Laurus Labs Ltd. share price target

Laurus Labs reported a record Q1 beat with no major one-offs.

Laurus Labs reported a strong operational beat of 8%/20%/41% on sales/EBITDA/ PBT in Q4.

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Laurus Labs reported a consecutive beat with best-ever Q3 EBITDA, led by strong operating leverage in formulations and higher gross margins.

We recently hosted the management of Laurus Labs with investors. Overall, we found management's tone confident yet realistic.

ARV-API (-23% YoY) and Hep-C (-47% YoY), however, were weak. Product mix superior: Gross margin expanded 295bp YoY to 49.5%, led by the increased share of FDF sales. EBITDA margin too improved 385bp YoY to 19.3% (our estimate: 17%), led by a better product mix and lower opex (75bp YoY). EBITDA increased 51% YoY to INR1.4b (our estimate: INR1.1b). PAT doubled YoY to INR566m, driven by strong sales growth, superior margins and a lower tax rate. For 1HFY20, revenue/EBITDA/PAT were up 12%/34%/118% YoY to INR12.6b/INR2.3b/INR716m. Key concall highlights: (1) LAURUS has garnered mid-teen market share in...

Laurus Labs reported its best-ever EBITDA in Q2FY20 with a good topline beat, led by strong operating leverage in the formulation business and gross margin expansion.

Laurus is sitting on ~40% underutilized gross block (~Rs 0.9bn) spread across formulations, CRAMS and API segments. With a sharp jump witnessed in formulations and higher visibility of CRAMS orders for FY20, we are confident that the operating/ financial leverage story will unfold from FY20. Assuming formulations revenues/ EBITDA at US$ 85/ 25mn in FY21E, earnings are likely to grow 2.5x over FY19-21E. With all four ARV formulation approvals (TLD, TLE 400, TLE 600, TEE) in place by 1HFY21, addressing >US$ 1.2bn opportunity, the estimates could be breached easily. Maintain BUY. We maintain a BUY on Laurus despite poor operational performance in 1QFY20. After adjusting for lack of scale up in ARV APIs and buoyancy in formulation segment, we have cut our FY20/21E numbers by 5-8% to arrive at a TP of Rs 470/sh (18x FY21E EPS).

Q1FY20 operational results were in line despite strong gross margin expansion.

With buoyant 4QFY19 numbers, we remain constructive on Laurus and believe it is best-positioned to successfully transition into a formulations and CRAMS player. This will lead to improved profitability in the coming years, driven by better business mix and operating/financial leverage. Laurus entered the US$ 1.8bn ARV formulations market in FY19. In our view, it can capture at least 15% market share (in TLE/TEE/TLD), supported by one of the largest ARV API capacities. With formulations revenues/EBITDA at US$ 85/25mn in FY21E, earnings can triple over FY19-21E (on a soft base). We also expect a couple of big-ticket formulations launches in the US market by FY21, which can further boost profitability. We strongly believe the stock is ripe for healthy returns. We maintain a BUY on Laurus following a bumper (yet inline) 4QFY19. Our TP is unchanged at Rs 535/sh (18x FY21E EPS). The delivery has begun.