Laurus Labs plunges on yet another bad quarter, management commentary ‘unsurprising’

For the December quarter, Laurus Labs reported a 88.5 percent year-on-year decline in profit at Rs 23.34 crore, with a 67 percent fall in CDMO-synthesis business

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Laurus Labs shares fell 6 percent in the morning trade on January 25 after the pharma company reported fourth consecutive quarterly decline in profit and revenue.

In the December quarter, the firm registered an 88.5 percent year-on-year decline in profit at Rs 23.34 crore for the third quarter of FY24, with 67 percent on-year fall in CDMO-synthesis business.

Revenue dropped 22.6 percent YoY to Rs 1,195 crore. At 9:30 am, the stock was quoting at Rs 374.95 on the National Stock Exchange, down 6.5 percent from the previous close.

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Citi analysts have issued a “sell” call on Laurus Labs with a target of Rs 315. The third quarter sales were subdued, primarily attributed to the high base effect and normalising impact of COVID-related orders from the previous year.

“Negative operative leverage persists as growth investments weigh on EBITDA margins, causing them to remain under pressure. The commercialisation of the animal health project faces a delay of a couple of quarters. Thus, we cut EBITDA projections for FY24-26 by 9-11 percent,” Citi said.

Jefferies has an “underperform” stance on Laurus Labs, revising the target down to Rs 250. The Q3 performance was an all-around miss, particularly in the Contract Development and Manufacturing Organisation (CDMO) and Active Pharmaceutical Ingredient (API) divisions, it noted.

Management’s reiterated commitment to margin improvement in Q4. Management commentary on CDMO division’s recovery was “uninspiring”. Jefferies has reduced EPS estimates for FY25 and FY26 by 19 percent and 16 percent.

Also Read: Kotak Institutional Equities downgrades Laurus Labs rating to ‘sell’

Management comments

The company has been trying to diversify from HIV drugs but the results have not come through yet. In fact, heavy investments have been hurting margins.

When analysts probed when could they expect a recovery in business, CEO Satyanarayana Chava said, “We hope Q4 onwards, we definitely see improvements. That confidence is coming because of the orderbook and the deliveries but we cannot share any quantitative guidance.”

“We have guided that second half of FY24 will be the better than the first half. We are still committed to that. We had not indicated Q3 will be better than Q2 but second half will be definitely better than the first half.”

Speaking to CNBC-TV18 on January 25, Chava said volume was expected to pick-up in Q3, which was delayed. Margin would improve beyond 20 percent in FY25, he said. In the December quarter, the margin stood at 15 percent.

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