Laurus Labs share price: Sharekhan retains Buy recommendation with a revised price target of Rs 450

Sharekhan had an interaction with Laurus Labs management and their commentary was positive, pointing towards a robust growth outlook. Laurus’ formulations business is on a strong growth footing, backed by a higher quantum of launches in the US as well as opportunities from in-licensing of products, in addition to traction in anti-retrovirals (ARVs). Sharekhan retains Buy recommendation on Laurus Labs with a revised price target of Rs 450. Laurus Labs share price closed yesterday at Rs 365, up Rs 18 or 5.3%.

Laurus Labs API segment is also well set to clock strong growth backed by the company’s increasing focus to diversify into new therapy areas - anti-diabetes and cardiology along with an eye to gain a foothold in the second line treatment for ARVs. Laurus Labs’ synthesis business is also expected to grow in double digits backed by client additions and increasing commercialization of products.

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Laurus Labs has incorporated a dedicated subsidiary to house the synthesis business, which would facilitate improved focus on growth. To cater to rising demand, Laurus Labs is expanding capacities, in two stages - the first leg of debottlenecking is expected to be completed by April 2021 and would add up around 15% of the capacities, while the second leg of expansion would be done by December 2021. Post this company would almost double its formulations capacities.

Further, the recent foray in the biologics space through Laurus Bio augurs well and the benefits would accrue over the medium term. Considering a long term horizon of 3-5 years, Laurus has charted out its growth trajectory encompassing all segments and the management aspires to grow its revenues beyond $1bn in size.

A strong management bandwidth, investments towards upskilling manpower and building capabilities and capacities would enable it to achieve the goal. The above positives point to a strong growth trajectory for Laurus Labs going ahead. Sharekhan expects Laurus Labs to report sales and adjusted profit CAGR of 32% and 73%, respectively, over FY2020-FY2023.

Laurus Labs Key Risks:

Deferral in product approvals or any negative outcome of facility inspection by regulators can affect earnings prospects