MOSL: LAURUS LABS (Buy)-Growth to pick up from FY19
Laurus Labs: Growth to pick up from FY19
(LAURAS IN, Mkt Cap USD0.8b, CMP INR488, TP INR586, 20% Upside, Buy)
- Operationally in-line; PAT hit by higher interest/depreciation and tax outgo: In 4QFY18, Laurus delivered 18.3% YoY revenue growth to INR5.6b (our estimate: INR5.4b), led by 27% YoY growth in ARV-API sales (64% of total sales), 63% YoY growth in Synthesis business (8% of total sales), and addition of formulation sales of INR140m (2.4% of total sales). Pricing pressure in Hep-C and higher fixed overheads related to recently-commissioned facilities led to 410bp YoY decline in EBITDA margin to 20.9% (our estimate: 21%). Higher depreciation, interest and tax outgo led to 39% YoY fall in PAT to INR451m (our estimate: INR528m).
- Higher base in revenue and fixed operating cost impacted FY18 performance: After six years of strong growth, Laurus delivered its second consecutive year of moderate revenue growth (up 8.6% to INR20.7b) in FY18. Gross margin expanded 90bp to 48.6%, an all-time high. However, EBITDA margin shrank 140bp YoY to 20% due higher operating expenses related to recently commissioned facilities. Higher depreciation and tax outgo led to 12% YoY decline in PAT to INR1.7b.
- Valuation and view: We have cut our EPS estimates by 6% to INR27.4 for FY19 and by 3% to INR34.4 for FY20 to factor lower growth in ARV-API business, slower ramp-up in formulation business and higher tax rate. Accordingly, we have revised our price target to INR586 (from INR611 earlier), valuing the stock at 18x 12M forward earnings. We remain positive on Laurus on the back of healthy demand in ARV category, forward integration to formulations for ARV as well as regulated markets, and strong momentum in Synthesis business. RoE should improve from 12% in FY18 to 19% by FY20. Reiterate Buy.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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