Laurus Labs Shares Slide After Analysts Raise A Concern

The management has maintained its guidance of Rs 6,500 crore in revenue and stable Ebitda margins of 28% for FY23.
<div class="paragraphs"><p>Source: Unsplash</p></div>
Source: Unsplash

Laurus Labs Ltd. delivered an operationally in-line performance for the third quarter, but analysts remain concerned about pricing pressures on the company's anti-retroviral formulations.

However, they said, the company's valuations were attractive at the current market price.

The drugmaker's net profit rose 32% year-on-year to Rs 203 crore in the quarter ended December, according to its exchange filing. That compares to the Rs 220-crore consensus estimate of analysts tracked by Bloomberg.

The management has maintained its guidance of Rs 6,500 crore in revenue and stable Ebitda margins of 28% for FY23.

Laurus Labs Q3 FY23 Highlights (YoY)

  • Revenue rose 50% to Rs 1,545 crore against the Rs 1,522 crore forecast.

  • Operating profit was up 42% at Rs 404 crore, compared with estimates of Rs 426 crore.

  • Operating margin stood at 26.1%, down from 27.7% a year ago and compared to an estimate of 28%.

Shares of Laurus Labs declined 3.95% to Rs 328.30 apiece as of 9:30 a.m., while the benchmark Nifty 50 eased 0.24%.

Of the 14 analysts tracking the company, nine have a 'buy' rating, three suggest a 'hold,' and two recommend a ‘sell,’ according to Bloomberg data. The 12-month consensus price target implies an upside of 29.9%.

Here’s what brokerages have to say about Laurus Labs’s Q3 FY23 performance:

Motilal Oswal

  • Maintains a 'buy' rating with a target price of Rs 440 apiece, implying an upside of 29%.

  • The company delivered an operationally in-line performance for Q3FY23.

  • This was led by healthy traction in the CDMO-synthesis/non-antiretroviral API segment.

  • On a sequential basis, there was some recovery in the ARV formulation and onco-API businesses for the quarter.

  • The company is enhancing its capabilities for the CDMO business in pharma, biosynthesis, animal health, and agrochemicals.

  • This is enabling more business from its existing customers and expanding its customer base.

  • It is also growing its capacity for non-ARV API and building a product pipeline in the non-ARV FDF segment.

  • Some of the levers would start contributing meaningfully from FY25 onwards.

  • Cut estimates as CDMO business could moderate for FY24 due to the high base of FY23, the gradual ramp up in non-ARV FDF, and operational costs related to expanded facilities.

  • The valuation is attractive.

  • The management maintained its guidance of Rs 6,500 crore in revenue and stable Ebitda margins at 28% for FY23.

  • Laurus received a supply order from the Global Fund for ARV drugs for FY23–25.

  • The company does not expect further price erosion in its ARV business.

  • The non-ARV formulation and API business would ramp up over the medium term, driving better operating leverage for Laurus.

Kotak Institutional Equities

  • Upgrades to 'reduce' with an unchanged target price of Rs 350 apiece, implying an upside of 2%.

  • Delivered 10% Ebidta outperformance in Q3FY23 on brokerage's estimates.

  • This outperformance was entirely led by untenably higher synthesis sales.

  • Reiterates that Laurus’ troubles with ARV pricing and the looming cessation of paxlovid sales are underappreciated.

  • Even as volumes pick up, Laurus Labs’ ARV realisation will stay under pressure.

  • It bids for winner-take-all tenders and lower long-term tender prices.

  • The company has been empaneled in the Global Fund’s HIV procurement, albeit at lower pricing.

  • Being a ‘panel supplier,' the company has certainty on volumes for the next three years.

  • With a pickup in ARV formulations expected, the company is guiding for Rs 2,500 crore in overall annual ARV sales from hereon.

  • As ARV volumes pick up and Laurus adds further synthesis projects, core margins will pick up from hereon.

  • The extent of recovery being factored in by the street is quite elevated and susceptible to downward revisions.

  • As paxlovid sales recede, the true extent of the margin hit will unravel.

  • While the concerns remain largely unchanged, the stock is trading at more reasonable valuations.


  • Maintains a 'hold' with a target price of Rs 325 apiece (revised from Rs 395), implying a downside of 5%.

  • Missed revenue estimates by 4% and Ebitda/PAT by double digits.

  • While CDMO remained strong, performance from other businesses was lower than expected.

  • ARV business continued to dent margins.

  • Laurus reduced FY23 margin guidance to 28% from 30% and commentary towards meeting sales guidance was weak.

  • Outlook remains uncertain due to Paxlovid contract nearing expiry.

  • Believe ARV pain is largely behind as the company has been selected among the suppliers for Global fund ARV formulations segment.

  • Sales for the contract will begin from Q1FY24 and brokerage factors in annual sales of Rs 250 crore from the contract.

  • CDMO sales was better than expectation.

  • However, cautious regarding the prospects of declining Paxlovid sales especially post Q4FY23.

  • Build in sales decline of 10% year-on-year in CDMO segment for FY24.

  • Qualification for the new animal health unit is expected to happen by mid-2023. Brokerage expects significant sales jump only from FY25.

  • Bullish on non-ARV segment on new product launches in Europe (out of 11 approved, 6 are launched and rest will be launched in upcoming quarters) and new contract win prospects.

  • Maintains Hold rating for the stock as it trades at reasonable valuations.


Monal Sanghvi is a Senior Correspondent at BQ Prime. Sh...more
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