We maintain a BUY on Laurus despite poor operational performance in 1QFY20. After adjusting for lack of scale up in ARV APIs and buoyancy in formulation segment, we have cut our FY20/21E numbers by 5-8% to arrive at a TP of Rs 470/sh (18x FY21E EPS).Laurus is sitting on ~40% underutilized gross block (~Rs 0.9bn) spread across formulations, CRAMS and API segments. With a sharp jump witnessed in formulations and higher visibility of CRAMS orders for FY20, we are confident that the operating/ financial leverage story will unfold from FY20. Assuming formulations revenues/ EBITDA at US$ 85/ 25mn in FY21E, earnings are likely to grow 2.5x over FY19-21E. With all four ARV formulation approvals (TLD, TLE 400, TLE 600, TEE) in place by 1HFY21, addressing >US$ 1.2bn opportunity, the estimates could be breached easily. Maintain BUY.
Laurus has a high visibility on the offtake in formulations to continue over FY20 with orders in hand for third-party contracts in EU, 3 approvals in the US, and supplies to GF. It expects approvals for TLE/TEE in CY19. With 8-10 yearly ANDA filings, Laurus is likely to achieve a similar no. of approvals, which will boost US revenues. On the margins front, ramp up in formulations will drive gross margin and oplev. We expect a 14/38/63% revenue/EBITDA/PAT CAGR over FY19-21E (low base). Maintain BUY with a TP of Rs 515 (18x FY21E EPS).
We expect strong volume growth in oncology and other API segments, given the ongoing supply issues in the API industry. We also expect continued growth in other segments, particularly synthesis, which should grow at 25% CAGR from FY19-21. We continue to see value in the stock, with the recent ARV formulation supplies to Global Fund and strong ramp-up in synthesis providing visibility on growth, given pressures in EFV API. BUY; fair value Rs.430, based on ~15X FY21E EPS.