Prospects in key segments to keep Laurus Labs' growth trajectory strong

Laurus Labs has been one of the big outperformers within the pharma space gaining 90 per cent over the past three months; a third of these gains came in the last month. Investor demand for the stock is due to robust growth prospects for each of its three segments, incremental capacities and expansion of product portfolio.

Near term trigger has been the growth in the active pharmaceutical ingredient (API) segment, which accounts for over half of its revenue. Even as overall sales were up 68 per cent y-o-y in the March quarter, the API segment grew 88 per cent.

Within this segment, antiretroviral (ARV) drug sales jumped two-fold driven by higher volumes. Though oncology APIs accounted for 10 per cent of API revenues in the quarter, it is a low volume high margin portfolio; increasing contribution would aid overall margins.    Macquarie Research says that most players are witnessing healthy demand visibility despite Chinese supplies coming back and remain optimistic on the medium term API outlook.

In addition to the traction in the ARV API sales, the company is also adding capacities for other APIs such as cardiology and diabetology and these are expected to contribute to the segment’s growth by the end of the FY22. New segments will enable the company to diversify revenue and dependency on ARV products which accounted for 71 per cent of API sales.

The formulations segment (30 per cent of revenues) is expected to be a key growth driver having scaled up from miniscule revenues three years ago to Rs 1,664 crore in FY21. While growth over the past three years has come from the global tender business, the company is looking at doubling capacities this year to keep growth rates strong. The company is expanding its product portfolio in the US filing 27 abbreviated new drug applications or ANDAs and looking at filing 10 more this year.

Analysts at ICICI Securities expect the segment to grow 20 per cent annually over the two year period (FY21-23) to reach Rs 2,411 crore. Given the healthy pipeline and visibility, Laurus is also expanding capacity in the contract manufacturing and synthesis business. The company, which ended FY21 with revenues of Rs 4,813 crore (about $650 million) is targeting a turnover of $1 billion by FY23.

Sharekhan expects net profit of the company to grow at a strong 25 per cent annually over FY21-23 backed by robust outlook across all its segments. While the outlook remains strong, the stock has run up significantly over the past year; any corrections would be a good opportunity for investors.

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