company's stated target. The growth is likely to be supported by an increasing focus on high-complexity projects, new orders from large pharmaceutical companies, as well as higher contribution from commercial molecules. Notably, commercial products now account for 55% of CDMO revenue, providing greater earnings visibility. We expect the CDMO business to deliver a revenue CAGR of 43% in the next three years.
Generics Growth Accelerates on ARV and Oncology API Strength
The generics business (APIs and formulations) continues to deliver steady growth, supported by improved utilisation of ARV manufacturing assets, sustained growth in oncology and complex APIs and continued momentum in formulation dossier filings. While we expect the API business to deliver a revenue CAGR of 10% in the next three years, formulations are likely to outpace APIs, with an expected revenue CAGR of 16%, driven by new product launches and an expanding portfolio.
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