Choice bullish on Laurus Labs: Pharma stock slips 4%; brokerage sees 19% upside potential

Shares of Laurus Labs dropped as much as 3.7 per cent on Friday to touch a day’s low of Rs 901.85 on the BSE, declining from its previous close of Rs 936.75. At last check, the scrip was trading 2.86 per cent lower at Rs 910.

Brokerage Choice Institutional Equities has maintained its 'Buy' recommendation on the stock and raised its target price to Rs 1,085 from an earlier target of Rs 1,025. This new target implies a potential upside of 19 per cent from the current price of Rs 910.

The positive outlook follows what the brokerage termed a "CDMO-Led Exceptional Performance" in the second quarter of FY26. Laurus Labs reported a strong beat across metrics, with revenue growing 35.1 per cent year-on-year (YoY) to Rs 16.5 billion, significantly ahead of the brokerage's Rs 14.3 billion estimate. EBITDA surged 126.1 per cent YoY to Rs 4.0 billion , while adjusted profit after tax (APAT) jumped 874.9 per cent YoY to Rs 1.9 billion, beating estimates of Rs 1.5 billion.

Choice Institutional Equities believes Laurus Labs is successfully "evolving from a traditional Generics player to a CDMO (Synthesis)-led model". This transition is central to the investment thesis, as the high-growth CDMO segment is targeted to exceed 30 per cent of total revenues in the medium term. In Q2, the CDMO segment grew by 57.5 per cent YoY and contributed approximately 28 per cent of total revenue.

The brokerage expects this strategic shift in the product mix, combined with operating leverage from new manufacturing assets, to drive "healthy expansion" in margins, which are forecast to be in the 23-25 per cent range. While the CDMO segment powers growth, the Generics (API + Formulations) segment is also poised for a recovery starting in FY26, supported by strong volumes in antiretrovirals (ARV).

Reflecting the strong quarterly performance and improved outlook, the brokerage has raised its earnings estimates for FY26 and FY27 by 0.9 per cent and 5.6 per cent, respectively.