Goldman Sachs retains 'Sell' call on Laurus Labs, shares target

Goldman Sachs has retained its 'Sell' rating on Laurus Labs with a 12-month target price of Rs 675, hinting at 25 per cent potential downside over Wednesday's closing price. The foreign brokerage valued Laurus Labs at P/E of 40 times, which is at 15-20 per cent discount to the largest domestic CRDMO players such as Syngene International and Divi’s Labs, to factor in lower CDMO scale currently and inferior business mix.

The brokerage, which met with CFO Ravi Kumar at its Asia Healthcare CDMO Conference, said the company expects CDMO to continue ramping up in the coming quarters, primarily on the back of human and animal health projects in FY26 expects CDMO to continue ramping up in the coming quarters, primarily on the back of human and animal health projects in FY26 with increased contribution from the crop segment as well from FY27 onwards. 

On topline, the management mentioned that they have laid strong foundations for FY26 and beyond. It also expect margins to improve in FY26 driven by uptick in asset utilisation, mix improvement and productivity gains.

Laurus Labs noted the long lead for green field investments - e.g., a formulation facility takes 2.5-4 years to commercialise (18-24 months for construction, another 12-24 months for regulatory approval) against brownfield which takes 1.5-2 years to commercialise given the shorter construction cycle.

Laurus Labs, Goldman Sachs said, has outlined $250 million capex, spread over FY26 and FY27, - half of which is split out for CDMO, which could help Laurus reach 50 per cent of consolidated revenues from CDMO over the medium term. 

In terms of ongoing investments, Laurus has 19 Animal Health projects with 1 customer following Rs 500 crore ($60mn) capex, where it believes fixed asset turns can be above 1 time. 

Lastly, Laurus has initiated a Rs 240 crore ($30mn) capex for fermentation expansion - new large-scale commercial microbial fermentation facility with over 400KL capacity in Vizag (expected to be completed by 2026-end) remains on track, as it believes there are early indications from the customer.