Q1 net more than annual profit! This API maker is creating a splash on Dalal Street

NEW DELHI: This stock has been hitting new record highs every day, up 220 per cent in just over four months, and is among the top gainers in the BSE500 pack.

For June quarter, the company delivered a bottom line that was higher than the average annual profit it had reported over FY17-20.

The company is Laurus Labs, an API manufacturer for anti-retroviral, Hepatitis-C, and Oncology drugs. Traditionally an API manufacturer, the company is now expanding its footprint in the formulation space.

APIs are active pharma ingredients used to make drugs, while formulation is the process where APIs are used in specific ratios to produce a drug.

Brokerages now look at Laurus Labs as a solid play on the formulation business, and have revised earnings estimates sharply, suggesting 20-30 per cent potential upside.

Brokerage Motilal Oswal has a price target of Rs 1,215 for the stock, suggesting a 30 per cent upside from Friday's close of Rs 934. Sharekhan sees 18-20 per cent growth potential in the stock.

Laurus maker forayed into formulations in FY17-19 with a Rs 500 crore investment to develop the Vizag facility that can manufacture 5 billion units per annum. Going ahead of expectations, the facility achieved full utilisation and is in the process of deploying additional capacities of nearly 4 billion units per annum over next 12-18 months, analysts said.

For FY21, the company has lined up a capex of Rs 350 crore. It spent Rs 91 crore in June quarter on brownfield expansions.

The company management is confident of sustaining the momentum in earnings. It has guided for Rs 1,350 crore revenues in the ARV-API (antiretroviral) segment for FY21, led by better offtake in sales of drugs such as tenofovir, lamivudine and DTG and slower decline in efavirenz.

Tenofovir, efavirenz and DTG are antiviral medicines used to treat HIV. Lamivudine is used to treat chronic Hepatitis-B and for HIV prevention.

Laurus Labs has presence in 56 countries, deals in four segments -- generics API, generics FDF (finished dosage form), ingredients and synthesis. For now, the company is firing from all cylinders, thanks to the doubling of capacity.

“Companies like Laurus Labs are in a different phase of growth. At the recent conference call, the management talked about margins being sustainable going forward as well, and that was heartening, because we are confident the top line growth is also going to be there," said Abhimanyu Sofat, VP-Research at IIFL.

Motilal Oswal Securities said the phenomenal financial performance has come after a long wait of product development and building of a manufacturing base.

The June quarter has redefined the earnings assessment of the company over near to medium term, the brokerage said.

“Aligning with the new guidance, we raise our estimates to 2 times our previous estimates for FY21/FY22,” it said.

For June quarter, the company reported Rs 172 crore profit, which was 1,050 per cent higher than Rs 15 crore reported for the year-ago period. Revenue for the quarter climbed 77 per cent to Rs 974 crore. Hydroxychloroquine sulfate (HCQS) sales stood at just 5 per cent of the total.

The company has a presence in the EU, the US and Canada. In the US, it has filed 26 ANDAs. Out of these, six have been approved. The company is targeting 8-10 ANDAs annually.

Spark Capital said while the company has a front-end presence in the US, it also has marketing partnerships with Dr Reddy's Labs and Rising Pharma (for 7 ANDAs).

“In the EU, Laurus has a long-term contract manufacturing partnership with a leading generic player. The management expects the regulated market to contribute 25 per cent of formulations revenue in the long term,” it said.

Anticipation of strong results has drawn institutional investors such as FPIs and mutual funds to the counter, and their combined holdings in the healthcare firm went up 5.06 per cent sequentially in June quarter.

While FPI holding rose to 16.06 per cent from 11.29 per cent QoQ, mutual funds raised their stakes to 4.15 per cent from 3.86 per cent.

On Monday, the stock jumped 9 per cent to hit a high of Rs 1,019 in a depressed market, with the Sensex down 1 per cent as of 11 hours (IST). The scrip has risen 218 per cent since March low of Rs 320.

Sharekhan rates the stock at an attractive valuation of 22.2 times FY21 and 17.5 times FY22 earnings per share, which it says is at a discount to its long-term historical average P/E multiple.

“Increasing share of the formulations business would lead to improved product mix and help margins expansion. Also better capacity utilisation levels would add to the efficiencies and lead to improvement in return ratios. The robust performance of June quarter pointed to a strong growth trajectory going forward for the company. We expect the company to report a sales of 20 per cent CAGR and adjusted profit of 49 per cent over FY2020-FY2022," it said.