Laurus Labs Strategically Focused On Talent Acquisition And Programme Advancement, Says CEO Chava
Laurus Labs consolidated net profit declined 28.73% in the fourth quarter of financial year 2024, and it missed analysts' estimates.
The bullish sentiment surrounding the Contract Development & Manufacturing Organization (CDMO) space is driven by the significant allocation of resources to projects within the sector. This allocation serves as a crucial internal metric for gauging future prospects, according to Dr. Satyanarayana Chava, Founder & CEO of Laurus Lab.
Moreover, he highlights the company's strategic focus on talent acquisition, programme advancement, and steadfast commitment to delivering on promises made to customers. Chava explains that the team is fully engaged in fulfilling these commitments, which entails awaiting the transition of projects to commercial stages.
Chava further asserts that the allocation of resources, particularly in R&D, is expected to translate directly into revenues, aligning closely with anticipated projections.
This proactive approach underscores Laurus Lab's confidence in the potential profitability and success of its endeavors within the CDMO space, Chava said in an interview with NDTV Profit's Niraj Shah.
"The only one which is having a big potential and a lot of resources we are putting in is the Human health CDMO", he said. "That's where we see the company will have a lot of opportunities and we also know how many projects we are working on in the Human Space. That's the way we feel meaningful numbers will come in in the near future".
Chava elaborated on the outlook for the animal health space, emphasising the company's meticulous tracking of product types, quantities, and pricing strategies. Anticipating a trajectory of growth, Chava projected that peak revenues in animal health are expected to be achieved by FY27.
FY25 is envisioned as a period marked by a substantial ramp-up in product validations and subsequent supplies. "FY27, we will see more pick-up in validations and FY27 will be the year where we estimate we will reach the potential of our investment in the animal health space," he said.
In the crop sciences space, Chava indicated that the company presently holds one contract, providing a clear understanding of the commitments involved. He emphasised that both the animal health and crop science sectors are devoid of ambiguity.
Chava added that they are increasing capex in the formulations slightly to meet some tertiary packaging requirements from their partner. "We are adding a little bit of API capacity but significantly, we are adding more into the contract manufacturing space," he said.
Laurus Labs consolidated net profit declined 28.73% in the fourth quarter of the financial year 2024, and it missed analysts' estimates.
The company posted a profit of Rs 75 crore in the quarter-ended March, in comparison with Rs 105.27 crore in the year-ago period, according to an exchange filing on Thursday. Analysts tracked by Bloomberg had estimated a profit of Rs 81 crore.
Laurus Labs Q4 FY24 Highlights (Consolidated, YoY)
Revenue up 4.25% at Rs 1,439.67 crore vs Rs 1,380.9 crore (Bloomberg estimate: Rs 1,415 crore).
Ebitda down 15.42% at Rs 241.49 crore vs Rs 285.54 crore (Bloomberg estimate: Rs 252 crore).
Margin at 16.77% vs 20.67%.
Net profit down 28.73% at Rs 75.02 crore vs Rs 105.27 crore (Bloomberg estimate: Rs 81crore).
Watch The Full Interview Here:
Satyanarayana Chava, founder and CEO of Laurus Labs, is with us on the show. Dr. Chava, thanks so much for joining in. Two ways to dissect these numbers I'm going to talk about quarter four first and optically, relative to what Bloomberg estimates, the numbers were below. You had spoken about, though, the possibility of making a dash towards the 20% mark in quarter four. It seems that you've started off on that note because you've come in at margins higher than what you've done in the previous three quarters. Put the quarter into perspective for us, please.
Dr. Chava: As we envisaged, we were able to do very well with respect to revenues, and we also improved our Ebitda margins to closer to 18%. That's the trajectory we anticipate because we're not doing any new initiatives. We're not investing any capacities right now, except to continue to invest in crop science, building additional capacity in animal health. We believe any increase in sales from here onwards will certainly help us improve our Ebitda margins.
Got it. Dr. Chava, we saw the press release post-earnings and we heard the con call as well. There is some stuff that you have guided to and I'll come to that in a moment. But first, the key point—I mean, everybody's talking about the CDMO opportunity, especially after the Biosecure Act. We had a guest just before you who looked at that space closely and was talking about that too. 4% growth in quarter four on a YoY basis in the CDMO business. There is growth; did it live up to the expectations or will a larger portion of that CDMO uptick that is being envisaged come as the quarters roll by?
Dr. Chava: As you are fully aware, the CDMO business has a much longer gestation period than the generics, and you have to travel along with the clinical progress of the molecule. Only the opportunity will be big if the innovator chooses to add another source for an already launching one. That we haven't seen. We have seen many projects in the later phases, which means phase two and phase three, and we are doing validations right now. A lot of our resources are consumed in delivering those kinds of projects to our partners. Why we're very bullish on the CDMO space is because how much of the resources we're putting on those projects is an indicator internally for us to gauge how the future looks like. See, today if we don't have any interesting projects. We also have to go through a lot of introspection. But right now, we are focusing on recruiting more talent, advancing programmes and delivering programmes as we had committed. That means all the team members are busy delivering what we have promised to our customers and we have to wait for them to go to commercial. Some of them are nearing the idea of NDA filing, some have already filed and in the animal health space, we have already got an order for an NC, which we will deliver an FY25, and another two molecules our partner is filing NDA during this year and one will go commercial next year. So things are getting closer to our expectations. That is the reason we are very hopeful about our investments. Both in our R&D resource capacity allocation will certainly yield in revenues, and certainly yield the number that we anticipated.
Dr. Chava is the animal health order; I'll just probe this a little bit. The animal health order I believe in the call you said is likely November. Is this safely predictable or are the timelines still fluid that instead of November, it could well be October, it could well be March as well, for the next year?
Dr. Chava: We have already started manufacturing, so there is no ambiguity there. We have an order on hand and we have started manufacturing. So there is no ambiguity.
So the timelines are November that is one and you spoke about two or three or four things and just trying to understand. Is this a bit of string of pearls that you're stitching or are each of these large enough to make a meaningful differential for the CDMO business for Laurus as they materialise and show in the numbers?
Dr. Chava: In the Animal health space, we know what products we are making, what quantities and what price we are selling. So as we anticipated, we will achieve peak revenues in Animal health in FY 27. FY 25 will be a good ramp up in the product validations and then supplies. FY 27 we will see more pick up in validations and FY 27 will be the year where we estimate we will reach the potential of our investment in the Crop sciences space. Currently we have one contract. We know how much. So these two have no ambiguity and we know what we are doing and another our steroid inter supplies to Aspen is also a contract in place and know how much. So we are solidifying our business coming into commercial supplies. The only one which is having a big potential and a lot of resources we are putting in is the Human health CDMO. That's where we see the company will have a lot of opportunities and we also know how many projects we are working on in the Human Space. That's the way we feel meaningful numbers will come in in the near future.
But I would presume Dr. Chava there on this that giving any kind of timelines is difficult, or is it kind of predictable if you will, on human health?
Dr. Chava: The quantum of opportunities is very big and at the same time it is not predictable, there could be stumbling blocks where the programme could be delayed, FDA could ask more questions. So we have no control on that. Our Animal health and crop sciences. Steroid intermediate we have absolute clarity because there are no surprises here, the positive or negative, whereas in the case of human health we have many projects, it’s not that our future plans are seconded by one programme, we have multiple programmes. If all programmes succeed, we move to the next phase. We will see significant uptake/uptick but we are having a basket approach, so I don't see a challenge for us in that space. But the quantum of business opportunity in the human space is enormous.
Got it. I believe again on the call you said that the ability to go back to the 20% margin. I'm bringing a margin question here because we are talking about CDMO and I believe you said that the ability to go back to 20% from the current let's say quarter for 16 and a half 17 odd % to maybe 20% would hinge on how well CDMO does. You have some sense about November for the Animal health order but some of the others might be moving as well. Do you reckon an average 20% for FY 25 is a possibility or is it difficult to say?
Dr. Chava: We certainly see is a possibility if you see the overall year. So you know, unlike the generic business the CDMO business doesn't go quarter by quarter, you deliver the order in a particular month. So for the overall year we definitely feel that we will be meeting or exceeding the number
But difficult to say I mean, you moved from 15% for three quarters in a row to 17% in Q4 16 and a half or 17% if I'm not wrong. But do you reckon that this uptick could continue into Q1 as well or again even that is difficult to say. Would you be at 17- 18% in Q1 or is it possible that you may move back to 15 but overall you will do 20%?
Dr. Chava: I think overall we are very confident to do 20, I will put it that way. We know when we are going to deliver each project. So the comfort to cross that EBITA of 20% will be very high for the overall year.
Okay. So it could be lumpy but overall you could probably see an average of 20 odd % coming in. Okay, just one quick broad brush question Dr. Chava, we have just five minutes but just trying to understand. Are there significant benefits that could come from the Biosecure Act in the U.S. because a lot of people are saying that India could be a big potential beneficiary. Do you see that and how far dated would it be or could it be immediate?
Dr. Chava: Indian companies will certainly benefit from this Biosecure Act. But I don't expect it is going to be in the next quarter. Maybe in the next financial year, because the technology transfers, validations, approval within their dossiers will take its own time. But it is a good step. So Indian companies will certainly benefit from this Biosecure Act.
Dr. Chava: Indian companies will certainly benefit from this Biosecure Act. But I don't expect it is going to be in the next quarter. Maybe in the next financial year, because the technology transfers, validations, approval within their dossiers will take its own time. But it is a good step. So Indian companies will certainly benefit from this Biosecure Act.
Dr. Chava: As we have seen in our API we started stabilising our revenue stream from the API's. That one surprise for us was the significant growth we have seen in our oncology API. We continue to see good opportunities in the Oncology space that will grow, we thought 300 crores is the peak revenues. Now we believe we can even cross 500 crores in Oncology sales. So that is growing very well with good margins and when the CMO space in generic APIs is also picking up very well. So the ARB (??) will continue to have some headwinds as you mentioned, but those headwinds will be able to manage softening of the raw material prices or the efficiency improvements internally
Okay, so price headwinds, yes, but not so stark that you can now take care of it via efficiencies and volumes. Would that be a fair way to assess it?
Dr, Chava: Absolutely.
Got it. Capex plans for FY 25 700 crores pretty similar to what you've done in FY 24. Where will the larger capex be committed to, Dr. Chava?
Dr. Chava: As we mentioned in our investor presentation also in the call, we also just started construction of a fermentation facility at Vizag because we saw some opportunities in the GMP fermentation space. We are doing GMP fermentation in Vizag, and then food proteins related food and cosmetic precision fermentation at Mysore (??). So both we'll see capex in FY 25 and also, we are increasing a little bit of Capex in our formulations to meet some tertiary packaging requirements from our partner. We are adding a little bit of API capacity but significantly we are adding more into contract manufacturing space.
One final question really and that is whether you see, not FY 25 but maybe FY 26 or thereabouts as a year of change of sorts and where I'm coming from is purely numbers from FY 21 to fy 24 end, the revenues have stayed circa 4800 to 5000 except for FY 23 where there was a bit of a step up and then it's come back again. Operating profit FY 24 versus FY 21 has halved and I know that those are exceptional years but they've come off quite materially. When do things not necessarily go back to those levels, but when do things improve is it that can be expected in FY 26, FY 25, FY 27 or is it difficult to say?
Dr. Chava: We came out of the woods because any new revenue growth for us is going to show significant benefit in our EBITA margins and we believe that FY 24 was a year of consolidation FY 25 will see growth and FY 26-27 will see significant growth. I will put it that way.
