The question to ask is - is it priced in? Just because he’s said it many times does not mean its priced in. There’s many a slip between the cup and the lip.
7,500 cr Revenue * 30% OPM * 20x EV/EBITDA = 45,000 cr EV → Current EV is 33,500 cr.
disc. Invested
Why are you assuming 20x EV/EBITDA is the right multiple. Why not 15x or 10x?
The EV/EBIDTA of Laurus Labs, Suven Pharma, Syngene (fellow CDMO players) are much above 20 right now so it is fair to give this ratio.
EV/EBITDA of Granules and Solara is 12x who are fellow API players and if I am not mistaken Granules is a fellow API player from the same state of AP.
Granules and Solara player are primarily pure play API players. Laurus Labs, apart from being in Generic APIs, they are also in Contract Development, Contract Manufacturing, Finished Dosage, Fermentation (Richcore), Highly-Potent APIs and several other niche areas. They will get different valuations.
There is one thing i have been wanting to ask for a long time. I might be completely wrong but please help me clear my doubt.
In a recent interview with BQ Dr Chava said Laurus bought a 26% stake in a cell n gene startup. And at the same time the management ‘personally’ invested their own money in the same startup - to show that the management has skin in the game and they are not misusing Laurus’ money.
But isnt this a conflict of interest case where the company’s money will help the startup grow and then when the startup grows, this will in turn also be personally beneficial to the management as they invested personally also?
So the key assumption you have made here is that the ‘company’s money will help the start up grow’. What if they lose money on it? 
Over 95% of start ups go bust. I don’t think this is a conflict of interest unless the start up is personally affiliated to the management or their kin.
There are no right answers to such questions, especially for retail investors like us who can only speculate based on limited information we get.
These are uncertainties that we have to factor in our decision making…as long as the likely impact of such decisions is not significant (from revenue and profit perspective), we can afford to ignore them…having said that, Margin of Safety is one of the effective techniques that must be used so that any negative surprises due to such factors does not result in substantial damage to our investments.
Hi
I am not very apt at writing on this forum but will try to address your concerns.
Laurus is a demerger story. In few years down the line it will be divided into undernoted companies
Once above stated companies are formed there will be very healthy growth in wealth creation from Laurus.
Mudit, pls don’t be afraid of volatility have your eyes on long term trend.
In this thread I have seen people over analysing ARV Biz (although we all know it’s a tender Biz with lower margins
Over analysing it’s investments in Start Ups, if other company does same we tend to make it a Hero let it be Adani (in news) or Infoedge or Fairfax.
Very slim chance of Laurus losing money even if it loses what percentage of Net Worth goes down the drain ?? (I don’t know the answer but I know it won’t wipe out Laurus
If they again invest money from laurus then it could be deemed as having some conflict as they will gain.
While in this both invested together and company got some stake and management also so now the company will have funds to grow and if it goes good management will be rewarded directly and gain more then average shareholder.
It may sound bad but they are also investing there own hard earn money so they should also be rewarded.
I personally see no conflict untill they start to fund more money or sell there stake to laurus and get out.
How they are using funds to get something it’s just both invested at the same time nothing else and just investing there own money show they are actually bullish and not just investing to just show Investor and just have not done much research before investing.
Investment just prove this point and as a retail shareholder will like to see as people are ready to risk there own money then there might be something actually good.
Yes it would be conflict if they were earlier promoter or holding some stake or was in as an inactive director or some of there family member is running that company.
Just my few thoughts to fellow friends… Many people in social media are discomfortable with the repeated as they say bragging of Target 1 billion , and i do agree best way is to work silently , but there is another view point to it ,
different companies and promoters have different fabrics…i personally know many people who believe there has to be a definite goal a huge one that charges everyone in the company & they have something to look upto, and regularly hammer the Target till it goes in everyone’s psyche… They feel not having a goal is equivalent to playing football without having a goal post, everyone is just kicking the ball in any direction , the whole idea for some companies is to energize the whole team and once it’s public, all right from CEO to the last man are charged up to save the reputation of their goal, and give their best, there definitely is magic in goal setting.
The point here is as the anchor asks him question for future outlook he has to say what he has been saying… My thoughts even if they don’t achieve and even come close to this as this goal requires more than 50% growth i personally am satisfied with even 25% for two reasons 1) I don’t know many companies who will be growing at 25 % with 30% Ebitda and comfortable PE, having best ratios 2) Laurus is not going to close its business as soon as it ends FY 2023
Infact it will be in a much much better shape in FD,CDMO and Bio just check Laurus bio at Linkedin will get the latest updates and from comments of people from different positions in science in that field can understand what a giant it is in making, many people also say if it doesn’t achieve Target it will be hammered can be possible but… Where is it trading at PE of above 100 that it can bother us… Still if you check most of its ratios are best in class even today imagine at end of FY 2023
As far as immuno act is considered Laurus Labs’ investment in ImmunoACT is part of the larger strategy to strengthen the biologics business. This provides the company access and entry into an emerging field of research. CAR-T therapy is a very promising treatment option, which has had success in the western world.In India, CAR-T therapy is not available and this collaboration will help in bringing this novel technology to the Indian patients at a very affordable pricing.
46 crores the cost of immuno will be less than 1 percent of its sale even today forget fy23 sales, not a big risk at all IMHO But the upsides can be really huge…point to note is if from only a Arv Api company if Laurus can successfully diverge to Fdf, Cdmo,Bio… Chances are more that even this might be a success, best way to judge is to see what they have done in the past, cause as of now I don’t have any proof of Laurus buying into something and blowing it up… Infact Richcore Laurus Bio in my opinion is a steal , Even failures can happen in future its happened with Amazons and others of the world, when you want to grow you have to take some calculated risks that’s what Laurus is doing, some places they might flip that’s ok… Give them the leverage and flexibility, At this scale they can afford to take some risks , unless they buy something huge and jeopardize the whole company, all in all i don’t see much red flags as of now, but will surely keep track of fundamentals, invested hense hugely biased, can be wrong in my analysis, no advise DYOR take care.
in one of the earlier interviews dr chava had said that when they had taken on the aspirational target of 1bn usd, the rupee rate was 72-73. so it is possible that they achive sales of 72-7300cr and not 75-7600cr. so 5% here and there. its splitting hair. but i thought of mentioning it here.
Isn’t there a key man risk developing in laurus labs? like, everything is to do with what dr. chava said. Haven’t observed anything of the upcomming kmp of the company.
Are they doing anything to reduce it?
Suggest you should revisit his interview to moneylife on corporate Governance most of your doubts will be cleared i assume , he has got a decent enough team if you check at leadership, at their website
transformation of this type is not a one mans job IMHO, even the new members ,Subramani Ramachandrappa from Richcore, Rahul Purwar of immuno will add huge value, and also his son is working with him, must be surely grooming him, we all hope he carries on his father’s legacy even further, his name is Mr. Krishna Chaitanya Chava Head - Synthesis and ingredients, also his brother is working with him Mr. Narasimha Rao Chava SVP - human Resources, even his daughter and son in law are working with him,
think he is wise enough to pass on the baton to someone who really deserves it , albiet a long long time left for this, the best of Dr Chava is still ahead, we do hope and pray all goes well.
Good numbers, our data points on Q4 were correct.
Headlines will show that PAT is down YoY, but numbers show why:
Notes from investor presentation:
These two corroborate the data point on ARV growth resumption in Q4. However, they don’t explain how the revenues are as high as 1400 Cr. Answer lies in the synthesis division having an excellent quarter:
D: invested
Better than expected numbers overall for me. A few observations:
Surprised on the upside in terms of revenue. Looks like CDMO might do the kind of numbers I was hoping for in FY23
7% hit on gross margins Q-o-Q. Is this max pain or is max pain going to show up in Q1 FY23? Key monitorable. Considering this, commendable job in keeping EBITDA margin flat QoQ by controlling other costs
ARV FDF revenues seem to be back on track. However ARV APIs and APIs other than Onco continue to be weak. In fact Other than Onco APIs de-grew Q-o-Q from ~83Cr to ~70Cr. API supply cycles are mostly to be monitored Y-o-Y and not Q-o-Q, so should not be a big cause for concern, but still a monitorable.
In-spite of consol revenues being flat Y-o-Y, OCF has grown by 24% Y-o-Y. This is always a good sign, especially for a growth company like Laurus. Big hit to ROCE (Down from 45% to 26% Y-o-Y due to negative operating leverage and higher capex; This should reverse with growth in FY23).
R&D spend up 10% Y-o-Y. This spend is probably a key driver of impressive CDMO performance?
Significant de-risking in terms of revenue mix. ARV APIs + FDF now constitute 63% of total revenues vs 73% a year ago
At CMP, Laurus is valued at 37x TTM EPS. Assuming even a 20% EPS growth next year (very conservative considering this year was -ve EPS growth), that’s a 30x 1-year forward PE multiple. In my opinion, present valuation is fair. If Laurus delivers anything close to 1Bn USD revenue in FY23 (50% Y-o-Y revenue growth), stock will see considerable upside returns.
This quarter’s result was a key monitorable for me to see ARV revival. ARV FDF revival has kicked in, API revival is still a little circumspect, but should pick up as per commentary. Commentary in concall about near term (Q1-Q2 FY23) cost pressures above and beyond current elevated costs will be key in determining the timing of further share purchases for me.
Disclaimer: Invested and biased.
Good set from Laurus. What is most impressive is the growth in CDMO division. QOQ growth in CDMO from 207 crores to 360 crores and YOY from 520 to 920 crores.
Investor presentation mentions aspirational target of 25% of sales from CDMO by 2025-26.
They are already at 21% for full year FY’22 and if you only take Q4 FY22, CDMO+bio is at 27%. I think $1B in FY’23 should be achievable given doubling of FDF capacity and further ramp up in CDMO and bio, plus ARV API’s normalising by Q1 FY’213.
Invested, biased and bullish.
You need to see what is the revenue trend. Laurus is no more an ARV only (API+FDF) company. Due to this ARV the revenue was down for last 2 quarters on sequential basis. So compare the result on a Q-o-Q basis. Now the CDMO/Synthesis division and Bio division is leading the revenue growth. just look at the trend of revenue of these 2 segments. Plus ARV revenue is also coming back. So now the $1B revenue target by FY23 seems feasible. That’s why everyone is celebrating. In share market you pay for future earnings of a company not the past.
Revenues mean nothing if there is no commensurate profit growth. Please remember this is a pharma company not an Internet company. So the metric is P/E. Not P/S.
Even if they achieve their US$1bn revenue target, unless the market is convinced the profit growth will be more than topline growth the stock will go nowhere.
