KR Choksey's research report on Laurus Labs
Laurus Labs’ revenue missed our estimate due to weak demand in the Generic API segment. The profitability missed our estimates significantly due to operating deleverage and lower utilization. • We believe the performance will improve in H2FY25E as its newly established facilities will ramp up and additional CDMO orders will be delivered. • We lower our FY26E EPS estimates by 5.5%, due to subdued demand in the Generic API segment while we maintain the P/E multiple of 36.6x on FY26E EPS of INR 13.4 (previously: INR 14.1) to arrive at a target price of INR 489/share (previously: INR 516/share). The demand for Generic API is reduced due to increased competition, and the challenge is to effectively manage the huge upfront costs invested. The company has to ensure that new projects will pick up as planned and start generating revenue to improve operating leverage in the coming quarters.
Outlook
We believe performance will improve in H2FY25E as its newly established facilities will ramp up and additional CDMO orders will be delivered so we maintain a P/E multiple of 36.6x on FY26E EPS of INR 13.4 (previously: INR 14.1) to arrive at a target price of INR 489/share (previously: INR 516/share). The demand for Generic API is reduced due to increased competition, and the challenge is to effectively manage the huge upfront costs invested. The company has to ensure that new projects will pick up as planned and start generating revenue to improve operating leverage in the coming quarters. Given the 5.4% upside, we reduce our rating to “ACCUMULATE” from “BUY” on the stock.
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