Antiretroviral API sales expected to normalize from 1QFY23 – Laurus Labs

Antiretroviral API sales expected to normalize from 1QFY23 – Laurus Labs

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 17,325 (+0.6%) near the day’s high of 17,344. PHARMA (+1.5%), HEALTHCARE (+1.3%), and CONSUMER DURABLES (+1%) were the top sectoral gainers. MEDIA (-1.2%), PSU BANK (-0.8%), and OIL & GAS (-0.2%) led the sectoral losers. Among the NIFTY50 components, EICHERMOT (+4.5%), HDFC (+3.3%), and DIVISLAB (+3.2%) led the gainers. HEROMOTOCO (-6.7%), ONGC (-3%), and COALINDIA (-2.7%) led the losers.

Laurus Labs has been granted a license to manufacture Molnupiravir and Paxlovid, the COVID drugs from the Medicines Patent Pool (MPP).

Excerpts of an interview with Dr. Satyanarayana Chava, founder, and CEO, Laurus Labs (LAURUSLABS), with CNBC-TV18 on 28th March 2022:

  • To treat the COVID virus Paxlovid is a more effective drug compared to Molnupiravir. As the number of cases in Asia except in China and Africa is declining significantly.
  • On opportunity, Mr. Chava said, as an API or formulation for Paxlovid company didn’t see a great opportunity in the emerging markets. As the company got the license, they are preparing themselves to grab the opportunity available to them.
  • Mr. Chava added it will take 3 to 4 months for the company to file for regulatory approval after that it will see a clear picture of the opportunity for the company. It’s too early to comment on the opportunity and currently, the company doesn’t see any visibility.
  • Logistics challenges from China and higher prices of petrol-driven solvents are impacting margins but due to the company’s scale, it can manage the impact better than its peers. The company has the challenge of passing higher input costs to customers.
  • On the margins front, the Company can maintain its EBITDA margin of ~30% and the company expects despite the input cost challenges company will be able to manage its margins.
  • The company has 11 final approvals and several tentative approvals for antiretroviral to sell in low and middle-income country (LMIC) markets. The company expects two more final approvals lined up in the coming months.
  • In FY22 company has a challenge in antiretroviral API sales but the company expects 4QFY22 will be a better quarter. From 1QFY23 onwards company expects normalcy in API sales. It also got new approvals in the formulation and it expanded its geographies for formulations and custom synthesis business also performing well.
  • The company expects growth in all divisions in FY23 and is targeting revenue of USD 1bn by FY23.
  • LAURUSLAB received an order from a Global Life Science company in February 2022. The company has started its supplies and is preparing to produce larger quantities in the coming quarters and also the company is well-positioned to deliver its order.

Asset Multiplier Comments

  • We believe that the recent approvals to LAURUSLAB for Molnupiravir and Paxlovid are not likely to add any major incremental revenues as covid cases subside and peers of LAURUSLABS also got the approval for the same drug and this might not add any competitive advantage for the LAURUSLAB.
  • We expect that the issues in antiretroviral API sales to be normalized from 1QFY23 with continuous improvement but lockdowns in China and geopolitical tensions are leading to higher input costs that can put pressure on margins in the shorter term.

Consensus Estimate: (Source: market screener website)

  • The closing price of LAURUSLABS was ₹ 592/- as of 28-March-2022. It traded at 28x/22x the consensus earnings estimate of ₹ 21/ 27/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 575/- implies a P/E Multiple of 21x on the FY24E EPS estimate of ₹ 27/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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