Laurus Labs Share Price: Company forays into Lucrative Biotech Space

Sharekhan retains Buy recommendation on Laurus Labs stock with an unchanged price target of Rs 385. Laurus Labs has forayed in the lucrative biotech space by entering a definitive agreement to acquire a majority stake (72.5%) in Richcore Lifesciences (RLPL). The acquisition is likely to be positive for Laurus as it highly compliments the company’s aggressive growth plans and also offers a new revenue stream. Laurus’s existing business is also on a strong footing with the formulations segment being a key growth driver. The acquisition of RLPL abates concerns around utilisation of higher cash on Laurus’s books and this bodes well.

Key Concall Highlights:

Synergies from RLPL’s acquisition: The acquisition of RLPL would be synergistic for Laurus Labs with benefits likely across the long-term period. Synergies are expected in the area of CDMO business especially in the fermentation space based on certain intermediates, which will make the company self-reliant. Biologics is a capex heavy business. The company has no plans to make any investments as of now. Laurus sees Biologics as a long-term growth driver. Overall, Laurus is a Chemistry-based company and does not have any exposure to biology. This gap would be filled in by RLPL; while leveraging its expertise, Laurus would look to scale up RLPL’s business.

RLPL’s business: RLPL’s technology and business are fully non-overlapping with that of Laurus Labs. Moreover, both the companies do not have any client overlaps as well. RLPL’s current focus is on non-therapeutic protein. Therefore, RLPL’s acquisition would create a new revenue stream for Laurus.

Revenue Mix: RLPL’s revenue currently is equally split among three businesses – Biotech/Biologics, Enzymes, and CDMO. However, post the commissioning of Plant 2, the share of CDMO is expected to rise substantially and the segment would be a key growth driver.

Capex: RLPL is in the midst of a capex plan, wherein it would be investing Rs 50 crore to set up a new plant for fermentation with capacity of 1.8 lakh litres and is expected to be ready by the end of FY2021. Capex plan is expected to be funded by a mix of debt and internal accruals. Existing capex plans of the company would continue as per schedule in addition to RLPL’s acquisition.

Debt: RLPL has a debt of Rs 9 crore as of September 2020 and looks to add another Rs 12 crore to Rs 15 crore towards funding on the new plant.