Laurus Labs shares hit hard, plunge 6% on poor Q2 show. What's next?

Shares of Laurus Labs Ltd plunged 6 per cent in Monday’s trade after its across-the-board weak quarterly numbers, thanks to poor CDMO (contract development & manufacturing organisation) sales. The company reported a 84 per cent plunge in year-on-year (YoY) September quarter profit, a 58 per cent YoY drop in Ebitda, a 22 per cent YoY fall in sales and a steep contraction in margin. Lower visibility in CDMO sales pushed the management to suggest a lower FY24 Ebitda guidance of 20 per cent against a FY25 guidance of 25 per cent.

September quarter witnessed a sequential recovery but numbers were below estimates on all fronts, said brokerage Sharekhan. It said Laurus' sales missed its sales estimates by 11 per cent, Ebitda by 24 per cent and profit after tax by 54 per cent.

"Laurus sales were largely impacted by 69 per cent decline in CDMO business owing to high base. Excluding high base, CDMO sales grew 18 per cent YoY. A decline in CDMO business and higher other expenses led to Ebitda margin of 15 per cent, 269 bps below our estimates. The management continues to expect FY24 as a year of consolidation on account of higher orders executed in FY23 in the CDMO business resulting in lower product mix and impacting EBITDA margin," Sharekhan said.

The brokerage has a target of Rs 293 on the stock, citing high valuations. The stock fell 6.28 per cent to hit a low of Rs 374.55 on BSE.

Motilal Oswal Securities expects the drug maker to report a 37 per cent YoY decline in FY24 earnings led by a high base related to one-time purchase order executed in FY23, pricing pressure and lower volume off-take in the ARV segment over the past 12 months. Besides, it sees a delay in commercial benefit from non-ARV formulation business.

“However, given the significant investment of Rs 3,000 crore over FY22-24E, robust order-book in the CDMO segment in place, and new launches in Non-ARV formulation segment, we expect FY25 to be much better than FY24. We reiterate our BUY rating on the stock,” it said.

Choice Broking said the growth momentum for Laurus would be supported by the on-going capex, which is majorly towards synthesis and bio division. It also sees healthy contribution from the ImmunoACT and margin improvement as the company takes cost saving measurements.

"FY25 remains a critical year of recovery for the company and expect to show gradual improvement on Revenue / Margin / PAT front. We introduce and roll forward our valuation," it said.

 

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