Shares of Laurus Labs Ltd. jumped to a record high after Antique Stock Broking initiated coverage on the drugmaker with a ‘buy’ rating, saying that it has entered a new growth phase, backed by formulations and custom synthesis businesses.
The company’s finished dosage form business—actual finalised drug product that’s meant for consumption—has grown exponentially over the last three years. Its contribution to the company’s overall revenue in FY21 was close to 36% compared with about 1% in FY18, the brokerage said, as it set a price target of Rs 574 apiece on the stock—implying a potential upside of 45% from Tuesday’s closing.
“We expect the momentum in FDF growth to continue well beyond FY21, driven by low-teens market share of Laurus in the LMIC market (low and middle income group countries), key product launches in the U.S. in FY23 and introduction of new products in the EU CMO partnership,” Antique Stock Broking said in the note.
The brokerage also sees Laurus’ custom synthesis business, or contract manufacturing services for global innovators, as its next growth pillar. It expects this business to contribute 14% to Laurus Labs’ revenue by FY24, growing at a compounded annual rate of 28% over FY21-24.
“Laurus is well positioned to meet all NCE drug substance and drug product needs of clients, from intermediate to API and from small gram scale to large tons requirements with key strengths in high potent APIs and chiral separations,” the report said.
Antique Stock Broking expects Laurus’ earnings per share to grow at an annualised rate of 28% over FY21-24, led by sustained growth in existing businesses and ramp-up in new ventures.
- Antique Stock Broking expects Laurus to continue to grow in the tender business with a market share of 16-18% by FY24.
- Being a fully integrated player gives Laurus the advantage to have a superior margin profile as against non-integrated players.
- “With increase in adoption of TLD (tenofovir/lamivudine/dolutegravir) from 53% to 93% by 2024, we expect Laurus to generate revenue of about $270 million by FY24.”
- Laurus also plans to enter various markets like the U.K., Germany, and the Netherlands, among others, via tender route under its own label.
Satyanarayana Chava, founder and chief executive officer of Laurus Labs, in an interaction with BloombergQuint in February this year, said the drugmaker is confident of continuing on its high-growth path, while maintaining margin at 30%, if not more.
Over the next five years, the company expects active pharmaceutical ingredients to contribute to 40% of its revenue, while custom synthesis grows to 20%, Chava had said. To be sure, this doesn’t mean that the API business won’t grow but the company will focus that much more on custom synthesis.
Shares of Laurus Labs gained as much as 6.8% in early trade on Wednesday to Rs 423.5 apiece. The stock is up for the seventh straight session, its longest winning streak in seven months. Eight of the 11 analysts tracking the company have a ‘buy’ rating, while three suggest a ‘sell’, according to Bloomberg data. The stock is trading near its 12-month consensus price target of Rs 421.5 apiece.