LAURUSLABS - Laurus Labs Limited Share Price

During the Q4 FY25 earnings conference call, Laurus Labs management provided a positive outlook for the upcoming fiscal year. The primary focus will be on expanding both the CDMO (Contract Development and Manufacturing Organization) and generic segments, with plans to invest approximately $15 million to build a GMP facility that will support advanced therapies.

Key points highlighted by management include:

1. Financial Performance: For FY25, Laurus reported revenues of INR 5,554 crores, achieving a 10% growth. The gross margin remained robust at around 55%, while EBITDA margins improved by 4 percentage points to 20%.

2. Project Pipeline: Laurus currently has over 110 active projects, with 90 in human health and over 20 in animal health and crop sciences. The company has also seen its share of CDMO increasing from 13% to 28% over the last five years.

3. Investment in Capabilities: The company plans to invest close to INR 250 crores to enhance fermentation capacity by the end of 2026, indicating strong growth potential in the CDMO sector.

4. Long-term Growth Strategy: Management is focused on broadening their pipeline and capabilities in areas such as gene therapy, which should contribute to sustained growth. They expect significant contributions from the animal health segment, with scalability projected in FY27.

5. Expectations for FY26: Operating margin is anticipated to improve due to better asset utilization and product mix, reinforcing confidence in achieving significant revenue growth. Management expects revenues from the CDMO segment to continue rising, further enhancing profitability.

Overall, Laurus is positioned well for growth, particularly in the CDMO space, and remains committed to delivering value to stakeholders in the upcoming fiscal year.

Question 1: "Can you add some color and help us link these very strong indicators together? So, we know that ex-China Laurus holds the leading position in the design and manufacturing of our enzymes, as well as large-scale continuous flow manufacturing. How can we leverage this unique advantage to secure partnerships for those projects where innovators are actively seeking a credible option outside China?"

Answer 1: We leverage our enzyme engineering and manufacturing capabilities in our integrated offerings. We have numerous projects at various phases utilizing biocatalytic steps, with some enzymes produced in our Bangalore facility. The trend of developing our own enzymes for big pharma partners is increasing, clearly showing the strong overlap between chemistry and biology, enhancing our market position.

Question 2: "What is our preparation at the moment and what are we doing to de-risk our indirect dependency on China regarding intermediates?"

Answer 2: We have a dedicated team focusing on backward integration and are assessing projects where partners seek to avoid certain suppliers. While some partners may be flexible, balance is crucial; we cannot entirely eliminate sourcing solely from one country. We're working to meet our customers' needs while managing these dependencies.

Question 3: "What is your outlook on the animal and crop science CDMO now that we are commercial across both capabilities?"

Answer 3: By the end of next year, we will complete all validations in animal health, with significant revenue jumps expected in FY26. For crop sciences, some deliveries occurred, and further negotiations are ongoing. More clarity will emerge next year, but data suggests promising growth as our relationships deepen.

Question 4: "Can you highlight a bit more on the tariff uncertainty and its potential impact on your business?"

Answer 4: We've not commented on tariffs extensively as it remains too early to assess their effects. However, we are monitoring the situation closely. Currently, there is no significant clarity on the tariffs impacting our operations or strategies.

Question 5: "What can be our exact source of revenue in the CAR-T business?"

Answer 5: ImmunoACT, our associate, generates revenue from sales to hospitals. Our current capacity allows for scaling manufacturing to treat 2,500 patients, scheduled to be operational by September this year. We are focused on ensuring sustained growth in this area.

Question 6: "How do you see the growth coming on the formulation side specifically for FY26?"

Answer 6: Non-ARV formulation sales are anticipated to rise, particularly from approvals in the US and Canada. Growth will significantly increase from Q3 onward as new CMO partnerships come online. The first half may be muted, but we expect solid growth in the latter half.

Question 7: "Can you share the ARV API and formulation sales for the current quarter?"

Answer 7: ARV sales for the quarter were approximately INR800 crores, evenly split between formulations and APIs. We expect to sustain this level and maintain efficient operations across categories, confirming stable gross margins.

Question 8: "What is your outlook on the oncology API side, and when do you foresee it picking up?"

Answer 8: The oncology API sector has shown softer performance; we don't anticipate any growth trajectory from it in the immediate term. We are focused on other areas where our project pipeline is stronger.

Question 9: "What is your expected capex for FY26, and how will it be financed?"

Answer 9: Our capex for FY26 is expected to be around INR1,000 crores. We anticipate financing this primarily from internal cash flows without significantly increasing our debt levels.

Question 10: "What plans do you have for the Krka joint venture in terms of targeted products and therapies?"

Answer 10: Currently, our plans are still in early stages. Discussions with our partner regarding specific products are ongoing, and they will likely share more details as our partnership progresses. We're mindful of upcoming opportunities in this joint venture.