HDFC Securities is bullish on Laurus Labs has recommended buy rating on the stock with a target price of Rs 480 in its research report dated January 10, 2019.
HDFC Securities' research report on Laurus Labs
Laurus Labs is a young, R&D-driven company with strengths in complex chemistry and cost-efficient capabilities in API manufacturing. Laurus has grown at a scorching pace with 30% revenue, 32% EBITDA and 40% earnings CAGR over FY12-18. However, price hikes in a key raw material (FCME) and Rs 1bn operating spend on the nascent formulations business led to a nosedive in 1HFY19 (40% earnings drop). The stock, too, corrected ~34% (from Rs 566 peak in Jan-18). We believe these issues are temporary and offer investors an opportunity to enter a high quality pharma story at a 24% discount to IPO price. Laurus is likely to come out stronger as backward integration for the key molecule is already in place and the formulations business is about to be in the black with fresh orders.
Moreover, we expect a couple of big ticket formulations launches in the US market by FY21 which can further boost profitability. Initiate coverage with a BUY rating and TP of Rs 480 (18x Dec-20E EPS).
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