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Laurus Labs Q1FY23 Review: Custom synthesis buoyant; changed-mix to drive growth

ICICIdirect Research 01 Aug 2022 DISCLAIMER

What's Buzzing:

Laurus Labs' Q1 was a beat on revenues estimates amid increased traction for CRAMS while margins were in line.

Context:

Revenues grew 20% YoY to Rs 1539 crore in Q1FY23 on the back of 196% YoY growth in CRAMS to Rs 577 crore led by solid demand from new and existing clients. Formulations de-grew 33% YoY to Rs 349 crore as the higher generic volumes in developed markets was offset by pricing pressure and lower offtake for ARVs. APIs revenues increased 6% YoY to Rs 583 crore, due to de-stocking impact in base year for ARVs business was largely offset by other APIs. Laurus bio segment grew 114% YoY to Rs 30 crore due to operationalisation of new capacities. EBITDA margins declined 141 bps YoY to 29.5%, mainly due to higher other expenses being partly offset by higher gross margins (up 89 bps YoY to 57.6%). EBITDA grew 15% YoY to Rs 454 crore while adjusted PAT grew 4% YoY at Rs 251 crore for the quarter.

Our perspective:

This quarter witnessed significant revenue mix change as, CRAMS (Synthesis+Bio) contributed 39% to the topline vs. 28%, 16% in Q4FY22, Q1FY22, respectively. Pricing pressure in ARV APIs and the formulation business was significant in Q1FY23 and was fully offset by better margins from CRAMS. In formulations, Laurus is likely to take calibrated tendering approach to ensure better profitability while in APIs, ARV business has recovered sequentially and is expected to stabilise around current levels. Laurus commissioned additional capacities in both APIs and formulations during the quarter with expected gradual ramp up through FY23. Positive outlook backed by new project delivery, pipeline expansion and favourable market tailwinds in CRAMS has led the company to target US$1 billion revenues in FY23.

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