Laurus Labs - Can Business Transform to Next Level?

Stock Opportunities
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I attended Aurobindo’s AGM & was able to ask a question or two on ARV business, following are some notes -

  • The company has significant order book for ARV business.
  • Vice-chairman Mr. Reddy personally supervises this business.
  • The company is not chasing topline growth in ARV business & is focused on bottomline, DTG helps in bottomline.
  • The company is yet to start supplies for South African tender in a significant manner.
  • The contra indications for DTG have been removed in SA market & adoption will be much wider going forward.
  • There are 4-5 competitors in ARV business ranging from small to big
  • Most of the Aurobindo’s ARV products are backward integrated, the company has good position in DTG. The company will maintain sales if they have competitive costing.

Disc - I continue to hold Laurus, token position in Aurobindo, not a buy/sell recommendation, please do your own due diligence

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Warburg Pincus-backed Laurus Labs buys South African firm

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Main objective is to get into HIV meds market in Africa

This transaction will provide Laurus access to the South African public antiretroviral (“ARV”) sector, which manages the world’s largest public ARV programme. While Aspen will continue to manufacture the finished dose form ARV’s for the South African public sector, the supply to this sector will be through Laurus’ newly acquired South African subsidiary.

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Q2 Results :

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Laurus Labs completes US FDA inspection at Unit 2, Visakhapatnam

Laurus Labs Ltd. (Laurus BSE: 540222, NSE: Lauruslabs, ISIN: INE947Q01010), a leading research and development driven pharmaceutical company has completed the US Food and Drug Administration (USFDA) inspection of its Unit - 2 (FDF&API integrated facility), located at APSEZ, Atchutapuram, Visakhapatnam, Andhra Pradesh, with two observations which are procedural in nature.

This is a product pre-approval audit by USFDA, and no data integrity issues were observed in the inspection. The inspection was carried out from 04 November, 2019 - 08 November, 2019.

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  1. Maintenance Capex as per Q1 ConCall: 50 cr (FY20)
  2. Depreciation: 200 cr (approx.) [150 cr of owner earnings get added to net profit here??]
  3. Capex planned (including maintenance capex) for FY20 & FY21: 200 cr each year
  4. Q3 will be subdued due to ARV API slowdown caused by shift from Efavirenz to Dolutegravir, where growth will be back on track from FY21. [I guess the lack of stock price appreciation despite good Q2 is due to this, which is short term in nature]
  5. If things go well, the current fixed assets will be fully utilized by 2 years from now i.e. mid FY23.
    If half the debt goes away by then another 30 cr can be added to net profit.
  6. I am expecting 10% net margin on revenues of 3200 cr (2xfixed assets as of today) i.e. 320 cr.
    On the back of normalized return ratios at higher capacity utilization & Tender based ARV API component coming down gradually Year by year & more sustainable non ARV business becoming substantial, If we can give 20 PE (slightly higher side for quality & ethical management), it will be 6400 cr market cap.
    If management is able to execute their plans well, at current market cap of 3500cr, we can expect 24% CAGR in 2.5 yrs (rough calculation).

Risks:

  1. Tenders not materializing for ARV
  2. Cure for AIDS being found (which is good for the world & bad for Laurus financially)
  3. RAW material (from China) prices hardening again
    Forgive me for this crude valuation and assumptions.

Pro & con Views from experienced investors are welcome.

Disl: Invested (2.5% of PF & planning to bring it up to 5%)

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Is the backward integration done to some extent? Any update after Q3 on the same as guided by the management earlier?

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Price of Hydroxychloroquine jumped from 7700/kg to 17-20k/kg in one month.

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Laurus Labs (NR) - Q4FY20 Concall Highlights

• Revenue for the quarter grew QoQ/ YoY by 15.01/32.11% to Rs 8.3bn & for the year grew by 23.55% to Rs. 28.32bn.Gross margins are consistent at around 50%.
• EBITDA Margins is around 23% for the quarter which had increased due to strong FDF business performance.
• PAT for the quarter grew QoQ/ YoY by 101.39/76.66% to Rs 1.65bn & for the year grew by 47.52% to Rs. 3.83bn.
• Final Dividend of Rs 1 Declared.
• Capex for the year was around 230 Cr. Capex for FY21 wil be more the Rs 3bn.
• Currently, 4mn ltr reactor vol which will be increased to 5mn ltr. Half of its completion will be done on Oct 20 and rest on Mar 21.

Formulation biz
• FDF growth was driven by TLD supplies.
• Healthy growth in North America. Contributed 9% to total FDF revenues.
• Expect approvals for TLE400 & TLE 600 in the coming quarters
• RD is 5.7% of revenue. Till date, Laurus has 26 ANDAs in the US (2 Para 4), 6 in Europe, 5 Canada, 8 who, 2 SA, 2 India & 11 in ROW.
• Have received 1 final & 2 tentative approval in q4 FY20 totalling to 6 final approval & 5 tentative approval from US FDA for the year
•Canada - 5 approvals of which 3 are launched 2 will be launched this year.
• Favipiravir – Currently completing the laboratory work and also working on the licence for the same. They will be selling the API and work with a partner for the formulations.
• If Gilead gives a voluntary licence, they will make Remdesivir.
• Most of the logistics problems were solved but Air freight rates have shot up significantly. The raw material from China now arrives in 5-6 weeks.

HCQ
• Launched HCQ in Q4FY20.
• Contribution from HCQ was insignificant in Q4. It will be supplied to the US, South Africa currently. Have increased capacity for API & Formulation to capitalise on any opportunity.

Segmental highlights
Formulation
• Revenue for the quarter is Rs 2.6bn (32% YoY) and for the year is Rs 8.2bn (30% YoY) which has underlined a significant shift in the business model.
• Had undertaken a debottlenecking project and increased the capacity in the existing building. This will be completed in the FY21.
• Also have undertaken brownfield projects in the current site which will be in operation in Mid of FY22.
• Have added capacity which will be in operation on Sep 20 and new large capacity will be operational by mid of Next year.

Have merged HEP – C and ARV API to Anti-Viral.
• Business has grown sequentially but has de grown for the year due to change in treatment regiment and the uncertain South African Market.
·• Have large Capacities for 1st line API. Will begin commercial supply of 2 such APIs after regulatory approvals forms their partner.
• 2nd line ARV APIs have seen good traction and expect healthly revenues from H2FY21 onwards.

Onco APIs did Rs 2.1bn in FY20.
• 1st half year, faced supply shortage for Intermediates thus they have done backward integration. Revenue should normalise from this year.

Other APIs
• Revenue came to Rs 3.2bn in FY20 with is a growth of 54% in FY20. Growth in the sector was driven by contract manufacturing in the existing products.
• Growth rate should be maintained in the coming quarters. Have a healthy order book for several generic APIs.

Synthesis business contributed Rs 3.8bn for FY20.
• Growth was led by heathly performance in the CDMA business. Also added new customers.
• Have incorporated a wholly owned subsidiary – Laurus Synthesis Pvt Ltd. This is done to increase its focus and a dedicated R&D & manufacturing site for the same.

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Investor presentation. Growth momentum continues.

https://www.bseindia.com/xml-data/corpfiling/AttachLive/dcabd3da-6216-491b-803f-6083227b3c28.pdf

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Disc - invested

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Fellow Members,

I am very new to the Pharma sector and trying to build some initial knowledge to add pharma stocks in my portfolio. I was reading about two pharma APIs companies: Laurus and Divis Labs.

Looking for some expert opinion on how these two cos differ, why there is gap in valuation, how both will benefit from Covid-19 due to shift from China.

Any analysis is highly appreciated.

Thanks
Mukul

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Laurus Labs (https://www.screener.in/company/LAURUSLABS/consolidated/)insider trade: Acquisition of 3,350 equity shares worth Rs 15.05 lacs by promoter group

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“Laurus Labs Ltd is pleased to announce that the Company has received an approval from USFDA under PEPFAR (President’s Emergency Plan for AIDS Relief) for two ANDAs (Abbreviated New Drug Application) TLE 400 (Tenofovir/Lamivudine/ Efavirenz - 300/300/400mg) and TLE 600 (Tenofovir/ Lamivudine/ Efavirenz - 300/300/600mg) tablets.

Laurus Labs is one of the few players in the ARV segment to receive an approval for TLE 400 tablets. TLE 400 is one of the most preferred regimens in the ARV first line treatment. The Company already received WHO Pre-Qualification for TLE 400 (Tenofovir/ Lamivudine/ Efavirenz - 300/300/400mg). These approvals enables Laurus Labs to launch both the products in several LMIC markets. “

…

This looks like a big opportunity – Market size for TLE 400 is c. $200m and TLE 600 is c. $100m.

Currently, following companies have ANDA approval for TLEs-

TLE 400 – Mylan Inc, Macleods and Laurus (all final approvals)

TLE 600 – Mylan (final), Aurobindo (final), Hetero (tentative), Cipla (Tentative), Macleods (Tentative), Laurus (final)

@hitesh2710 @rupeshtatiya Do you agree?

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51XB3s2RLGL.SX324_BO1,204,203,200
My view is that if enough scuttlebutt/ gathering info has been done plus if you have decent knowledge/experience about sector , gut feeling in combination of other two works beautifully.
Anyway we have enough opportunities in market and if you not sure about laurus better to wait and watch.

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Looks like strong tailwind supporting the company and the company has come out with quite impressive growth numbers

I just wanted to understand few red flags that I found :

  1. Promoter Pledge : The Promoter Stake has come down from 32.58 to 32.04 and the pledge has increased from 32 to 45.22. Any explanations as per Q3 conf call the plan was to reduce the pledge then why the actions are contrary

  2. Why the debtor days and Receivables so high and the trend is also not showing much decrease. Part of this can be LMIC contracts but need to confirm and understand any other reason

  3. Why is the tax rate for the year so low : 12.3%

  4. Also If I compare the depreciation to Rev the rate has slowly increased to 7% from 5% a few year earlier. If I compare with Syngene there the ratio trends to 9% . So not sure whether this is common across such companies

Any guidance or inputs will be welcome.

Disclaimer: I am not invested in this stock

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I came to know from my relative who works in Laurus labs at Vizag plant that UNIT-1 is being closed for 4-5 days from tomorrow due to few employees tested positive for COVID-19. UNIT-1 is considered to be the major for the plant.

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Unfortunenalty there is no bse filings untill now reg the closure , Company should have informed the exchanges about it.

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I was told there were total 16 COVID positive cases and there are nearly 30 positive cases including their families. This is news widespread locally in Vizag, however i am surprised there is no official reports in any media.

Without closing unit-1 fully, the employees are told to operate with one employee per shift until 15th Jun 2020. This is the information I received from the employee working in the Unit-1. He didnt go to office for last 2 weeks but was asked to come for 12 hour shift this week for a day.

On the other hand, I was told Lauruslabs is acquiring another unit at Parawada. I am not aware of the full details on what type of plant and its capacity etc.

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