Laurus Labs shares up 300% this year; API business drives growth; should you buy?

Laurus Labs share price zoomed 6% on Friday morning to trade at a price of Rs 1,491 per share. With the recent surge in the stock price, Laurus Labs has now helped investors gain over 300% return on their investment since the beginning of this calendar year. Shares began trading on January 1 at a price of Rs 368 per share. The company derives revenue from segments –APIs, formulations and Synthesis (CDMO). Analysts say that the rapid diversification undertaken by the company will help it boost sales of API and formulations, making it a favourable bet in the post-coronavirus world.

Between fiscal year 2018 and 2020, Laurus Labs has shown its strength by driving API and formulations segment revenues up from Rs 5 crore to Rs 825 crore. “In order to supplement future growth, a | 300+ crore capex plan is already under way to increase current capacity by 1.8x by second half of financial year 2022,” said ICICI Direct in a recent note. The brokerage firm expects formulation revenues to grow at 41.5% CAGR in between last fiscal and financial year 2023 to Rs 2,339 crore. The API business contributed 57% of Laurus Labs revenue in the previous financial year, while finished dosage formulations contributed 29% and Synthesis made 14% of the revenues. ICICI Direct has a ‘Buy’ call on the scrip with a target price of Rs 1,620 per share. 

In the previous quarter, Laurus Labs recorded its all-time high quarterly net profit of Rs 171 crore, against Rs 15 crore in the same period last year. Brokerage and research firm Motilal Oswal also gave a positive recommendation for Laurus Labs last month. “We remain positive on Laurus on the back of superior execution across revenue segments, resulting in expansion of ROE to 27% and sufficient levers to sustain the earnings momentum,” it said. Laurus Labs has shown strong improvement in performance primarily led by a doubling of formulation sales, 30% growth in each API and CDMO segment.

Laurus Labs has been the supplier of APIs to some of the biggest global pharma companies, analysts say. This  helps the company leverage on a 3,403 KL capacity across four of its manufacturing facilities with an additional 870 KL under expansion. Earlier last month, brokerage firm Ambit also gave a ‘Buy’ call to the stock with a target price of Rs 1,295 per share that the stock has already breached. Analysts at Ambit were upbeat on the company’s sales mix, expecting the revenue to grow consistently for the next two fiscal years. However, ICICI Direct highlighted that the company could stand to lose if prices of  API and formulations drop. “These are mainly financed by international agencies such as Global fund, PEPFAR etc. Besides this, there are various in-country African tenders, which are highly competitive in nature. Thus, any fall in pricing to reduce costs may cause a significant impact on profitability assumptions,” it said.