Laurus Labs has strong order book visibility, improving margin profile & strengthening return ratios: ICICI Direct

Strong performance driven by formulations…

About the stock: Laurus Labs operates in the segment of Generic APIs & FDFs (formulations), custom synthesis and biotechnology. Major focus in APIs is on ARV, oncology and other APIs.

 It has eight manufacturing units (five FDA approved sites) with 61 DMFs, 27 ANDAs filed (two Para IV, seven first to file), 292 Patents filed (150 granted)

 Laurus acquired Richore Life Sciences to diversify in area of recombinant animal origin free products, enzymes as well as building biologics CDMO

Q1FY22 Results: Laurus Labs reported robust Q1FY22 results.

 Sales were up 31.1% YoY to Rs 1278.5 crore

 EBITDA in Q1FY22 was at Rs 395.4 crore, up 42% YoY with margins at 30.9%

 Consequent PAT was at Rs 241.4 crore (up 40.5% YoY)

What should investors do? Laurus Lab’s share price has grown by ~7.3x over the past five years (from ~Rs 94 in December 2016 to ~Rs 688 levels in June 2021).

 We continue to remain positive and retain our BUY rating on the stock

Target Price and Valuation: We value Laurus at Rs 785 i.e. 28x P/E on FY23E EPS

Key triggers for future price performance:

 Laurus is evolving as a strong vertically integrated player with strong order book visibility and incremental traction from custom synthesis

 Laurus is developing a robust generic pipeline for the developed markets & plans to double the capacity to 10 billion units/annum in the next 18 months

 Laurus supplies APIs to nine out of 10 largest generic pharma companies and has leadership position in APIs like ARVs, CVS, oncology, etc

Alternate Stock Idea: Apart from Laurus, in healthcare coverage we like Granules.

 Granules India is a large-scale vertically integrated company that manufactures API, intermediates and finished dosages

 BUY with a target price of Rs 430