MOSL: LAURUS LABS (Buy)-At an inflexion point-Formulations Business – a key driver for earnings growth
Laurus Labs: At an inflexion point; Formulations Business – a key driver for earnings growth
(LAURUS IN, Mkt Cap USD0.6b, CMP INR404, TP INR470, 16% Upside, Buy)
- We believe Laurus Labs is at the cusp of strong earnings growth over FY19-21E, led by increased traction in its formulation business and changed product mix in the API segment.
- The recently awarded formulation contracts provide enough scope for Laurus to break-even in FY20 and improve profitability.
- We expect headwinds in the ARV-API business due to lower offtake of Efavirenz, which should get offset by supply of newer molecules. Accordingly, we expect 69% CAGR in earnings over FY19-21E.
- We expect RoE to improve from 6% in FY19 to ~14% in FY21 due to improving operating leverage in the formulation business and strong traction in the synthesis business. We value Laurus at 18x 12M forward earnings to arrive at a target price of INR470. Resume BUY (earlier Under Review).
Ramp-up visible in Formulation business
- Laurus is looking to ramp up the commercial production of its anti-retroviral (ARV) products after (a) developing products, (b) spending considerable capex (~INR4.2b) to build its formulation facility, and (c) filing products with institutional and regulatory agencies (for the LMIC-WHO/US/EU market) for its ARV products. Post the receipt of approval from the USFDA, Laurus has received an order from Global Fund to supply Tenofovir-Lamivudine-Dolutegravir (TLD) as part of a 3.5-year agreement. Additionally, it also plans to participate in country-specific tenders and business from private companies. Further, Laurus is continuing to develop its product pipeline for the US market. It has filed 18 ANDAs till date with an intention to add ~8-10 ANDAs every year. Till date, it has received four approvals; more approvals should come over the next 12-15 months. Accordingly, we expect its formulation business to increase 5x to INR2.5b (partly on low base) over FY19-21E.
Laurus Labs Ltd. Laurus Labs Limited, formerly Laurus Labs Pvt Ltd, is an India-based research and development pharmaceutical company. The Company is a manufacturer of active pharmaceutical ingredients (APIs) for anti-retroviral (ARV) and Hepatitis C. It also manufactures APIs in oncology and other therapeutic areas. Its business units include Laurus Generics API, Laurus Generics FDF, Laurus Ingredients and Laurus Synthesis. The Company develops and manufactures specialty ingredients for use in nutraceutical/dietary supplements and cosmeceutical products. Its products include Bis-desmethoxycurcumin, Caffeic Acid, Caffeic acid phenylethyl ester (CAPE), Curcumin, Curcuminoids, Diindolylmethane (DIM), Ferulic Acid, Luteolin, Nobiletin and Piceatannol. Its Laurus Synthesis division offers services in over two segments of Contract Manufacture and Contract Development. Its Contract Development includes drug substance services, analytical development services and product development services.
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