Laurus Labs – Can Business Transform to Next Level?

Dr. Chava did his customary quarterly interview with BQ Quint today (Q3 Review | Laurus Labs’ Growth Strategies For Coming Quarters | BQ Prime – YouTube). My brief notes from the interview:

1. Q4 revenues will be around the average of Q1-3, so expect to end the year between 6000-6200Cr revenue (7.5%-4.5% short of revised guidance of 6500Cr)

2. Laurus has reconciled itself to the fact that ARV API + Formulations revenues won’t grow beyond 2500Cr and growth for the company will have to come from elsewhere

3. As per Dr. Chava, Q3 FY23 saw the lowest pricing and margins in the ARV space and he is confident that pricing will only improve from here on (Personal opinion: Considering misleading guidance in the past wrt ARV sales and inventory stocking etc, I would not necessarily take this statement at face value)

4. Expects CDMO revenues in FY24 to remain below FY23 levels or at max be flat YoY. Did not explicitly concede the roll back of Paxlovid revenues in FY24 but his comment probably makes that eventuality clear.

5. On being pressed about margins, Dr. Chava said he does not expect the margins to slide from FY23 levels in FY24 due to rollback of Paxlovid as he expects other CMO/CDMO projects to compensate (I am personally skeptical about this, I think FY24 may see some margin impact)

6. Animal Health CDMO revenues to start in FY24 and meaningfully ramp up in FY25 and agro CDMO revenues to start in FY25 and meaningfully ramp up in FY26

7. Expects FY24 to be muted (Calls it a year of consolidation) and expects FY25 to be a step up year

By the looks of it, the business as well as the stock will go through a period of consolidation for the next year or year and a half. This period will probably solidify the post ARV avatar of Laurus. I think Dr. Chava’s thesis was built on ARV revenues remaining strong for a few more years so that there was a smooth transition from being an ARV led company to being a CDMO led company. But that thesis has been disrupted now with Laurus conceding ARV growth will be capped. Remains to be seen whether the Laurus 2.0 that emerges in FY25 will be more like Syngene or more like a generic pharma API/FDF supplier.

Disclaimer: Exited most of my holdings in last Q. Continue holding a small position.