Laurus Labs Q4 Results Review - Product Mix, Reduced Operating Leverage Hurt Profitability: Motilal Oswal

Motilal Oswal Report

Laurus Labs Ltd. delivered better-than-expected revenue in Q4 FY24. However, Ebitda/profit after tax missed our estimates due to lower sales in the contract development manufacturing organisation segment and weak pricing in the other active pharma ingredient segment.

The $100 million investment in CDMO is ongoing, with:

1. supplies from animal health facilities to commence from FY25, and

2. the facility qualification for intermediate manufacturing in the crop protection segment to be completed by end- FY25.

We cut our earnings estimates by 26%/9% to factor in:

1. the gradual pickup in CDMO business,

2. the delay in ANDA approvals, and

3. increased competition in the API segment.

We value Laurus Labs at 31 times 12 months forward earnings to arrive at our target price of Rs 480.

Laurus Labs invested Rs 26 billion over FY22-24 in the areas of CDMO (Rs 9 billion), APICDMO combined (Rs 10.4 billion), and drug product/FDF (Rs 6.5 billion).

Even assuming a current asset turn of 0.9 times, the sales potential of these investments is Rs 23.4 billion, conservatively.

While there has been a considerable decline in earnings over FY22-24, we expect the commercial benefits from investments to start contributing meaningfully over the next two-three years, thereby improving the return ratios as well. Reiterate Buy.

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