Update on the Indian Equity Market:
On Monday, Nifty closed 0.2% higher at 11,669. Within NIFTY50, INDUSINDBK (+6.5%), ICICIBANK (+6.0%), and AXISBANK (+6.0%) were the top gainers, while RELIANCE (-8.7%), DIVISLAB (-2.8%), and EICHERMOT (-2.5%) were the top losing stocks. Among the sectoral indices, PRIVATE BANK (+4.2%), BANK (+4.2%) and FINANCIAL SERVICES (+3.9%) were the top gainerswhileIT (-0.9%), PHARMA (-0.6%), and AUTO (-0.3%) were the top losing sectors.
Revenue growth across segments expected to continue– Laurus Labs
Excerpts of an interview with Mr. Satyanarayana Chava, Founder & CEO, Laurus Labs, aired on CNBC-TV19 on 30th October 2020:
● In 2QFY21, LAURUSLAB’s revenue growth came from all three divisions and management expects that trend to continue.
● Management has very good visibility of revenue growth going forward.
● Management also expects to maintaingross margins and EBITDA margin. The EBITDA margin is expected to be maintained within the 1HFY21 band of 29%-33%. However, Management refrained from giving any numerical guidance.
● LAURUSLAB’s net debt as of 30th September 2020 is Rs 20,000 mn. Management does not want to bring down the net debt beyond this level as there is a large capacity expansion plan on cards.
● Based on the revenue visibility and order book level, investment in additional capacity is required. Over the next 24 months, management expects a capital outlay of Rs 12,000 to 15,000 mn. The capacity expansion will be done using internal accruals and no external funds will be raised.
● LAURUSLABS has an annualized net debt to equity ratio of 0.85x so they are not highly leveraged. So,the decision to not reduce the net debt levels will not hurt the company.
● Recently the rules have been relaxed in the production linked incentives (PLI) scheme for Active Pharmaceutical Ingredients (APIs), drug intermediaries, and medical devices. LAURUSLABS has some products where they could get benefit from the modified norms of the PLI scheme, but it will not be very significant.
Consensus Estimate (Source: market screener website)
● The closing price of LAURUSLABS was ₹ 301/- as of 2-November-2020. It traded at 18.1x/ 20.6 x/ 13.1x the consensus EPS estimate of ₹ 16.6/14.6/22.9 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 309/- implies a PE multiple of 13.5x on FY23E EPS of ₹22.9/-.
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