Buy Neuland Labs; target of Rs 914: HDFC Securities

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26 Aug, 2025 12:21

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HDFC Securities' research report on Neuland Labs

Neuland Labs (NLL) delivered poor performance in its 1QFY19 results. Revenue grew 31%YoY to Rs 1.54bn (down 4%QoQ) and EBITDA at Rs 90mn was up 11.3%YoY (sequential drop of 52%) with margin at 5.8% (declining by ~100bpsYoY). PAT reduced by 37%YoY and 95%QoQ, standing at Rs 4.1mn. while revenue beat our estimates by 6%; EBITDA, margin, and PAT were missed by 54%, 750bps, and 94% respectively. Growth in prime API segment led to overall top-line growth in the quarter. NLL’s gross margin for the quarter was 44% (v/s 58% in 1QFY18 and 50% in 4QFY18) which was impacted by two factors: (1) inability to pass on increased input cost to customers, and (2) larger contribution of the low margin prime API segment. The company is working with customers to pass on these hikes and to take gross margin 50% plus in coming quarters.

Outlook

The commercialization of 8 CMS projects which are currently in development and ramp up in existing niche API molecules and approvals for gAdvair in the US (CY18), will further expand margins for NLL. It is also likely to shift 3-4 APIs to new unit 3 in FY19-20, with which it will overcome capacity constraints and see volume growth in its prime API segment. With the expectation that revenue growth will continue and margin expansion will follow, we estimate 18% revenue CAGR, EBITDA margin expanding to ~17%, and PAT growing 6x over FY18-20E. Maintain BUY with a TP of Rs 914 (16x FY20E EPS)

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