Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Laurus Labs Ltd (BOM:540222, Financial) maintained a strong gross margin above 50%, demonstrating resilience despite pricing pressures in generic APIs.
- The company reported a 10% growth in oncology APIs, with Q1 sales reaching INR120 crore.
- Laurus Labs Ltd (BOM:540222) has invested significantly in expanding its development and manufacturing capabilities, which is expected to support long-term growth.
- The company is engaged in over 70 active CDMO projects, indicating a robust pipeline and strong customer confidence.
- Laurus Labs Ltd (BOM:540222) successfully passed 32 quality audits, including US FDA inspections, without any critical findings, showcasing strong compliance and quality standards.
Negative Points
- The company's EBITDA margin remained subdued at 14% due to lower asset utilization and dilution from investments in growth projects.
- Revenue growth was flattish at 1%, with total income from operations at INR1,195 crore, indicating limited top-line expansion.
- Sequential sales in the cardiovascular, diabetes, and asthma API segments declined by 24%, primarily due to timing issues in CMO contract deliveries.
- The generic formulation space saw a 4% decrease in overall revenues year-on-year, impacted by global agencies' buying patterns in ARV formulations.
- Net debt stood at INR2,636 crore, reflecting a significant leverage that could pose financial risks if not managed effectively.
Q & A Highlights
Q: How many of the 28 customer audits conducted in Q1 were CDMO client audits, and what draws these customers to Laurus Labs?
A: At least half of the audits were done by CDMO customers. The audits are a mix of periodic audits and new customer onboarding. The increase in visits and audits reflects growing customer confidence in Laurus Labs' capabilities.
Q: With the new genome Valley Center coming up, how confident is Laurus Labs about the demand for CDMO services given the significant increase in scientists and fixed costs?
A: Laurus Labs is confident as most resources are allocated to late-stage projects for big pharma, which have a higher certainty of success. The expanded R&D capabilities will also help in taking on more early-stage projects.
Q: How much of the ARV sales were recorded for the quarter, and what explains the sharp jump in gross margin?
A: ARV API sales were around INR400 crore, and formulation sales were INR552 crore. The gross margin improvement is due to a favorable product mix, significant increase in oncology sales, and cost savings from raw material price negotiations and process improvements.
Q: What is the expected CapEx for the new formulation facility at Vizag, and over what period will this investment be made?
A: The investment for the Vizag formulation facility is expected to be around INR200 crore, and it is anticipated to be ready by mid-2026.
Q: How does Laurus Labs see the leverage ratio (net debt to EBITDA) settling as capacity utilization increases?
A: The leverage ratio is expected to improve as EBITDA increases. The target is to reduce the net debt to EBITDA ratio to less than 2.5 by the end of March 2025.
Q: What is the outlook for the ARV and non-ARV mix over the next one to three years?
A: The overall ARV franchise is expected to remain around INR2,400 crore to INR2,500 crore. As other business segments grow, the percentage contribution from ARVs will decrease, although the quantum will remain the same.
Q: How much of the INR2,600 crore CapEx is currently being utilized, and how much is not being utilized?
A: About three-fourths of the INR2,600 crore investment is for CDMO projects. The current capacity utilization for CDMO projects is low, around 10% to 20%, as the projects are not yet commercial.
Q: What is the nature of the CDMO business opportunities, and are there any large contracts in the final stages of negotiation?
A: Laurus Labs is leveraging its bio-catalysis and continuous flow chemistry expertise for late-stage clinical programs. The company is in discussions for large contracts, and the capabilities are being demonstrated in partner products' registration files.
Q: What is the expected CapEx for the next two years, and how will it be allocated?
A: The expected CapEx for the next two years is between INR1,800 crore to INR2,000 crore, with the majority allocated to CDMO and some to FDF for specific customer requirements.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
