Hi @vnktshb
I’m going to assume you are just playing devil’s advocate here since you were very bullish on Laurus up until last year too( your disclosures stopped saying that you are invested anymore but i won’t jump the gun and assume you aren’t). I’m just going to attempt to give short answers to your questions
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Would you rather the company die a slow death in arv api and generate free cash flows or would your rather they increase capacity in cdmo/synthesis and bio and move towards higher margin growth engines? They have had to spend cash in these new areas and even now demand is exceeding their supply so they will continue spending it while de risking from the terminal business of arvs. I’d rather they spend all the cash generated in the business into these growth and de risking engines. They will have to continue spending over the next few years(it’s not like they are drowning in debt or poor return ratios). that’s just the nature of this business where multiple growth engines and economies of scale matter… so if one isnt comfortable then one needs to look elsewhere. If one were to want free cash flows and sub par growth for safety reasons then yes… looking elsewhere at bluechips who’ve already reached their end game is where one should invest. Laurus is a work in progress thats about half a decade away from reaching that position.
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They are targetting 30% Ebitda margins this year which would lead to a near 70 percent increase in profit. That would mean it’s valued around 20 to 25 times forward eps for FY23. … while not Benjamin graham cheap… that’s still fairly priced if they pull off what they say they will(macro factors are obviously a huge risk here). Bear in mind with each passing year they’ll grow cdmo/bio even bigger with lesser and lesser reliance on arv… i dont like predicting the vagaries of the markets but i would definitely pay higher than 25 x eps for the company if they do pull of the above and are available at the same price this time next year and would double down if available at under 20 PE. So bringing valuations into this conversation is a bit speculative since that’s out of our hands… all we can do is track the business and ensure the business is getting more antifragile.
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The Laurus of today cannot be valued like divis. However, as gross margins improve with cdmo and bio contributing more by FY25 i don’t see why they can’t be valued at divis level considering the expected growth rate (though i must admit the operating margins of divis ie 40+ maybe a step too far for Laurus as a whole and may be something for a cdmo spin-off) The company is a work in progress… and as investors here I’m sure most of us know this. It’s about what the company will be in a few years that’s interesting… and the opportunity it presents us to get onboard for the ride at an early stage. You are right regards the present though… today on April 29th it’s a bit overvalued at around 40 PE. I personally dont really care about today since it’s still fairly valued considering the possibilities by April 29th next year and the year after. This is the leap of faith us retail investors have to take(that being said i do have a big margin of safety so maybe someone investing fresh capital today may be a bit more worried)
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Yes it is a pharma company
. I’m assuming you mean regards the valuation? For a generic api company it’s overvalued… thats for sure. Whether it is a generic api company is upto an individual to take a call depending on their timeline of investment.
Again, i don’t mean any harm in posting this. I appreciate a bear thesis since it removes our rosy eyed spectacles on this forum. However, i don’t see any of the above as red flags currently. Cheers
Disc: Invested since much lower levels. Not a sebi advisor. Please feel free to flag this post if it’s not adding to the discussion. We have a lot of positive posts talking about what i wrote on here already so I’d understand if this post gets flagged and deleted.