Plan to cross USD 1bn revenue by FY23 – Laurus Labs

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Excerpts of an interview with Mr. Satyanarayana Chava, Founder & CEO, Laurus Labs aired on CNBC TV-18 on 30^th April 2021:

• Laurus Labs recently declared 4QFY21 results, wherein Active Pharmaceutical Ingredient (API) revenue is up 88 percent and formulations are up 61 percent YoY. EBITDA margins reported were 33.4%.
• They have the capacities, products to be made, and customer demand and expect reasonable growth in FY22.
• The 30% + EBITDA margin is a benchmark. They will aim to achieve these margins to maintain healthy growth.
• They continue to invest in infrastructure, investing Rs 7,000mn in FY21. They have earmarked Rs 15,000-17,000 mn for FY22 and FY23 for capex to augment their capacities in all 3 divisions.
• The growth in API business has nothing to do with manufacturing Covid-19 drugs. The growth came primarily from antiretroviral, oncology and contract manufacturing for other generic companies. So far, there hasn’t been any disruption in the supply chain and no impact is expected from the 2^nd Covid wave. There was an increase in logistic cost though.
• The internal target is to cross USD 1bn in revenues by FY23E. With the capex incurred in FY21 and planned in FY22-23E, there will be a growth in revenues in FY22-23E.
• The raw material price increase in products such as Paracetamol and Azithromycin was due to higher demand. In the products Laurus labs is manufacturing, the demand has not shot up as it has for the 2 products.
• They are not passing on any of the incremental costs to customers. Due to covid-19, there was an incremental expense of USD 10mn, which was not passed onto customers.
• Rather than investing in a one-time product, they are investing in the longer term. There is significant investment being made in the CRAMS business as they foresee sizeable growth in that division.

Asset Multiplier Comments

• The ramp-up in formulations business is expected to continue over FY20-23E. The execution in the US and EU are crucial to drive the next leg of formulations growth.
• With a renewed focus on the synthesis segment, with R&D, increase in the number of customers, and addition of capabilities positions Laurus to evolve its business mix over the next 3-5 years.

Consensus Estimate: (Source: market screener website)

• The closing price of LAURUSLABS was ₹ 478/- as of 03-May-2021. It traded at 22x/ 20x the consensus earnings estimate of ₹ 21.3/ 23.9 per share for FY22E/FY23E respectively.
• The consensus target price of ₹ 414/- implies a PE multiple of 17x on FY23E EPS of ₹ 23.9/-.

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