Laurus Labs slips 5%, hits over 2-year low post December quarter results

Shares of Laurus Labs hit an over two-year low of Rs 324.25 as they slipped 5 per cent on the BSE in Tuesday's intra-day trade after the brokerage firms cut earnings estimate post the company's October-December quarter results.

The stock of the pharmaceutical company was trading at its lowest level since December 2020. In the past three months, it has declined 27 per cent, as compared to 2 per cent fall in the S&P BSE Sensex. Further, in the past six months, the stock has slipped 37 per cent, as against 3 per cent rise in the benchmark index.

"Laurus is enhancing its capabilities/capacities for the CDMO business from pharma, bio-synthesis, animal health as well as agro-chemicals, which is not only enabling more business from its existing customers but also expanding its customer base. It is also growing its capacity for Non-ARV API and building a product pipeline in the Non-ARV FDF segment. Some of the levers would start contributing meaningfully from FY25 onwards," Motilal Oswal Financial Services said in result update.

However, it has cut its earnings estimate by 4 per cent/11 per cent/6.7 per cent for FY23/FY24/FY25, respectively, considering moderation of CDMO business for FY24 on a high base of FY23, gradual ramp up in Non-ARV FDF, and operational cost related to expanded facilities

Laurus has multiple planned capacity expansions in portfolio based on complexity and scale towards strengthening and diversifying business by an increased focus on non-ARV APIs and formulations and high-growth Custom synthesis segments.

Meanwhile, for October-December quarter (Q3FY23), Laurus Labs delivered operationally in-line performance, led by healthy traction in CDMO-Synthesis/Non-ARV API segment. The growth is also supported by anticipated recovery in ARV FDF segment, which is likely to continue despite pricing challenges, the management said.

The company’s revenues grew 50.2 per cent year-on-year (YoY) to Rs 1,545 crore in Q3FY23 on the back of 210 per cent YoY growth in Custom synthesis to Rs 642 crore led by solid demand from new and existing clients. Formulations de-grew 33 per cent YoY to Rs 249 crore. APIs revenues increased 49.1 per cent YoY to Rs 632 crore driven by increased volumes.

The company’s profit after tax grew 32 per cent YoY to Rs 203 crore for the quarter. Earnings before interest, tax, depreciation, and amortisation (Ebitda) margins declined 161 bps YoY to 26.1 per cent.  However, the company maintained its guidance of Rs 6,500 crore revenue and stable Ebitda margins at 28 per cent for FY23. 

"Laurus has witnessed severe pricing pressure and lower volumes in its ARV formulations portfolio for six quarters now, resulting in significant pressure on core margins. Once Paxlovid contribution recedes 4QFY23 onwards, the impact of lower ARV pricing should start reflecting in weaker overall margins, despite some respite hereon from higher capacity utilization, lower RM prices and backward integration initiatives. We have lowered our FY2023-25E EPS by 1-6 per cent due to lower ARV sales and higher tax rate," said analysts at Kotak Institutional Equities.