Daily Morning Briefing : Buy Laurus Labs Ltd for the Target Rs. 1,085 by Choice Institutional Equities
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 30%+ of revenues in the medium term. We expect margins to see a healthy expansion (23-25% range) given the change in product mix, higher-margin profile of CDMO, and operating leverage from new manufacturing assets ramp-up. We raise our earnings estimates by 0.9%/5.6% for FY26E/FY27E. We value the company on an average of FY27-28 EPS estimates at 50x (unchanged), reflecting stronger growth visibility relative to peers and anticipated expansion in margins and return ratios. This results in a TP of INR 1,085 (Q1FY26: INR 1,025), and we maintain our BUY rating on the stock. A sanity check on the PEG ratio (0.94) further supports our valuation.
Strong Beat Across Metrics; CDMO Momentum Sustains Performance
* Revenue grew 35.1% YoY and 5.3% QoQ to INR 16.5 Bn (vs. CIE estimate: INR 14.3 Bn).
* EBITDA surged 126.1% YoY and 5.5% QoQ to INR 4.0 Bn; margins expanded 979 bps YoY / remained flat QoQ at 24.4% (vs. CIE estimate: 25.0%).
* APAT jumped 874.9% YoY and 20.3% QoQ to INR 1.9 Bn (vs. CIE estimate: INR 1.5 Bn).
CDMO Segment Poised for Long-Term Upside
CDMO segment grew strongly by 57.5% YoY, now contributing ~28% of revenue, driven by conversion of several projects to commercial scale and ramp-up of new manufacturing assets. The current 200 KL capacity is fully utilized, with an additional 400 KL in Vizag Phase 1 expected to be commissioned by 2026-end. We expect future growth will be led by expansion into Antibody Drug Conjugates and Gene & Cell Therapy along with its strong existing order book. This will also position CDMO to exceed 30% of revenues in medium term with robust margins.
Generics (API + Formulations) Recovery Expected from FY26E Onward
The Generics (API + Formulations) segment is poised for recovery from FY26E, supported by strong AntiRetroviral (ARV) volumes and robust US generics launches (such as Valsartan). We expect LAURUS’ growth to be driven by its dual approach of partnerships—particularly with European companies—and leadership in select generic molecules. The company currently has around 90 finished dosage products filed, and expect API growth to be in the high single digits and formulations in the high teens.
Management Call - Highlights
CDMO – Small Molecules:
* Strong Performance: CDMO division recorded Q2 sales of INR 4,710 Mn; H1 sales at INR 9,640 Mn, up 88% YoY.
* Pipeline Strength: Healthy momentum with several mid- to latephase programs and new commercial supplies.
* Expanding Customer Base: Balanced mix of big pharma and midsized biotech clients.
* Capacity Expansion: 400 KL fermentation facility (Vizag) on track for end-2026 completion, further expansion underway for advanced modalities.
* Divisional Mix: CDMO (small + large molecule) currently ~30 % of revenue and is expected to rise further.
API:
* API Growth: Higher CMO activity levels led to API growth of over 10%. The ARV (antiretroviral) API business continues to perform well, supported by steady global demand and strong customer relationships.
* Revenue Guidance: Full-year ARV revenue maintained at INR 25,000 Mn.
* Operations: Capacity rebalancing / debottlenecking completed in key ARV API lines. On-time deliveries for all major tenders.
* Dossier Filings Progress: Laurus Labs has filed over 91 DMFs (Drug Master Files) to date. 4 approvals and 3 new dossiers filed in H1.
Formulations:
* Growth Drivers: Volume expansion in ARV formulations and strong performance in US generics.
* Strategic Focus: Aim to achieve global leadership in 15+ key molecules. Strengthen CMO partnerships, particularly in Europe.
* Expansion: Construction of the KRKA joint venture formulation plant in Hyderabad began in June 2025, with Phase 1 expected to be completed by mid-2027.
* Outlook: Stable growth with improving utilization and continued momentum in US launches.
Laurus Bio:
* Quarterly Performance: Sequential revenue rose over 60%, driven largely by growth from a de-risked customer base and commercialized products.
* Capacity Utilization: Existing Bangalore (200 KL) plant fully utilized. 400 KL fermentation facility (Vizag) on track for end-2026 completion.
* Growth Drivers: Accelerated discussions for long-term customer contracts, providing improved visibility into FY27 and beyond.
* Investment Plan: USD 25 Mn capex over next 3 years toward gene therapy, ADCs & precision fermentation.
* Outlook: Material contribution expected from FY27 onward; biologics CDMO viewed as a major growth engine.
Outlook:
* Confidence in Growth Trajectory: Management remains confident in improved growth for the rest of FY26 and its strategic direction for future value creation.
* Long-Term Investment Plan: The company plans to invest over USD 600 million over the next eight years in manufacturing and R&D expansion.
* Strategic Focus: Continued emphasis on R&D innovation, asset optimization, and balance sheet discipline to drive long-term shareholder value.
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SEBI Registration no.: INZ 000160131
