LAURUSLABS - Laurus Labs Limited Share Price

In the Q2 FY '26 earnings call, Laurus Labs management provided an optimistic outlook, emphasizing their robust demand in the anti-retroviral (ARV) and CDMO sectors. They reported Q2 revenues of INR 1,653 crores, reflecting a 35% growth year-on-year, bolstered by a solid 88% increase in CDMO sales to INR 471 crores. Gross margins improved to around 60%, and EBITDA margins increased to 26%, with overall income from operations for H1 standing at INR 3,223 crores.

Key forward-looking points included:

1. Expansion Plans: The management announced a significant investment of approximately $600 million over 8 years to develop a new pharmaceutical manufacturing complex on a 532-acre site in Vizag. This facility aims to enhance Laurus Labs' global manufacturing capabilities.

2. CDMO Growth: The CDMO division is expected to continue experiencing strong demand, with and increasing contributions from mid to late-phase program deliveries. The division recorded a total of INR 964 crores in H1.

3. Long-term Strategy: The firm remains confident that its R&D-driven commercial strategy will yield substantial long-term value. Their focus on complex chemistries and modalities, including gene therapy and ADCs, will support sustainable growth.

4. Financial Guidance: The management projected ARV sales to stabilize around INR 2,500 crores for FY '26, providing some leeway of INR 200 crores, maintaining confidence in sustained growth and EBITDA margin improvement as operational leverage from recent capex investments takes hold.

5. Tech Investment: Laurus Labs also invested in an ADC technology platform, enhancing their capability in integrated ADC services, which aligns with their strategy to tap into advanced modalities.

These insights reflect a clear direction toward growth and increased operational efficiencies in Laurus Labs' strategic execution moving forward.

Q1: On the gross margin front, how do you explain the improvement despite changes in the product mix?
Answer: I appreciate your question. Our Q2 gross margin improved from 59.4% in Q1 to 59.9%, almost 60%. This was primarily due to increased revenue from our commercial CDMO deliveries and higher ARV and API sales. The better mix and delivery of more commercial molecules contributed positively to our margins.

Q2: What is the breakdown of ARV sales for the quarter?
Answer: We recorded total ARV sales of INR733 crores this quarter, compared to INR647 crores in the previous quarter, which is an increase of about INR90 crores. The breakdown shows API sales at INR395 crores, with the remainder being from formulations.

Q3: Will ARV sales remain stable at around INR2,500 crores this fiscal year?
Answer: I stand by my previous assertion that ARV sales should reach around INR2,500 crores, give or take a couple of hundred crores. Yearly variations depend on tender outcomes and supply agreements, which can fluctuate.

Q4: Can you clarify the working capital cycles for synthesis and FDF businesses?
Answer: The working capital cycle tends to be longer for both synthesis and FDF due to complexities in the CDMO processes. However, the formulation business also experiences fluctuations based on product types, making it prudent to consider these variables before giving exact numbers.

Q5: How do you see your EBITDA margins performing in the current investment cycle?
Answer: I am confident that EBITDA margins will improve as we shift our product mix towards higher-margin offerings in CDMO. Operating leverage should also enhance margins as our assets are utilized more effectively, but I won't specify a numerical target right now.

Q6: Are you seeing an increase in RFPs due to supply chain diversification trends?
Answer: While there are discussions about shifting supply chains to regions like India, directly correlating this with increased RFPs is challenging. Ultimately, winning RFPs depends on our capabilities rather than merely external pressures to diversify.

Q7: What is your view on investments in the R3 plant at Mysore?
Answer: We are currently prioritizing the new fermentation facility in Vizag due to its superior infrastructure. The Mysore site had delays due to incomplete waste management facilities, leading us to focus our investments elsewhere for now.

Q8: What are your future capex expectations?
Answer: We anticipate a total capex nearing INR1,000 crores this year, with INR480 crores spent in H1. This includes our plans for the new 532-acre complex, with a $600 million investment projected over eight years.

Q9: Are you expecting to increase capacity to meet CDMO demand?
Answer: Yes, we are actively expanding our dedicated CDMO capacities. With current projects, including fermentation, we aim to scale up significantly as we align our capacity expansions with anticipated customer demand.

Q10: What are your projections regarding margins and performance in the next fiscal year?
Answer: Currently, we maintain a gross margin target close to 60%. As our product mix strengthens and we expand our CDMO capabilities, I foresee continuous margin improvement as we mature and stabilize our operations.