In this blog, we will look at Laurus Labs Ltd business and understand why this midcap pharma company is another Multibagger stock due to its world class R&D.

Company Overview:

Laurus Labs is a Hyderabad-based leading R&D driven pharmaceutical company in India, with a leadership position in generic active pharmaceutical ingredients (APIs) for select, high-growth therapeutic areas of anti-retroviral space (ARV). It has transformed itself from a one product company in 2010 to currently having presence across API, Formulations, CDMO and Biologics. The company also has presence in oncology and other APIs. Its strategic and early investments in R&D and manufacturing infrastructure enabled it to be one of the leading suppliers of APIs in the ARV (Anti-Retroviral) therapeutic area to multinational pharmaceutical formulation companies, which cater to the large and fast-growing ‘donor funded access-to-medicines markets’ of Sub-Saharan Africa, South-East Asia and Latin America. The company has a dedicated R&D team for developing processes and products to create a diverse range of medicines. Company has six manufacturing facilities in Visakhapatnam and a lab facility in Hyderabad.

Products:

Laurus has three distinct business units namely Generics API, Generics FDF and Synthesis.

  • Generics API – Anti-retroviral (ARV), Anti-diabetic, Cardiovascular, Proton Pump Inhibitors (PPIs), Oncology.

  • Laurus Generics FDF – Anti-retroviral (ARV), Anti-diabetic, Cardiovascular, Proton Pump Inhibitors (PPIs), Central nervous system (CNS)

  • Laurus Synthesis – Commercial scale contract manufacturing (CRAMS), Clinical phase supplies, Analytical and research services, Nutraceuticals, dietary supplements and cosmeceutical products

Subsidiaries, Margin and Holding Pattern:

The Company has five subsidiaries namely Sriam Labs Private Limited, Laurus Holdings Limited, Laurus Synthesis Private Limited, Laurus Generics (SA) Pty Ltd. and Laurus Bio Private Limited.

Laurus Labs Ltd Holding
Holding Pattern
Laurus Labs Ltd Margin
Margin

Key Rationale :

  • Agreement with ImmunoACT – Laurus Labs has signed an investment agreement with Immunoadoptive Cell Therapy Private Limited (ImmunoACT), an advanced cell and gene therapy company, for a 26.6% stake in the company (on a fully diluted basis) for a cash consideration of approximately Rs.46 crs, implying enterprise value of Rs.170 crs. The senior management would also invest Rs.9.8 crs in ImmunoACT for a 5.64% stake at the same price and terms. This investment would provide LAURUS access to CAR-T therapy, a promising treatment option with great success in the western world. ImmunoACT currently has four CAR-T cell molecules, with one of them undergoing clinical trials. CAR-T cell is a new therapy for Leukemia/Lymphoma, with USD 1.5b in worldwide sales of five commercialized products. CAR-T therapy is not available in India. This collaboration would help Laurus provide this novel technology to Indians at very affordable pricing.

  • Q2FY22 – Laurus Labs Ltd reported revenue growth of 5.7% YoY to Rs.1204 crs in Q2, partially offset by APIs (down 7.7% YoY). Revenues were mainly driven by 33.6% YoY jump in CRAMS business to Rs.155 crs and growth in formulations to Rs.495 crs (up 9.5% YoY). ARV revenue de-grew 11% YoY to Rs.337 crs while oncology API de-grew 14.2% YoY to Rs.74 crs while other API grew 9.4% YoY to Rs.116 crs.

  • Expansion – Laurus is one of the fastest-growing pharmaceutical companies. One of the key reasons for the consistent strong performance is the capacity expansion plans being implemented by the company with an objective to ensure economies of scale and adequate supplies to customers. Laurus has embarked on an ambitious capacity expansion plan at an investment of Rs.1500-1700 crs over the next two years. In that, company has invested around Rs.242 crs in Q2FY22 and Rs.518 crs (includes the land they have acquired for parent as well as subsidiaries) considering overall H1FY22. Laurus is also expanding capacities towards backward integration of intermediates, additional API capacity for existing products and new product

  • Financial Performance – The company has a decent balance sheet with a debt-to-equity ratio of 0.6 as of H1FY22. The company’s consolidated Revenue CAGR for the past 3 years is at 33% and the PAT CAGR is at 80% for the same period. EBITDA margins have been maintained around 29-33% levels for the past 6 quarters.

Industry Analysis:

Indian pharmaceutical industry is expected to reach ~US$ 130 billion by 2030. India ranks 3rd worldwide for pharmaceutical production by volume and 14th by value.

Indian pharmaceutical sector is expected to grow at a CAGR of 22.4% in the near future and medical device market expected to grow US$ 25 billion by 2025. India is the second-largest contributor of global biotech and pharmaceutical workforce

The Indian pharmaceutical industry has been generating a trade surplus of ~US$ 11 billion each year, since 2019. Domestic API consumption is expected to reach US$ 18.8 billion by FY22.

India’s drugs and pharmaceuticals exports stood at US$ 24.44 billion in FY21. India is the
12th largest exporter of medical goods in the world. The country’s pharmaceutical sector contributes 6.6% to the total merchandise exports.

Generic drugs account for 20% of the global export in terms of volume, making the country the largest provider of generic medicines globally. Exports of Indian pharmaceuticals, including bulk drugs, intermediates, drug formulations, biologicals, etc. reached US$ 16.28 billion in FY20.

Growth Drivers:

The foreign direct investment (FDI) inflows in the Indian drugs and pharmaceuticals sector stood at US $17.75 billion between April 2000 and December 2020.

In February 2021, the government approved a production-linked incentive (PLI) scheme for the pharmaceuticals sector from FY21 to FY29. The scheme is expected to attract investments of Rs.15,000 crs (US$ 2.07 billion) into the sector.

It is also expected to lead to incremental sales of Rs.2,94,000 crs (US$ 40.63 billion) and exports of Rs.1,96,000 crs (US$ 40.63 billion) between FY23 and FY28. India’s ability to manufacture high-quality, low-priced medicines, presents a huge business opportunity for the domestic industry.

Outlook & Valuation:

Built on strong capabilities in chemical development and manufacturing, Laurus Labs Ltd has developed a wide range of in-house APIs and intermediates.

Laurus is one of the world’s leading suppliers of anti-retroviral APIs and intermediates. The company’s low-cost technologies give it an edge over other players.

Leveraging on API cost advantage for forward integration into generic formulations (FDF) and capitalizing on its leadership position in APIs (in key areas such as oncology, cardio-vascular, anti-diabetics, and ophthalmology) with foray into other regulated markets will drive the company’s business over the next couple of years.

Moreover, the company is doubling its capacity to support growth in the formulations business, which points towards healthy growth going ahead. Basis the sturdy growth prospects that are well supported by capacity expansion plans, the management has targeted for a $1bn revenues by FY2023, thus translating in to a strong growth trajectory.

Diversification of revenue base and plans to enter new therapeutic areas of cardiology and anti diabetes would also be the key growth drivers.

The company is building new capacities that would support robust demand and also propel growth in the coming years. Strong topline growth prospects, visibility on earnings and healthy return ratios and low debt-equity are the key positives.

Hope you liked our article on Larus Labs Ltd , please read our other article on “ETF vs Mutual Fund vs Index Fund“