Buy Laurus Labs Ltd for the Target Rs.1,280 by Motilal Oswal Financial Services Ltd
Positioned to capitalize on CDMO’s commercial ramp-up cycle
* We analyzed narration versus actual outcomes and financial performance across CDMO peers, highlighting an uneven recovery, with some companies facing guidance resets due to program delays, destocking, and slower commercial conversions.
* The analysis indicates that Laurus Labs (LAURUS) delivered stronger execution relative to peers, with ~30% YoY growth and ~26% EBITDA margin in 9MFY26, supported by a scale-up in the CDMO and formulation segments.
* The company’s superior growth trajectory reflects prior capacity creation and elevated CDMO capex (INR39b FY22–26; ~78% toward CDMO/API), enabling the faster conversion of pipeline opportunities compared to peers.
* With a significant capex underway (INR39b over FY22-26; 78% towards CDMO/API) and scaled capabilities, the company appears well-positioned to sustain CDMO growth, benefit from the commercial supply ramp-up, and maintain leadership through the next phase of the CDMO cycle.
* After a low of INR1.6b PAT in FY24, we expect LAURUS to end FY26 with INR8.5b PAT and a 16% CAGR over FY26-28, reaching INR11.5b. We value LAURUS at 62x 12M forward earnings to arrive at a TP of INR1,280. Reiterate BUY.
CDMO divide: Execution leaders vs guidance resetters
* Across the CDMO sector, execution vs guidance has diverged, with LAURUS and Divi’s broadly delivering in line with or ahead of expectations, supported by commercial ramp-up and benefits from prior capacity investments.
* In contrast, Syngene, Piramal, and Cohance have experienced guidance resets or softer outcomes, driven by molecule concentration, destocking cycles, and slower conversion of late-stage programs.
* Newly listed platforms such as Anthem and Sai Life are demonstrating strong early growth and healthy margins due to an innovation-led CDMO mix, although they remain early in their scale and visibility cycle.
LAURUS’ CDMO strategy building scale and capability depth
* The company is scaling its CDMO platform through sustained investments in technology, infrastructure, and pipeline expansion, with more than 110 active projects, supported by stable ARV cash flows that fund expansion without balance sheet strain.
* Capacity creation across peptides, Vizag expansion, client-specific CMO infrastructure, and emerging modalities, such as ADC, gene technologies, fermentation, and spray drying, is backed by elevated capex, with INR7.4b invested in 9MFY26 and INR39b cumulative over FY22–26, of which ~78% 400 is directed toward API/CDMO
* The strong CDMO momentum with growth above 50% in 9MFY26 reflects the ramp-up of growth projects and recurring partner business, positioning LAURUS for commercial scale conversion.
CDMO industry opportunity, with LAURUS positioned at the forefront
* The CDMO industry continues to evolve toward strategic partnerships, supported by outsourcing intensity, rising molecule complexity, and China+1 supply chain diversification, even as revenues remain inherently non-linear.
* LAURUS’ visible mix shift toward CDMO from roughly 11% to about 27%, alongside a stable ARV base, has supported gross margin expansion from about 56% to around 60% and delivered among the strongest CDMO revenue growth across peers.
* Capability-led investments, a diversified pipeline, and increasing commercial programs position the company to capture the next phase of CDMO growth, supporting a further mix improvement, stronger visibility, and operating leverage
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