CRAMS TO THE FORE IN Q3 WITH SIGNIFICANT MIX CHANGE

News: Laurus 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 ARV business. 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. ARV APIs sales declined 8% YoY to Rs 379 crore while oncology API posted growth of 8% YoY to Rs 64 crore and other API grew 82% YoY to Rs 140 crore. 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 amid adverse operating leverage 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. Delta vis-à-vis EBITDA was on back of higher depreciation and tax expense along with lower other income.

Views: Laurus Labs’s Q3 was a beat on revenues estimates, although heavily skewed towards CRAMS while margins were in-line. This quarter witnessed significant revenue mix change as, CRAMS (Synthesis+Bio) contributed 39% to the top-live v/s 28%/16% in Q4FY22/Q1FY22. 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. Additional capacities, were commissioned 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 to company targeting US$1 billion revenues in FY23. Laurus has multiple planned capacity expansions in portfolio based on complexity and scale towards strengthening and diversifying business by an increased focus on Non-ARV APIs and Formulations and high-growth CRAMS segments.

Impact: Positive.