Laurus Labs slips 2% on dismal earnings; brokerages foresee bleak growth

Laurus Labs registered an EBITDA margin of 14.1 percent in April-June, the lowest-ever on a quarterly basis.

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Shares of Laurus Labs slipped 2 percent in early trade on July 28 following the company’s dismal earnings for the April-June quarter, which prompted brokerages to roll out a bleak growth outlook for the pharmaceutical company.

The company reported an 88.8 percent plunge in consolidated net profit on the back of a 23.2 percent slide in revenues during the April-June period.  Not just that, operational metrics also remained weak as the EBITDA margin eroded sharply to 14.1 percent in April-June, from 29.5 percent in the base quarter. The EBITDA margin reported in Q1 was also historically the lowest on a quarterly basis for the drug maker.

At 09.22 am, shares of Laurus Labs were trading one percent lower at Rs 340.55 on the NSE.

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What analysts are saying

Moreover, the management also retained its sales outlook for FY24 as it expects revenue expansion of base pipeline projects and 2H Animal health contract supplies kick-off in the CDMO (Contract Development and Manufacturing Organisation) business.  However, that did little for brokerages to consider it as a positive trigger for the upcoming quarters.

Foreign brokerage Jefferies noted that tepid growth in the base business along with the absence of any major CDMO product should result in persisting margin pressure for the drug maker.

Alongside, the brokerage also slashed its FY24-26 EPS estimate for Laurus Labs by 12-24 percent. Jefferies has an ‘underperform’ call on Laurus Labs, with a price target of Rs 250, which reflects a downside potential of over 27 percent from Thursday’s closing price.

Also Read: Laurus Labs Q1 results: Net profit tanks 88.8% to Rs 28.4 crore

Margin erosion

A similar bearishness was seen by InCred Equities as it cut its price target for the stock to Rs 294 to price in a downside potential of 14.5 percent from Thursday’s closing level. The brokerage also retained its ‘reduce’ rating on the drug makers, largely on the back of a sharp margin erosion on a year-on-year as well as sequential basis. The firm also believes the current valuations of the stock are expensive, hinting that it will further cap its upside.

Choice Broking also sees the drugmaker’s Q1 earnings as an indication of a subdued performance through FY24. Additionally, the broking firm believes it will take immense effort from the company to come close to its FY23 performance from the current run rate. “Further, the ongoing capital expenditure of Rs 1,000 crore will further make it difficult for Laurus Labs to generate a free cash flow in FY24,” the broking firm mentioned in its report. Choice Broking also has a ‘neutral’ stance on Laurus Labs, with a price target of Rs 328.

Aligned with the trend, Motilal Oswal Financial Services also cut its earnings estimate by 6 percent/3 percent for FY24/FY25 factoring in the adverse impact on Non-ARV (antiretroviral) API (Active Pharmaceutical Ingredients) business, a gradual pick-up in the formulation business, and higher operational costs.

However, marking a stark contrast from the consensus, MOFSL retained its ‘buy’ call on the stock, with a rather bullish target price of Rs 410. The firm attributed significant progress across different aspects within the CDMO segment, the limited scope of price pressure in the ARV segment, and adding customers/new products in the Non-ARV API/Formulation segment as reasons behind the positive outlook for Laurus Labs.

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