Laurus Labs shares tumble as Jefferies cuts target price

The shares of drugmaker Laurus Labs tumbled on January 31 after brokerage firm Jefferies slashed the target price citing an uncertain growth outlook and a cut in the company's margin guidance.

At 12.39 pm, the stock was trading 3.10 percent lower at Rs 331.20 on the National Stock Exchange. The fall in the stock was also accompanied by strong volumes, which were nearly three times the 20-day daily traded average volumes.

While the company's ARV (anti-retroviral) formulation business, which has been a pressure point for the past few quarters, witnessed a sequential improvement in the December quarter, the growth in other verticals began to lose steam, which dented its EBIDTA margins.

On that account, the company lowered its margin guidance for the current financial year to 28 percent from 30 percent.

Brokerages' take 

Jefferies, too, also slashed its target price for the stock by nearly 18 percent to Rs 325 as it factored in the lower-than-expected EBIDTA margins for the October-December quarter and an uncertain growth outlook as the company's anti-viral drug Paxlovid's contract nears expiration. The brokerage firm has a "hold" rating for the stock.

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Another brokerage firm, Choice Equity Broking also expects muted growth for the drugmaker in the next two financial years, largely because of a decline in margins due to a change in product mix and operating de-leverage.

The brokerage house also downgraded its rating to "neutral" with a target price of Rs 323, a potential downside of 5.5 percent from January 30 closing price.

Q3 performance

Laurus Labs reported an over 50 percent on-year rise in net sales for the quarter ended December 31, 2022 led by healthy traction in its CDMO (Contract Development & Manufacturing Organization) synthesis and non-anti-retro viral (ARV) active pharmaceutical ingredient segment. A recovery in the ARV formulation business also aided the topline.

The company's consolidated net profit came at Rs. 203.04 crore in the December quarter, up 32.08 percent from the year-ago period.

EBDITA margin, however, contracted by 160.70 basis points year-on-year due to a change in the product mix. One basis point is one-hundredth of a percentage point.

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