Why Laurus Labs Share Price is Falling

Editor's note: As tensions prevail on the Covid front, pharma stocks are once again at the centre-stage. There's a rush for medicines and hospitals with cases rising globally.

Back in 2020, when the market witnessed a V-shape recovery, the pharma index was one of the outperforming indexes. It's a no-brainer then that pharma stocks and diagnostic stocks would be the most beneficial sector globally.

However, not all pharma stocks will be the new winners of Covid 2023.

Select pharma stocks are still reeling under pressure and trading near their 52-week lows.

One of them is Laurus Labs.

Defying the sectoral rally, Laurus Labs continues to fall even as sentiment has improved for the sector.

In October 2022, Laurus Labs was experiencing a similar downtrend and we wrote to you explaining reasons behind the same.

A lot has happened since then. Continue reading to know more...

Why Laurus Labs is Falling

Imagine an investor aiming to earn a profit of Rs 1 million in the stock market by the end of the year.

But due to the volatility, the target remains unachieved. However, having invested in fundamentally strong stocks, the investor is sitting in handsome profits, just not the targeted one.

In fact, he has earned a net profit of Rs 6 lacs. What would be his situation? Would he be happy with the profits earned?

The answer is no. While he may still be in profits, he'll be disappointed that his target was not achieved. This is exactly how stock market tendency works.

Laurus Labs situation is similar to this investor. The share price of Laurus Labs has tumbled around 12% in the past five days after it posted quarterly results for the September 2022 quarter.

The company has been in a downtrend in recent months, with its share price currently trading near 52-week low levels.

Let us take a look at the quarterly results of the company.

Quarterly Results

For the quarter that ended 30 September 2022, Laurus Labs' total revenues stood at Rs 15.8 bn. This is a growth of 31% on a YoY basis. The net profit for the period inched higher by 9% and stood at Rs 2.3 bn.

For the same period, total earnings before interest, tax, and depreciation (EBITDA) stood at Rs 4.5 bn, higher by 29% on a YoY basis.

The EBITDA and net profit margins stood at 28.5% and 15%, respectively.

Even if half-year figures are compared, the company's revenue has increased by 26% while profit has increased by 9%.

The company has also declared an interim dividend of 40%, i.e. Rs 0.8 per share.

Overall, the financial results paint a pretty picture. So then despite good quarterly results why did Laurus Labs share price fall?

Why did Laurus Labs share price fall?

At the beginning of the year, Laurus Labs gave a revenue guidance to achieve US$1 bn in sales by the end of the financial year 2022-23.

However, according to revised estimates, the company will only be able to achieve 90% of the said target.

The quarterly results are positive, but they are much lower than the market expectations. The synthesis segment of the business saw a massive increase of 365% in its revenues. This was better than the expected result.

The growth was driven by accelerated demand from new and existing clients.

The API business reported revenue of Rs 6.8 bn during Q2, which increased by 29%.

However, what took down the company's share price was the company's generic FDF business. Generic FDF's total revenue stood at Rs 1.5 bn. The revenues have seen a constant decline in the current year. On a YoY basis, the revenues have fallen by 70%.

The revenues fell primarily due to softening demand and excess inventory which led to depressed pricing.

The financial results look good because the fall in generic FDF business is wiped off by the rise in the other two segments.

The company missed the revenue and profit expectations which led to the blood bath on the bourses.

This happened recently with Delhivery too. Shares of Delhivery crashed around 32% after the company in its business update gave a lower guidance.

Other reasons why Laurus Labs is under pressure

Update: Adding to worries, two new developments are dragging the share price of Laurus Labs.

The USFDA recently flagged a procedural lapse at the company's manufacturing facility in Vishakhapatnam during an inspection.

Laurus Labs was issued a Form 483 with one observation by the drug regulator.

Regulatory challenges always dampen sentiment. There is no risk bigger than the regulatory risk for Indian pharma companies today. Their inability to come clean on the USFDA checks has had a huge impact on their growth certainty.

Another reason why the share price might be correcting is because of a recent fire incident at Laurus Labs' facility.

In the last week on December 2022, a flash fire broke out at the company's API manufacturing plant (Unit 3) in Andhra Pradesh. The fire caused death of four workers while one employee was seriously injured.

The company, however, estimates that the fire will cause no material impact on its operations.

Investment Takeaway

To get out of negative clouds, Laurus Labs will have to get out of the cloud of negativity around its generic business.

The company has developed a novel delivery for paediatric HIV treatment and it expects to file NDA shortly. This should significantly enhance its market position.

For the second half of the financial year 2023, it expects to deliver stable EBITDA margins of 30%.

Also, it is noteworthy that the company was able to withstand a sharp fall in business. It has still managed to grow overall despite a steep fall.

About Laurus Labs

Laurus Labs is a fully integrated pharmaceutical and biotechnology company, with a leadership position in generic Active Pharmaceutical Ingredients (APIs) and a major focus on anti-retroviral, Hepatitis C, and oncology drugs.

It also develops and manufactures oral solid formulations, provides contract research and manufacturing services (CRAMS) to Global pharma companies, and produces speciality ingredients for nutraceuticals, dietary supplements and cosmeceuticals.

To know more about the company, refer to its factsheet and quarterly results.

You can also compare Laurus Labs with its peers:

Laurus Labs vs Lupin

Laurus Labs vs Sun Pharma

Laurus Labs vs Gland Pharma

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...