Buy Laurus Labs Ltd For Target Rs.2,830 by Motilal Oswal Financial Services Ltd
Beats estimates; CDMO keeps raising the bar Strong CDMO pipeline and peptides lift estimates ~30%
* LAURUS delivered slightly better-than-expected revenue in 2QFY27, though EBITDA/PAT significantly beat our estimates by 22%/38%. A favorable segmental mix and currency benefits boosted margins for the quarter.
* Laurus continues to break its earlier quarterly record in CDMO segment, backed by late-stage clinical projects, commercial API supplies and scale-up of new assets.
* Particularly, in Peptide segment, Laurus has operationalized a large-scale manufacturing facility ahead of schedule. It is also capturing the entire value chain in terms of pre-clinical to commercial supplies (comprising multiple steps of manufacturing followed by purification and isolation).
* Laurus continues to work on launching new products, adding new markets and sustaining efficient supply chain management despite global political turmoil.
* We raise our earnings estimates by 28%/30% for FY27/FY28, factoring in
a) the scale-up of its CDMO segment, including peptide manufacturing
b) a steady uptick in affordable medicine supply
c) a better segmental mix. Considering the demand outlook, LAURUS’ readiness to meet large innovator customer needs and improved return ratios, we value LAURUS at 74x 12-month forward earnings to arrive at a TP of INR2,830. Reiterate BUY.
Strong mix and operating leverage boost profitability
* 2Q revenue grew 33.4% YoY to INR22.1b (our est. INR21.1b), driven by robust CDMO growth and stable affordable medicine business (led by FDF).
* Gross margin (GM) expanded by 315bp YoY to 63% due to a better divisional mix.
* EBITDA margin expanded by ~960bp YoY to 34% (our est: 29.1%). Other expenses/staff costs decreased 550bp/100bp YoY.
* EBITDA grew 86% YoY to INR7.5b (our est. INR6.1b).
* Adj PAT grew 128% YoY to INR4.4b (our est: INR3.2b).
* For 1HFY27, revenue/EBITDA/PAT grew 31%/77%/128% YoY to INR42b/ INR13.9b/INR8.1b.
Highlights from the management commentary
* CDMO business has no significant customer inventory build-up or anticipated de-stocking event from its customers.
* Peptide commercial revenue is expected around CY29, reflecting the regulatory validation and approval timelines; existing programs are at various stages of development, scale-up and validation.
* The peptide validation batch size is almost similar to commercial batch size for the contracts with LAURUS.
* Peptide resin contributes ~10-20% of peptide raw material costs, depending on fragment length.
* LAURUS expects to participate meaningfully in the GLP-1 peptide opportunity over the next five years, supported by its planned capacity and capabilities.
* The KRKA formulation facility remains on track, with Phase 1 production blocks and validation batches expected to commence in mid-2027; meaningful revenue contribution is expected from FY28/FY29 onwards
Valuation and view
* We raise our earnings estimates by 28%/30% for FY27/FY28, factoring in a) a scale-up of its CDMO segment, including peptide manufacturing, b) a steady uptick in affordable medicine supply, and 3) a better segmental mix.
* Considering the demand outlook, LAURUS’ readiness to meet large innovator customer needs and improved return ratios, we value LAURUS at 74x 12-month forward earnings to arrive at a TP of INR2,830. Reiterate BUY.
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