Neutral Laurus Labs Ltd For Target Rs. 750 - Choice Broking Ltd
Upgraded to BUY on Strong CDMO Growth and Valuation Revision
We have slightly revised our estimates upward by 4.0%/2.7% for FY26E/FY27E, given the improved performance in the CDMO segment. We believe we are more optimistic compared to the street on CDMO business opportunity. Our view hinges on the following:
In light of this, we have valued Laurus using both DCF (refer to Exhibit 1) and PE multiple to determine a fair price range. Our PE valuation is based on a multiple of 40x on FY27E EPS (up from 37x earlier, reflecting the strategic shift towards CDMO). By averaging both DCF and PE valuations, we arrive at a target price of INR 750 and upgrade our rating to BUY.
Broad Beat Backed by CDMO & Formulations; EBITDA Miss, API Dips: Revenue grew 19.5% YoY / 21.6% QoQ to INR 17.2 Bn (vs. consensus estimate: INR 16.5 Bn). EBITDA increased 74.2% YoY / 47.5% QoQ to INR 4.3 Bn; margins expanded 768 bps YoY / 430 bps QoQ to 24.4% (vs. consensus: 25.2%). PAT surged 210.3% YoY / 150.5% QoQ to INR 2.3 Bn; PAT margin at 6.6%. One-off gain of INR 0.6 Bn in other income due to land sale to KRKA Pharma Pvt Ltd. Adjusted PAT (ex-one-off) stands at INR 1.7 Bn.
CDMO to Drive Long-Term Growth Backed by Pipeline & Capex: The small molecule CDMO (Synthesis) segment continued its robust performance (+95.3% YoY / 15.3% QoQ), supported by multiple mid-to-late-stage deliveries and incremental contribution from new manufacturing assets. We believe this segment holds substantial growth potential, underpinned by a strong pipeline and recurring revenues from existing partnerships. The segment currently contributes 24.7% to revenue (up from 10.8% in FY21), and we expect this to increase to 31.7% by FY27Edriving meaningful improvement in EBITDA margins due to its high-margin nature.
API Recovery Expected from FY26 with Formulations Growth Boost: After a recent decline, the API segment is set for a revenue recovery from FY26, as price erosion stabilizes and order books convert to sales. In formulations, new contracts and manufacturing lines coming online by Dec-25, and non-ARV formulations expected to accelerate from Q3FY26.
Management Call - Highlights
CDMO:
API:
*ARV API + FDF revenue remained stable at INR 2,559 Cr, reflecting consistent order flow from global health programs.
*Non-ARV APIs, especially in oncology, underperformed; de-emphasized in reporting due to low incremental value.
*ARV business expected to remain steady over the next 2–3 years, with Laurus retaining 40% market share in emerging markets.
Formulations:
*FDF revenue reached INR1,230 Cr in Q4; grew 27% QoQ and 5% YoY, driven by execution of multiple integrated CMO contracts.
*Continued growth in regulated markets, supported by scale-up in high-volume generic formulations.
*Non-ARV FDF to lead growth from Q3FY26 onward, with new launches in US and Canada and expansion with key CMO partners.
*KRKA JV progressing well; land acquisition complete, with facility construction to begin by June 2025.
*Focus on rebalancing R&D and manufacturing resources to support broader product pipeline and delivery timelines.
Laurus Bio:
* Ongoing Phase 1 trials for both NexCAR-19 and a BCMA-based product.
* Scaling biologics operations with INR125 Cr investment in a GMP facility for ADC conjugation, plasmids, and viral vectors.
* Long-term aim to build a robust platform for next-gen therapeutics, and becoming a full-stack service provider in cell & gene therapy.
Others:
*Animal Health: Division moved forward with process validations; commercial operations yet to commence, expected to transition to full commercialization in FY26, leading to a significant jump in revenue contribution
*Crop Sciences: First commercial delivery made post-commissioning; customer relationships in early engagement stages, division under development; meaningful traction and revenue ramp-up expected by FY26–27.
*Capex: FY26 CapEx planned at INR 800-1,000 Cr, mainly for fermentation and CMO expansions; debt expected to remain stable.
Outlook:
*Strong visibility in CDMO-led growth, supported by long-term programs and high-value clients.
*Clear roadmap to evolve into a fully diversified CDMO-CMO platform, covering small & large molecules, generics, animal & crop health
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SEBI Registration no.: INZ 000160131
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