Laurus Labs Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Pharmaceuticals & Drugs

Company

Laurus Labs Ltd

Reco Price
Rs. 545.00
Price Target (1.5 - 2 Years)
Rs. 1090.00
Upside
100.00%

Date

May 04, 2017
Sensex
30126.21
CNX Nifty
9359.90

Exchange

Code

NSE
LAURUSLABS
BSE
540222

High R&D spends with various growth triggers can lead to operational efficiency.

High R&D spends leads to global volume leadership in key products:
Laurus is a leading generics API company, particularly strong in the ARV and Hep-C segments, where it is a global volume leader in key products. The company has demonstrated the ability to create global volume leadership in several key products. Laurus' R&D spend (5% of sales) is higher than that for most of its API peers and has been a key factor behind its success. Around 25% of the company's total employee strength is employed in the R&D function. Laurus has been successful in developing several new, innovative processes for many products (for eg. Efavirenz, Tenofovir) that lead to greater efficiencies and lower cost, in turn enhancing its market position.

Moving up the value chain could bring operational leverage:
Laurus has invested heavily in its manufacturing capacity, R&D to support its efforts to move up the value chain into formulations as well as to extend its API franchise to developed markets. For instance, company incurred 5% its of sales on formulations (R&D spend, overheads on already commissioned facility). This should be a significant source of operating leverage once revenues kick in.

Preferred vendor to source formulation driven drugs to major companies:
Laurus Labs’ unique position as a preferred supplier of APIs to several major participants of the tender-driven ARV market insulates it from the wins and losses of customers and significantly hedges the company against revenue volatility. It supplies ARV APIs to all major producers of formulations, including those having their own API manufacturing capabilities. It also supplies APIs to four of the top five winners in the South Africa tender market.

Various growth triggers:
Expansion in Low and middle income countries, supply in regulated market, first mover advantage in Hepatitis C, long term agreements with Gilead and Natco, oncology API’s which is largely focused on US and Europe, forward integration into formulations are certain strategies which is done by company which could bring the next leg of growth for the company.

Stock Data

CMP (Rs)
561.45
Face value (Rs)
10
52 Week Range (Rs)
585.00 - 452.20
Market cap (Rs Crores)
5951.43
Price To Book Value (x)
4.58
P/E Ratio (x)
40.95
EV/EBIDTA (x)
17.87

One Year indexed Stock Performance

Laurus Labs LtdSensex
Laurus Labs Ltd
Performance (%)
1m
6m
12m
36m
Absolute
8.00
-
-
-
Sensex
0.51
10.46
20.02
34.22

Shareholders

(in %)
30-Mar
Promoter
30.64
Public
69.36
Others
0.00
Total
100

+91 22 6639 3000
research@stockaxis.com

 

Industry

India is one among the top five pharmaceutical emerging markets globally and is a front runner in a wide range of specialties involving manufacturing and development of complex drugs. India has about 40% of all Abbreviated New Drug Application (ANDA) approvals from US FDA. The Indian API manufacturing industry is the third largest in the world, producing over 400 APIs. Globally Indian companies hold more than 90% of APIs approvals for ARVs, Anti-Tuberculosis and Anti-malarials.

Profile

LaurusLabs Ltd. is a leading generics API company, particularly strong in the ARV and Hep-C segments, where it is a global volume leader in key products such as Efavirenz, Tenofovir, Emtricitabine, Gemcitabine and Sofosbuvir. It also has a growing synthesis business and has invested significantly over the last two years in integrating forward into formulations.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar 14
Mar 15
Mar 16
Mar 17
Mar 18E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBITDA
  • % Margin
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Tax
  • Profit After Tax
  • Share of Associates
  • Consolidated Net Profit
  • Adjusted EPS
  • 1159.72
  • -
  • 956.09
  • 203.63
  • 17.56
  • 8.82
  • 212.45
  • 58.17
  • 154.28
  • 32.88
  • 121.40
  • 0.00
  • 23.64
  • 97.76
  • 0.00
  • 97.76
  • 9.24
  • 1326.59
  • 14.39
  • 1131.46
  • 195.13
  • 14.71
  • 34.07
  • 229.20
  • 101.11
  • 128.09
  • 61.53
  • 66.56
  • 0.00
  • -1.55
  • 68.11
  • 0.00
  • 68.11
  • 6.43
  • 1783.77
  • 34.46
  • 1416.71
  • 367.06
  • 20.58
  • 7.59
  • 374.65
  • 114.91
  • 259.74
  • 92.19
  • 167.55
  • 0.00
  • 34.51
  • 133.04
  • 0.00
  • 133.04
  • 12.57
  • 2140.52
  • 20.00
  • 1691.01
  • 449.51
  • 21.00
  • 7.59
  • 457.10
  • 130.00
  • 327.10
  • 110.00
  • 217.10
  • 0.00
  • 45.59
  • 171.51
  • 0.00
  • 171.51
  • 16.20
  • 2568.63
  • 20.00
  • 1990.69
  • 577.94
  • 22.50
  • 7.59
  • 585.53
  • 145.00
  • 440.53
  • 118.00
  • 322.53
  • 0.00
  • 67.73
  • 254.80
  • 0.00
  • 254.80
  • 24.07
Source: Stockaxis Research, Company Data

Valuation

At CMP of Rs 545 the company is trading at 22.6x its FY18E earnings. With many growth triggers and strategies by company there could be operational efficiency which will lead to margin expansion and hence more earning per share. We hence value the company at 45x its FY18 earnings with target of Rs 1090.

 

DISCLAIMERS AND DISCLOSURES:

Opulent Investment Adviser Private Limited is registered as an Investment Adviser with SEBI bearing registration Number INA000002462 as per Securities and Exchange Board of India (Investment Advisers) Regulations, 2013. Opulent Investment Adviser Private Limited offer investment advisory services to clients as well as prospects.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Other disclosures by Opulent Investment Adviser Private Limited and its Research Analyst with reference to the subject company(s) covered in this report-:

Opulent Investment Adviser Private Limited does have any financial interest in the subject company: (NO)

Research Analyst or his/her relative’s have financial interest in the subject company: (NO)

Opulent Investment Adviser Private Limited and Research Analyst or his/her relative’s does have any material conflict of interest in the subject company: (NO)

Research Analyst or his/her relatives have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report: (NO)

The research Analyst has served as officer, director or employee of the subject company: (NO)

Our salespeople and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein.

This report is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person.

This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of the users of stockaxis.com / Opulent Investment Adviser Private Limited.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and we do not warrant its accuracy or completeness.

Opulent Investment Adviser Private Limited, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report.