EUR 120.00 For Business Accounts Only

MOSL: LAURUS LABS (Buy)- 1QFY23 beats estimates and is progressing well on diversification

• Laurus Lab (LAURUS) delivered better-than-expected 1QFY23 performance fueled by strong growth momentum in the Synthesis (CDMO) segment. LAURUS is on track to incur capex in Synthesis/bio division/Non-ARV formulation (FDF) to cater to business growth over the next 3-5 years. 
• We have tweaked our EPS estimates by -4%/-3% for FY23/FY24 to factor in higher tax rate. We expect 34% earnings CAGR over FY22-24. We continue to value the stock at 23x 12M forward earnings to arrive at our TP of INR680.
• LAURUS has delivered 34% earnings CAGR over FY17-22. We believe that it is well placed to sustain the pace of earnings growth by building capabilities as well as capacities to attract: a) new customers as well as increase business from existing customers in the CDMO segment, and b) Non-ARV business as well as bio-division. Interestingly, the funding requirement for capital investment from internal accruals provides comfort on the balance sheet health. Reiterate BUY.

Superior product mix offset to some extent by higher opex on YoY basis         

• LAURUS’s 1QFY23 revenue grew 20.4% YoY to INR15.4b (our est. INR13.4b), driven by the Synthesis segment that was offset to some extent by the decline in formulation (FDF) segment.
• Synthesis business (37% of sales) surged ~3x YoY to INR5.8b and Bio division sales (2% of sales) almost doubled YoY to INR300m for the quarter.
• API sales (38% of sales) grew moderately by 6% YoY to INR5.8b in 1QFY23. Other API segment sales rose 82% YoY to INR1.4b; Onco API sales increased 6% YoY to INR640m while ARV API sales declined 8% YoY to INR3.8b.
• FDF revenue dipped 33% YoY to INR3.5b, dragged by the ARV business.
• Gross Margin (GM) expanded 90bp YoY to 57.6% led by higher share of Synthesis sales.
• However, EBITDA margin contracted 140bp YoY to 29.5% (our est: 27.4%) due to higher other expenses (+240bp as a % of sales).
• EBITDA grew 15% YoY to INR4.5b (our est. INR3.7b).
• PAT grew at a slower rate of 4.5% YoY to INR2.5b (our est: INR2.1b) owing to higher depreciation and tax rate (29% in 1QFY23 v/s 23.6% YoY).