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INSTITUTIONAL RESEARCH
10 Jan 2019
Amey Chalke [email protected] +91-22-6171-7323
Eshan Desai [email protected] +91-22-6639-2476
INDUSTRY PHARMA
CMP (as on 10 Jan 2019) Rs 372
Target Price Rs 480
Nifty 10,822
Sensex 36,107
KEY STOCK DATA
Bloomberg LAURUS IN
No. of Shares (mn) 106
MCap (Rs bn) / ($ mn) 40/561
6m avg traded value (Rs mn) 35
STOCK PERFORMANCE (%)
52 Week high / low Rs 564/330
3M 6M 12M
Absolute (%) (11.0) (21.6) (31.6)
Relative (%) (14.9) (21.2) (36.4)
SHAREHOLDING PATTERN (%)
Promoters 33.5
FIs & Local MFs 38.3
FPIs 8.1
Public & Others 20.1
Source : BSE
Laurus Labs
API to formulations play
BUY
2
LAURUS LABS
API to formulations play
Laurus Labs is a young, R&D-driven company with strengths in complex chemistry and cost-efficient capabilities in API manufacturing. Laurus has grown at a scorching pace with 30% revenue, 32% EBITDA and 40% earnings CAGR over FY12-18. However, price hikes in a key raw material (FCME) and Rs 1bn operating spend on the nascent formulations business led to a nosedive in 1HFY19 (40% earnings drop). The stock, too, corrected ~34% (from Rs 566 peak in Jan-18). We believe these issues are temporary and offer investors an opportunity to enter a high quality pharma story at a 24% discount to IPO price. Laurus is likely to come out stronger as backward integration for the key molecule is already in place and the formulations business is about to be in the black with fresh orders.
With a likely initial tender win, Laurus is set to enter the US$ 1.8bn ARV formulations market in FY20. It can capture at least 15% market share (in 3 products), supported by one of the largest API capacities. At FY21E formulations revenues/EBITDA of US$ 85/25mn, earnings can triple over FY19-21E (on a soft base). Moreover, we expect a couple of big ticket formulations launches in the US market by FY21 which can further boost profitability. Initiate coverage with a BUY rating and TP of Rs 480 (18x Dec-20E EPS).
Foray into formulations: Laurus is building on its API success to forward integrate into formulations. The ARV tenders in GA LMICs, a market of US$ 1.8bn, is one of the key opportunities for Laurus. With the expectation of capturing 6-7% of the tender business in 3 key products (TLE, TEE, TLD), the formulations segment’s contribution will account for ~22% of revenue by FY21E. Estimating a margin of over 30%, the segment will provide Rs ~1.8bn incremental EBITDA in FY21E.
Muted performance in ARV APIs: The largest segment (65% of
sales) is likely to remain largely steady over FY18-21E. The reduction in dosage size for ART drugs and captive consumption would lead to decline in key ARV APIs (FTC & EFV). However, fresh supplies of Lamivudine, Ritonavir and Lopinavir APIs would offset this fall to some extent.
Lucrative custom synthesis segment: 7.5% of revenues are derived from the custom synthesis segment and 50% of this business is coming from Aspen as Laurus has tie-ups for select product opportunities. We expect the Aspen business to ramp up to US$ ~24mn from US$ ~11mn now, led by capacity expansion. The ex-Aspen business is likely to grow at a healthy rate of 15-20%, as Laurus adds more projects in the pipeline. We believe it can be a 30% plus EBITDA margin business once Laurus achieves the required scale.
View and valuation: At present, Laurus is trading at 22/13x P/E and 10/7x EV/EBITDA (FY20/21E), ~9% discount (FY21E P/E) to peers. Traits like strong R&D skills, cost competitive processes, high probability of success in tender business, potential improvement in business fundamentals like earnings growth, return ratios and free cash flows merit higher multiples.
Financial Summary YE March FY16 FY17 FY18 FY19E FY20E FY21E
Net Sales 18,110 19,315 20,690 22,357 25,117 28,714
EBITDA 3,622 4,076 4,133 3,336 4,990 6,796
APAT 1,342 1,913 1,676 920 1,857 3,167
Diluted EPS (Rs) 13.7 18.1 15.8 8.6 17.4 29.8
P/E (x) 27.2 20.6 23.6 55.1 21.4 12.5
RoE (%) 17.0 17.5 11.9 4.8 11.3 16.9
Source: Company, HDFC sec Inst Research
3
LAURUS LABS
Table of contents
Company background ___________________________________________________________________________________________ 4
Journey so far _________________________________________________________________________________________________ 5
Business snapshot ______________________________________________________________________________________________ 6
Formulations: Growth opportunity _________________________________________________________________________________ 7
ARV tender business: Key driver for formulations ______________________________________________________________________ 8
Formulations: US & semi-reg. markets ______________________________________________________________________________12
ARV API: Mainstay of the business _________________________________________________________________________________13
Hepatitis C API: Highly profitable, but declining ______________________________________________________________________ 15
Oncology and Other APIs: Profitable, and growing ____________________________________________________________________ 16
Synthesis and Ingredients: CRAMS to drive growth ___________________________________________________________________ 17
Manufacturing footprint ________________________________________________________________________________________ 18
Financial Analysis ______________________________________________________________________________________________ 19
Valuation _____________________________________________________________________________________________________23
Risks_________________________________________________________________________________________________________24
Key personnel _________________________________________________________________________________________________ 25
Peer comparison & Financial Statements ___________________________________________________________________________ 26
4
LAURUS LABS
Company background
Revenue Mix (FY18)
Shareholding Pattern (Dec-18)
Laurus Labs is an R&D driven Pharmaceuticals company established in 2005 with its headquarters in Hyderabad. It is among the leaders in the manufacture of Active Pharmaceutical Ingredients (APIs) for Antiretroviral (ARV) and Hepatitis C (Hep-C) formulations. Other major API segments include therapeutic areas such as Oncology, Cardiovascular, and Anti-Diabetes.
Apart from manufacturing APIs, it develops and manufactures oral solid formulations, provides CRAMS services to other global pharmaceutical companies, and also produces specialty ingredients for nutraceuticals, dietary supplements, and cosmeceuticals.
Its revenue grew at 30% CAGR (FY12-18) driven by a ramp-up in the API segment, whereas EBITDA and PAT grew at 32% and 40% CAGR respectively over the same period. Lately, PAT growth has remained subdued due to under-utilized capacities in the formulations business and heavy R&D spend for ANDA filings in the US.
In 2007, Aptuit invested Rs 1bn in Laurus. The funding was at a crucial stage, which helped Laurus in scaling up its operations. FIL Capital Management invested Rs 490mn in the company in 2012 through primary funding as well as acquisition of Aptuit’s majority stake. Impressed by Laurus’ superlative operational performance, Bluewater invested Rs 3bn in 2014 and acquired a significant stake of FIL Capital. With this, Laurus commenced construction of its formulations facility, Unit 2.
Among the largest shareholders are Bluewater Investments (19.7%), FIL Capital Mauritius (11.5%), SBI MF (2.5%), Kotak MF (2.2%), Goldman Sachs India (1.4%), Govt Pension Fund Global (1.3%), and Nomura (1.1%).
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
ARV API
66%
Hep-C API8%
Oncology API8%
Other API8%
Synthesis7%
Ingredients3%
Formulations0%
Promoters
33.5%
Fls & Local MFs
38.3%
FPIs8.1%
Public20.1%
5
LAURUS LABS
Journey so far
2006-07
2008-09
2010-12
2013-15
2016-18
•Oncology API supply started •Commercialized Unit 1 •Aptuit invested Rs 1bn
•First DMF filed •Started ARV API supply •Commenced CRAMS and ingredients operations
•Started supplying to the US •FIL & promoter invested Rs 600mn
•Crossed Rs 10bn revenues •Rs 3bn investment by Bluewater •Commercialized Unit 3
•First ANDA filed in 2016 •Launched first product in the US in 2018 •Crossed Rs 20bn in revenues •Filed 9 ANDAs and 1 NDA with USFDA
6
LAURUS LABS
Business snapshot
Revenue (FY18)
Rs 20.7bn
Formulations
> 1% of sales
(Future growth driver)
Three-pronged approach:
1. ARV tender market
2. US regulated market
3. Semi regulated markets
API
90% of sales
1. Economies of scale
2. Patented process
3. Niche molecules
ARV
65% of sales
1. Market leader in EFV
2. Growing its presence in TNF, EMT, LMV
3. Filed DTG, RTV and LPV
Hep-C
8% of sales
1. Has profit sharing agreement with Natco
2. Growth expectation nil due to pricing pressure
Oncology
8% of sales
1. Gemicitabine is key molecule in this segment
2. Growing its presence in other molecules
Others
9% of sales
1. Metformin and Pantoprazoleare key molecules
2. Growth expectation 15-20%
3. Focusing on high volume molecules
Synthesis
7% of sales
1. High margin segment
2. ~50% business from Aspen
3. Expect growth of 25-30%
Ingredients
3% of sales
1. Smaller segment
2. Growth expectation of 15-20%
7
LAURUS LABS
Formulations: Growth opportunity
Foray into formulations
Venturing into the formulations segment: To take advantage of its cost-effective API manufacturing capabilities, Laurus entered the formulations business in 2015 and has invested close to Rs 5bn in building a 5bn tablets/year capacity. In FY18, it incurred Rs 1bn opex on account of the formulations business and only generated Rs 60mn in revenue.
Three pronged strategy: It is likely to focus on 3 key segments to ramp up formulations revenues: (1) ARV tender market; (2) US generics; and (3) other regulated markets. It can also explore CMO opportunities to make use of its excess capacity for fixed revenues and margins.
Ramping up filings: Till now, Laurus has filed 9 backward integrated ANDAs and 1 NDA with the US FDA, 2 dossiers in Europe, and one each in Canada, South Africa, and with WHO. It has received US FDA approvals for g-Viread (TDF) and gMetformin.
ARV tenders: The biggest near term opportunity
Being the cost leader in ARV APIs, we believe Laurus will be best placed to garner at least 15% market share (in 3 products) of the US$ 1.8bn ARV tender market. A substantial part of the revenues would start coming in from FY20E itself.
We expect Laurus’ formulations segment to catapult to Rs 6.1bn revenues in FY21E from Rs 60mn in FY18. This will also translate into incremental EBITDA of Rs 1.8bn from the formulations segment, taking the total EBITDA to Rs 6.8bn in FY21E from Rs 4.1bn in FY18 (~18% CAGR).
Formulations: Sharp Jump In Contribution By FY21E
Formulations: EBITDA Breakeven Expected by FY20E
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
(1.0) (0.8)0.1
1.8
5.1 4.6
5.1
5.2
FY18 FY19E FY20E FY21E
Formulations EBITDA (Rs bn) EBITDA from other segments (Rs bn)
0.0 0.5 2.5 6.1 0%
2%
10%
21%
FY18 FY19E FY20E FY21E
Formulations Revenue (Rs bn) Revenue Contribution (%)
8
LAURUS LABS
As of 2017, there are 36.9mn people living with HIV (PLHIV) globally. Only 21.7m of which are receiving treatment, translating to a coverage rate of 59%
A major portion of the PLHIV is in low and middle-income countries (LMICs), particularly in Africa, with South Africa having the largest HIV+ population (~20%).
The generic-accessible (GA) ARV market represents close to 95% of LMIC patients as of 2014. The GA-LMIC market is segmented into adults in first-line treatment (1L), adults in second-line treatment, and pediatric patients.
Out of the total population under ART in LMICs, 75% were adults receiving 1L treatment (1L GA LMIC). Over 70% of adults on first-line treatment were on WHO preferred TLE (TDF/FTC/EFV) or TEE (TDF/3TC/EFV) as of 2017.
However, WHO updated Dolutegravir (DTG) the preferred 1L treatment for nearly all adult and adolescent patients (with certain exceptions) in 2018. DTG, as part of a fixed-dose combination of TLD, is expected to change the ART landscape.
Opportunity for ARV medicine companies
Due to the continued increase in patient base and coverage rate, 24.1mn patients are expected to be under ART in GA LMICs by 2022, translating to a growth of 6% CAGR (CY17-22E).
The ARV tender market (GA LMICs) is US$ 1.8bn in size as of 2017. We estimate this to increase to US$ 1.9bn by 2022 while accounting for further price reduction attributed to wider acceptance of the lower-cost TLD, as well as increasing patient coverage rate. The growth of the ARV market translates to 1.5% CAGR (CY17-22E).
Global ARV landscape
People Living With HIV: Africa Has The Highest Concentration
Source: Company, HDFC sec Inst Research
Growth in GA LMIC Tender Market (1.5% CAGR over CY17-22E)
Source: Company, HDFC sec Inst Research
Africa71%
APAC
12%
Reg. markets17%
1.6 1.7 1.8 1.8 1.8 1.8 1.9 1.9
5.3 4.9
2.9
1.9
0.4
1.6
2.2
1.3
2015 2016 2017 2018E 2019E 2020E 2021E 2022E
GA LMIC ART Market (US$ bn) YoY (%)
9
LAURUS LABS
A majority of the ARV tender funding is concentrated in the top three funds
More than 50% of the Global ARV tenders are granted by 3 funds - Global Fund, PEPFAR, and South Africa Govt. Fund. These tenders are majorly given for TLE, TEE and TLD products.
Despite the fact that there are multiple funding agencies as well as treatment products, a majority of the market is concentrated within the above mentioned funds and products. Therefore, contrary to general perception, Laurus can extract a significant share of the market by getting TLE, TEE and TLD tenders from the top 3 funding agencies.
ARV tender market: Heavily dominated by a few key players
The global ARV tender market is dominated by Mylan, Hetero, Aurobindo, Cipla, and Aspen, which account for over 75% of the tender business combined.
The South African ARV tender market is largely skewed. Market share is majorly divided among Mylan (27%), Sonke (22%), Aspen (17%), and Cipla (13%) owing to their local presence.
All of the key ARV API manufacturing companies have manufacturing facilities based out of India, making them equally competitive in the ARV tender space.
Laurus currently supplies APIs to 9 of the 10 largest generic pharmaceutical companies and has an advantage in backward integration. We expect Laurus to participate in the top 3 tenders and capture ~15% market share in the ARV tender market at its peak, in TLE, TEE and TLD.
ARV tender market
Fund-wise Contribution To ARV Tenders (CY19E)
Source: Company, HDFC sec Inst Research
Company-wise ARV Tender Market Share (CY17)
Source: Company, HDFC sec Inst Research
Mylan
31%
Hetero
20%Auro 13%
Cipla7%
Aspen
6%
Others
23%
Global Fund22%
South
Africa
21%
PEPFAR
11%
Kenya6%
UNDP
6%
Others34%
10
LAURUS LABS
Top three products: TLE, TEE and TLD
WHO preferred first-line treatment: TLE, TEE and TLD
The WHO recommended first-line for ART is Tenofovir Disoproxil Fumarate (TDF) + Lamivudine (3TC) or Emtricitabine (FTC) + Efavirenz (EFV). TLE (TDF/3TC/EFV) and TEE (TDF/FTC/EFV) are fixed-dose combinations (FDC) recommended as the preferred option to initiate ART.
Since the start of 2016 many countries have rolled-out new HIV treatment guidelines which reinforced the WHO-recommended regimens for 1L and 2L treatment. In July-18, the WHO revised its guideline and made DTG part of the preferred first-line treatment option for nearly all adults and adolescents (with certain exceptions).
• In CY19E, over 85% of the funding by the top three donors (Global Fund, PEPFAR and South Africa Govt Fund) is expected to be allocated to TLE, TEE and TLD.
Transition to TLD
Dolutegravir (DTG) is a relatively new ARV available in generic form in LMICs and TLD, an FDC of TDF/3TC/DTG, is considered desirable for use as a first-line regimen in people living with HIV.
This combination provides many clinical benefits, including improved tolerability, higher antiretroviral efficacy, lower rates of treatment discontinuation, a higher genetic barrier to resistance, and fewer drug interactions than other ARV drugs as per WHO.
TLD is also a significantly lower cost product, expected to reduce the cost of ART from US$ 89 (PPPY as of 2017) to US$ 75, and is forecasted to gain 62% market share of 1L GA LMICs by 2022.
The opportunity in these products is evident and Laurus has filed for TLD with the USFDA.
Product-wise Funding Allocation By Top 3 Funds (CY19E)
Source: Company, HDFC sec Inst Research
DTG-based Regimen To Gain Traction
Source: Company, HDFC sec Inst Research
• Over 20 LMICs have already initiated the procurement for DTG20+
• Stringent Regulatory Authority (SRA) has approved 2 suppliers for TLD2
• The average per patient per year cost for ART under TLD is estimated to be US$ 75US$ 75
• DTG based regimens are expected to gain 59% of the GA LMIC market by 202159%
TLD36%
TLE30%
TEE20%
Others
14%
11
LAURUS LABS
Potential opportunity for Laurus
Tender opportunity to improve business mix
Laurus Labs is expected to get 10-20% share of the global ARV tenders market, with higher visibility in the top 3 donor funds. A ramp-up in its formulations business will improve business mix and reduce dependence on the API segment, which is typically a low-margin one.
Formulations biz can leverage through backward integration
Laurus can compete in prices and still maintain margins by way of backward-integration with its API manufacturing business. This is expected to yield them a 25-30% EBITDA margin out of the ARV tender business, translating to EBITDA from ARV formulations of US$ ~40mn (at peak potential) which will grow in-line with market growth.
Competitive Landscape Of The ARV Tender Market
Source: Company, HDFC sec Inst Research
Macleods
Emcure
Strides
Cipla
Sun Pharma
Aspen
Mylan
Hetero
Aurobindo
Laurus
Above 10% market share
Below 10% market share
Global ARV tender market
US$ 1.8bn
Laurus’ tender business revenue
at 15% market share of 3 products
US$ 135mn
Estimating ~30% EBITDA Margin,
And EBITDA of
US$ 40mn
12
LAURUS LABS
The US: To remain modest till FY20E
The US market: Ramp up expected from FY21E
Since Laurus is entering the US market rather late, after the patent cliff has been passed, low hanging opportunities are rare and competition has heightened. However, there is still a US$ 250bn market under patent protection and a US$ 60bn new product market will be added over the next three years.
Till now, Laurus has filed 17 ANDAs and 1 NDA with the US FDA and has received 2 product approvals. It is likely to file 9-10 ANDAs every year with a focus on ARV, oncology and a few Para IV opportunities. We believe the company has filed three Para IVs till date and we expect one of these Para IVs to be a near term opportunity. Laurus is expected to launch 5-6 ANDAs every year from FY19 onwards. We expect the US business revenues to remain modest till FY20E, until big Para IV opportunities are launched.
Semi-regulated markets: Stable base for formulations
Apart from ARV tenders and the US market, Laurus is likely to explore semi-regulated market opportunities. This includes markets like Canada, Australia, Europe and emerging markets.
Laurus’ strategy in these markets will be to enter through distributors, without the need of any significant spending on front-ends. This will lead to improved operating leverage as formulations capacities are frugally utilized.
Typically, gross margins are in the range of 50-60% for RoW markets.
ROW & US Will Account For ~40% Of Revenue By FY21E
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
R&D Spend: Correlated To Filings Rate
8
1
56
4
7
43
76
0.4 0.40.6
0.9
1.41.2
0.8
FY13 FY14 FY15 FY16 FY17 FY18 1HFY19
DMF (No.) ANDA (No.) R&D (Rs bn)
1.4
3.6
0.3
0.7
1.4
0.2
0.4
1.1
0.5
2.5
6.1
FY19E FY20E FY21E
Tender (Rs bn) ROW (Rs bn) US (Rs bn)
13
LAURUS LABS
ARV API: Market dynamics
ARV: High Volume API market
The market size for 11 key ARV APIs was Rs 102bn in 2017. Of these, four APIs have a market size of more than Rs 10bn each and Rs 66bn collectively.
The demand for ARV APIs will see continued growth in the coming years owing to a steady rate of new HIV patients, higher detection and coverage rate, decline in cost of treatment and increase in ARV tenders. However, the introduction of low-dosage DTG will lead to a decline in volumes.
Growth remains a challenge due to moderating prices
While there is a persistent growth in the number of patients under ART, driving the demand for key ARV APIs at 8-10% CAGR (over FY13-18); price erosion over the last 5 years has been at 4-7% each year. This is likely to continue as cheaper options are becoming available in the form of DTG-based treatments.
With a shift in 1L treatment and the availability of low-dose molecules, we expect the ARV API market to decline at single-digits going ahead, especially for the large volume products.
DTG to change the ARV API landscape
The introduction of DTG will result in further reduction of prices and the forecasted demand for DTG will require a global production capacity of 200mt (v/s 1,200mt for others).
With the introduction of DTG, volume growth for other ARV API would fall since the required DTG dosage is relatively small (~16%). Moreover, since DTG will be significantly cheaper than other APIs, the ARV API market size would also grow at a lower rate as compared to ARV formulations.
Top Four APIs Have A Rs 66bn Market Size
Key ARV API Prices (Per Kg)
Source: Company, HDFC sec Inst Research
Source: HDFC sec Inst Research
*Laurus has presence in highlighted API markets
Rs 10bn-20bn Below Rs 10bn
EFV LPV
ZDV DRV
TDF FTC
3TC NVP
RTV
ABC
Atazanavir
170 157 157 150
112 110 104 99
270
309
245 245
FY16 FY17 FY18 FY19
TDF (US$) EFV (US$) FTC (US$)
14
LAURUS LABS
Laurus’ position in the ARV API market
ARV APIs contribute 65% to the top line
ARV API revenue is the largest revenue component for the company, at Rs. 13.3bn for FY18 (65% of total revenue). ARV API revenues have grown at ~10% CAGR over FY15-18. Currently, Laurus manufactures TDF, EFV, and FTC APIs among others.
Laurus is present in three of the four large volume APIs in the ARV segment – EFV, TDF and FTC. All three molecules are part of the GA LMIC ARV tenders. These APIs constituted ~97% of ARV API revenue in FY18.
Lower cost and patented processes have been the key factors in making Laurus the preferred API supplier in the ARV segment. At present, Laurus is supplying to 80% of the players who participate in ARV tenders. We believe Laurus has 1,200MT capacity for EFV (42% of global capacity) and 400MT capacity for TDF (19% of global capacity). Although Laurus is constantly gaining market share in these molecules, pricing trend is downwards due to incremental pressure from ARV tenders.
3TC and DTG to be added in the ARV API portfolio
Laurus will begin production of 3TC at a capacity of 500MT and DTG production will also ramp up as demand for these new molecules builds over the next few years. Apart from these two, Laurus will also manufacture LPV and RTV going ahead.
With these additions, Laurus will offer a full basket of ARV APIs for 1L and 2L treatments. However, an increase in captive consumption for the formulations business, coupled with the declining ARV API prices, will lead to a de-growth in ARV API revenues of up to 2% CAGR over FY18-21E.
ARV API: Growth To Moderate
DTG & 3TC Sales Will Ramp Up Over FY18-21E (Rs bn)
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
10.8 12.6 12.2 13.4 14.3 14.0 12.6
15.8 17.1
(3.2)
9.4 7.0
(2.4)
(9.4)
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
ARV API (Rs bn) %YoY Growth
3.6 3.9 3.8 4.7 3.7 4.0
7.7 6.7 8.0 7.4
6.8 4.7
1.2 1.2
1.2 1.3
1.1
0.7
0.2
1.1
1.5
0.2
0.5
0.0 0.3 0.3
0.8 1.1
1.4
12.6 12.2 13.4
14.3 14.0 12.6
FY16 FY17 FY18 FY19E FY20E FY21E
TDF EFV FTC 3TC DTG Others Total
15
LAURUS LABS
Hepatitis C API: Highly profitable, but declining Offtake in FY16 on the back of the Sofosbuvir franchise
Hepatitis C (Hep-C) API revenue at Rs 1.7bn contributed 8% to Laurus’ total revenue in FY18. The business grew at a CAGR of 93% over FY15-18 but declined 33% YoY in FY18.
The introduction of Sofosbuvir in 2015 created a paradigm shift in the treatment of Hep-C. It resulted in large-scale detection of the infection owing to accumulation of un-detected cases over the years. High pricing power for the Hep-C FDF manufacturers was able to support the higher cost APIs. Thus, this lead to a surge in sales during FY16&17.
Dwindling sales of Hep-C segment for Laurus
The number of new incidents per year is relatively low. Moreover, this is a cure for Hep-C. Therefore, the increasing rate of treatment coupled with a low number of new patients has reduced the demand of Hep-C API post FY17.
The price of Hep-C API has also reduced from US$ 2,000 in 2015 to US$ 900 in 2018 owing to increased competition in the formulations space.
Laurus’ Hep-C API sales are on a profit-sharing basis (~50% profit-share) with Natco. We estimate 70-80% of Hep-C API revenues are contributed by the profit component from Natco. Due to falling demand and price correction, the profit share has also reduced since FY18.
Hep-C revenues to stabilize over FY18-21E
We believe the price and demand for Hep-C API has stabilized post correction, and should be maintained over the medium-term. Estimate 5% negative CAGR over FY19-21E.
Hep-C API: Revenues To Stabilize Over The Medium-term
Natco Commands ~50% Market Share In Hep-C In India
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
0.22.0 2.5 1.7 1.1 1.0 1.0
27.3
(33.5)
(35.0)
(5.0) (5.0)
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Hep-C API Revenue (Rs bn) %YoY Growth
1.3 4.7 3.8 4.5
0.3 0.9 1.0
1.5
0.5 0.7 1.3 1.3
0.1 1.2 0.9
0.7 0.3 0.8 0.6 0.4
0%
20%
40%
60%
80%
100%
2015 2016 2017 2018
Natco Cadila Mylan Hetero Dr Reddy Others(Rs bn)
16
LAURUS LABS
Oncology and Other APIs: Profitable, and growing
Oncology API: High margin business
Oncology APIs revenue stood at Rs 1.6bn in FY18 and contributed 8% to Laurus’ total revenue. The segment grew at ~9% CAGR over FY15-18.
90% of Laurus’ revenue from oncology APIs comes from the sale of Gemcitabine and Imatinib.
The oncology API segment offers high margins (25% plus); therefore, growth in revenues from oncology APIs would improve business mix and expand overall margins.
Other API: Metformin and Pantoprazole are the key molecules currently
The sale of other API products at Rs. 1.7bn in FY18 makes up 8% of Laurus’ total revenue. This segment grew at 86.7% CAGR over FY15-18 and 15%YoY in FY18. Margins for these APIs are in the range of 14-15%.
Metformin and Pantoprazole continue to be among the largest in quantum, and are expected to be the key growth drivers in this segment.
Therapeutic areas such as cardiovascular, anti-diabetic, and ophthalmic are expected to offer good future prospects.
Both these segments are expected to grow at 13-14% CAGR over FY18-21E.
Oncology API: Steady Growth Expected
Other API: New Therapeutic Areas To Drive Growth
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
1.3 1.4 1.1 1.6 1.9 2.2 2.5
16.6 12.0
(24.1)
51.3
18.0
14.0 14.0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Oncology API Revenue (Rs bn) %YoY Growth
0.3 0.5 1.5 1.7 2.0 2.3 2.6
(49.3)
93.6
191.8
15.1 15.0 15.0 15.0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Other API Revenue (Rs bn) %YoY Growth
17
LAURUS LABS
Synthesis and Ingredients: CRAMS to drive growth
Laurus Synthesis: CRAMS business, dependent on Aspen
Laurus’ synthesis business provides research and manufacturing services on contract basis to other pharmaceutical companies. Its revenue for FY18 was at Rs 1.5bn (7.5% of total revenue). The segment grew at 48% CAGR over FY15-18.
Laurus enjoys higher than company-average margins from this segment (~25%). 50% of its revenue comes from its business with Aspen, and the rest comes from other customers and innovators for CRAMS services.
This segment is expected to continue growing at a CAGR of ~25% over FY18-21E. The continued growth expectation is attributed to (1) Commencement of supply from unit 5 to Aspen; (2) Expected initiation of Digoxin API from unit 4 for C2 Pharma; (3) Addition of high potent capabilities to cater to 2 NDA programs and a robust pipeline of molecules.
Laurus Ingredients: Nutraceuticals business, expected to take off
With revenue at Rs 0.6bn for FY18 (3% of total revenue), this segment declined 1% YoY (+34% CAGR over FY15-18E).
However, it is expected to grow in the coming years on the back of new product developments and expanding market share. Unit 4 will result in capacity expansion for the segment.
This segment currently offers a margin of 18-20%. However, we estimate the margins to expand as Laurus gains the required scale.
We expect the segment to grow at ~13% CAGR over FY18-21E.
Laurus Synthesis: Aspen Deal To Drive Top-line
Laurus Ingredients: Growing, But Small
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
0.5 0.8 1.0 1.5 2.0 2.5 3.0
138.7
75.0
21.5
51.2
30.0 25.0 20.0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Synthesis Revenue (Rs bn) YoY (%)
0.3 0.5 0.6 0.6 0.6 0.7 0.9
(31.6)
82.4
31.6 (0.8) 0.0
20.0 20.0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Nutrients Revenue (Rs bn) YoY (%)
18
LAURUS LABS
Manufacturing footprint
Unit 1: Oldest API Manufacturing Facility
Unit 5: Dedicated Block For Aspen
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
Earnings To Have Bottomed-out In FY19E
Source: Company, HDFC sec Inst Research
Unit 2: Key Formulations Facility
Facility API/ FDF Segment Approvals Estd. Year
Unit 1 API API, Ingredients, Synthesis, CRAMS
US FDA, WHO-Geneva, NIP Hungary, KFDA & PMDA
2007
Unit 3 API API, Ingredients, Synthesis, CRAMS
US FDA, WHO, Hungary 2015
Unit 5 API Hormone & steroid facility for Aspen
2017
Unit 2 FDF & API US FDA, WHO, Germany
2017
Unit 4 API API, Ingredients, Synthesis, CRAMS
2018
Unit 6 API 2018
19
LAURUS LABS
Financials: Growth to come back
Revenues to grow at 11.5% CAGR over FY18-21E
Gaining market share in ARV APIs and successful launch of Hep-C products in India led to a top-line growth of ~16% CAGR over FY15-18. All segments saw strong double-digit growth during this period.
However, with increased pricing pressure and captive consumption of ARV APIs, and falling demand in the Hep-C products, we expect these two segments to report subdued performance over the next three years.
The formulations segment is going to be the new growth engine for Laurus while the synthesis and ingredients businesses are expected to continue growing at double digits. Driven by the Formulations and CRAMS segments, Laurus’ top line is expected to grow at ~11% CAGR over FY18-21E.
Gross margin to have bottomed-out by FY19-end
Scale up in the Hep-C API business drove gross margin expansion from 38% in FY15 to 49% in FY18. However, as the Sofosbuvir franchise got eroded, business mix has skewed towards the lower-margin ARV API segment in FY19E. Moreover, Laurus has also been impacted by raw material price movement over FY18-19.
Going ahead, backward integration in the raw material of FTC and a ramp up in the formulations segment by FY20-21E will lead to a rebound in gross margin. We expect gross margin to expand ~200bps over FY18-21E.
.
Formulations Revenue Contribution To Increase
Decline In Hep-C API Pressurized Gross Margin
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
38.1
44.3
48.4 48.6 46.5
49.7 52.0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Gross Margin (%)
10.812.6 12.2 13.4 14.3
14.012.6
1.83.9 5.1 5.0 5.0
5.5
6.1
0.7 1.3 1.6 2.1 2.63.2
3.9
0.0 0.5 2.56.1
13.3 17.8 18.9 20.5 22.4 25.1 28.7
0%
20%
40%
60%
80%
100%
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
ARV API (Ex-ARV) CRAMS Formulations Total(Rs bn)
20
LAURUS LABS
Financials: Margin to recover sharply
EBITDA to reach Rs 6.7bn by FY21E, translating to an ~18% CAGR over FY18-21E
Negative contribution of the formulations segment has been the key hurdle in EBITDA improvement. Laurus has been incurring ~Rs 1bn in opex yearly, for the formulations business since FY17.
We believe Laurus’ formulations segment will break-even by FY20E, owing to the tender business gaining traction. As the opex is absorbed by formulations revenue, the segment will turn profitable. We estimate formulations EBITDA to reach Rs 1.8bn by FY21E.
EBITDA margin to expand ~370bps over FY18-21E
EBITDA margin expanded to 21.1% in FY17 (up 610bps over FY15) when the Sofosbuvir franchise was at its peak. However, the subsequent decline in the Hep-C API business led to higher contribution of lower-margin ARV APIs.
Over the last three years, we can see opex (% of sales) has been increasing. R&D, employee cost and other opex increased 450bps from 24.3 in FY16 to 28.8 in FY18.
While we believe R&D spend would remain high owing to ANDA filings in the US and semi-regulated markets, the company has room to save on other operating expenses by undertaking cost rationalization.
Going ahead, improvement in business mix will be the key trigger for margin expansion. We believe the formulations segment will enable revival of EBITDA margin.
Segment-wise EBITDA breakup (Rs bn)
Opex (% of sales) has been increasing over the years
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
0.11.7 2.0 1.3
0.4 0.6 0.5
2.3
2.72.7
3.3
3.13.4 3.40.1
0.20.3
0.5
0.70.9 1.1
-0.5 -1.0 -1.0 -1.0 -0.8
0.1
1.8
15.0
20.0 21.1
20.0
14.9
19.9
23.7
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Hep-C ARV & Others (API)Nutrients & Synthesis Formulations
61.9 55.7 51.6 51.4 53.5 50.3 48.0
9.9 10.4 12.7 12.5 13.2 12.9 12.5
8.8 8.9 7.3 10.4 11.9
10.8 9.8
4.4 5.0 7.3 6.0
6.5 6.2 6.1
15.0 20.0 21.1 20.0 14.9 19.9 23.7
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Cost Of Sales Employee Cost Other Opex R&D EBITDA Margin
21
LAURUS LABS
Financials: Business fundamentals to improve
Lower capex requirement to improve free cashflow: Cash flow from operations has increased from Rs 1.8bn in FY16 to Rs 3.3bn in FY17 and Rs 3.4bn in FY18. however, investment in increasing API capacities and building the formulations facility has led to a considerably high amount of capex at Rs 10bn over FY16-18. This resulted in poor free cash over FY16-18.
Both, API and formulations facilities are operating at sub-optimal level and have sufficient capacity to cater increase in demand over the near-term. Hence, the need for further capital is limited. So, the free cashflow generated over the next few years can be used to repay debt. We expect net debt to reduce from Rs 9.0bn in FY18 to Rs 7.4bn by FY21E.
Return ratios to improve on the back of the formulations business: Improving margins and higher asset utilization will push ROE and ROCE to earlier levels of 13/17% by FY21E. We believe there is a significant scope to improve return ratios as the formulations business will start delivering. The formulations segment typically has higher asset turns and better margins as compared to the generic API business.
Free Cash To Improve As Investment Cycle Cools
Formulations Segment To Drive Improvement In Return Ratios
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
6.7
10.4
9.1 9.0 9.2 9.1
7.5
3.83.3 2.8
3.9
1.9 2.2 2.0
(4.4) (1.4)
0.5
(0.5)
0.5 0.9 2.2
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Net Debt (Rs bn) Capex (Rs bn) Free Cash (Rs bn)
12.6
17.0 17.5
11.9
4.8
11.3
16.9 15.0
13.0 12.8
9.4 5.6 9.3
13.2
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
ROE (%) ROCE (%)
22
LAURUS LABS
Financials
Presence Of Free Capacities Has Led To Subdued Asset Turnover
Working Capital Days To Remain Stable
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
Source: Company, HDFC sec Inst Research
Earnings To Have Bottomed-out In FY19E
Source: Company, HDFC sec Inst Research
Net D/E To Improve As Capex Requirement Reduces
1.8 1.6
1.4
1.2 1.1 1.1 1.2
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Asset Turnover (x)
0.9
1.2
0.7 0.6 0.6
0.5
0.4
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Net D/E (x)
233 248
298 289 258
274 283
-
50
100
150
200
250
300
350
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
Inventory (days) Debtors (days)
Payables (days) Cash Conversion (days)
0.7 1.3 1.9 1.7 0.9 1.9 3.2
5.1
7.4
9.9
8.1
3.2
7.4
11.0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E
APAT (Rs bn) APAT Margin (%)
23
LAURUS LABS
Valuation
At CMP, Laurus is trading at 22/13x FY20/21E EPS, in-line with its peer average. We believe that investors should use this opportunity to enter the stock due to the following reasons:
The formulations business has started delivering, and is expected to reach Rs 6.1bn in revenue and Rs 1.7bn in EBITDA by FY21E. Moreover, the CRAMS segment is also expected to see strong double-digit growth over FY21E, whereas Hep-C and ARV API should decline at low-single digits post FY19E. Overall, the near-term revenue growth trajectory looks strong.
A strong earnings outlook; 23.6% CAGR over FY18-21E, backed by 11.5% revenue CAGR.
Improvement in RoIC from 9% in FY18 to ~14% by FY21E.
We value Laurus at 18x Dec-20E EPS, arriving at a TP of Rs 480/sh, implying ~30% upside. The key catalysts for success are:
Strong R&D skills and cost competitive processes
High probability of success in the tender business
Potential improvement in business fundamentals like earnings growth, return ratios and free cash flows
Laurus Labs P/E Band ROIC Set To Improve Going Ahead
Dec-18
25.3
0
10
20
30
40
50
60
70
Jan
-17
Ap
r-17
Jul-
17
Oct
-17
Jan
-18
Apr
-18
Jul-
18
Oct
-18
1 Yr Fwd P/E (x) P/E Average (Dec-16 - Dec-18)
18.4
31.7
22.9
13.0 13.3 11.7 8.6
5.2
9.5
13.5
-
5.0
10.0
15.0
20.0
25.0
30.0
35.0
FY12
FY
13
FY14
FY15
FY16
FY
17
FY18
FY19
E
FY20
E
FY
21
E
ROIC (%)
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
24
LAURUS LABS
Risks
Further erosion in Hep-C formulation price: While further price erosion is unlikely, it could impact profitability of the Hep-C segment. However, the share of Hep-C APIs has reduced from 13.3% in FY17 to 8.1% in FY18. We expect this segment to account for only 3-4% of revenues by FY20-21. Hence, overall impact of price erosion would not be very material.
Drop in HIV funding: Since ART coverage is increasing rapidly with initiatives to achieve the fast-track target, a growing patient pool will require enough funding to support the treatment. Funding constraints would require LMICs to use their limited resources more efficiently. Any reduction in donor funding could lead to pressure on formulation prices, thus reduce the profitability of the FDF segment. However, we do not expect a major reduction in donor funding as the funding agencies are aimed at achieving the 90-90-90 target by 2020.
Major overhaul in ART: While TLD is expected to remain the preferred regimen for HIV treatment, there are many products currently under development. These could potentially change the landscape in the long-term.
Prioritized List Of Products For Adults On ART
25
LAURUS LABS
Key personnel
•Dr Satyanarayana holds a Master’s degree in Science from Andhra University, and is also a PhD. He has experience of over 23 years with companies like Ranbaxy and Vera labs. He also has more than 100 patents filed to his name. He has been a Director at Laurus since 2006.
Dr Satyanarayana Chava
Founder & CEO
•Mr V V Ravikumar holds a Master's degree in Commerce from Andhra University, and is also a member of the ICWAI. He has over 25 years of experience in the field of finance. He is in charge of the finance and human resources functions at Laurus. He has been a Director at Laurus since 2006.
Mr V V Ravi Kumar
ED & CFO
•Mr Chandrakanth Chereddi oversees Strategy and Operations. He holds a Master’s degree in Science from the University of Illinois. He has over eight years of experience in the field of project management. He has been a director at Laurus since 2016.
Mr Chandrakanth Chereddi
ED - Formulations & Strategy
•Dr Lakshmana Rao C V has been associated with Laurus since 2007. He holds a Master’s degree in Science and a PhD from the Andhra University. He has over 13 years of experience in product development.
Dr Lakshman Chunduru Exec VP - Quality
26
LAURUS LABS
Source: Company, HDFC sec Inst Research **Bloomberg estimates
Peer comparison
M-Cap (Rs bn)
CMP (Rs/sh)
Revenue (Rs bn) EBITDA (Rs bn) PAT (Rs bn) CAGR: FY18-21E (%)
FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E Revenue EBITDA PAT
Divi's 403 1,516 39.13 48.64 55.43 62.67 12.62 18.53 21.45 23.88 8.59 13.38 15.17 17.28 17.0 23.7 26.2
Laurus 40 373 20.69 22.36 25.12 28.71 4.13 3.34 4.99 6.80 1.68 0.92 1.86 3.17 11.5 18.0 23.6
Dishman 38 240 16.95 18.89 21.07 24.14 4.45 5.16 6.03 7.37 2.14 2.61 3.37 4.03 12.5 18.3 26.2
Shilpa Med*
31 381 7.89 7.87 9.73 11.09 1.62 1.90 2.43 2.91 1.03 1.35 1.85 2.10 12.0 21.5 26.9
Suven Life 29 226 6.25 6.62 7.21 7.98 1.98 1.78 2.03 2.30 1.24 1.25 1.39 1.59 8.5 5.1 8.8
Granules 23 90 16.85 20.77 24.15 28.23 2.78 3.62 4.78 5.86 1.33 2.13 2.68 3.37 18.8 28.2 36.5
Hikal * 19 156 12.96 15.39 17.98 21.09 2.42 2.96 3.53 4.21 0.77 1.04 1.24 1.53 17.6 20.3 25.7
Aarti Drugs*
14 587 12.44 14.52 16.92 18.84 1.99 2.10 2.60 3.01 0.82 0.88 1.18 1.46 14.8 14.9 21.1
Neuland 7 508 5.29 6.21 7.18 8.07 0.50 0.56 1.20 1.52 0.12 0.20 0.66 0.86 15.1 44.5 92.7
M-Cap (Rs bn)
CMP (Rs/sh)
EPS (Rs/sh) RoE (%) P/E (x) EV/EBITDA (x) Net
Debt (Rs bn)
Net D/E (x)
FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY18
Divi's 403 1,516 32.4 50.4 57.1 65.1 15.2 20.9 20.5 20.3 46.8 30.1 26.5 23.3 29.2 19.8 16.9 14.8 (19.4) (0.3)
Laurus 40 373 15.8 8.6 17.4 29.8 11.9 4.8 11.3 16.9 23.5 43.0 21.3 12.5 11.7 14.7 9.8 7.0 9.0 0.6
Dishman 38 240 13.2 16.1 20.9 26.6 14.6 15.2 16.7 18.0 17.9 14.7 11.4 8.9 10.4 8.7 7.4 5.9 8.1 0.2
Shilpa Med*
31 381 12.6 16.8 22.9 25.8 10.2 11.7 14.1 14.5 30.2 22.7 16.6 14.8 18.3 16.1 12.6 10.5 (0.3) (0.0)
Suven Life 29 226 9.7 9.8 11 12.5 17.2 15.2 15.0 15.2 23.3 23.0 20.5 18.0 13.4 14.7 12.7 10.9 (2.7) (0.4)
Granules 23 90 5.2 8.4 10.6 13.3 12.0 15.4 17.0 18.4 17.3 10.8 8.5 6.8 11.2 8.7 5.9 4.8 8.4 0.6
Hikal * 19 156 6.3 8.1 10 12.4 12.1 14.1 15.5 16.8 24.8 19.3 15.6 12.6 10.4 8.5 7.1 6.0 5.5 0.8
Aarti Drugs*
14 587 34.9 37.5 49.9 62.1 19.0 17.5 19.7 20.4 16.8 15.6 11.8 9.5 9.2 8.6 7.3 6.3 5.0 1.1
Neuland 7 508 11 15.5 51.8 67.2 2.2 3.2 9.1 10.8 46.3 32.8 9.8 7.6 17.9 12.7 5.5 4.1 2.8 0.5
27
LAURUS LABS
Source: Company, HDFC sec Inst Research
Peer set comparison
Company Mcap
(Rs bn) CMP
(Rs/sh) Reco TP/ FV
EPS (Rs/sh) P/E (x) RoE (%)
FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E FY18 FY19E FY20E FY21E
Sun Pharma 1,067 445 BUY 660 13.0 16.4 21.9 27.9 34.3 27.1 20.3 15.9 8.3 9.9 12.2 13.9
Aurobindo Pharma 455 777 NEU 845 41.4 40.6 55.7 56.4 18.8 19.1 14.0 13.8 23.0 18.6 21.1 17.8
Dr Reddy's Labs 432 2,600 BUY 3,000 59.2 92.9 106.2 148.0 43.9 28.0 24.5 17.6 7.8 11.6 11.7 14.1
Cipla 414 514 BUY 605 18.6 17.5 22.4 29.2 27.7 29.4 22.9 17.6 11.2 9.5 11.1 13.1
Divi's Labs 403 1,516 SELL 1,390 32.4 50.4 57.1 65.1 46.8 30.1 26.5 23.3 15.2 20.9 20.5 20.3
Lupin 379 838 BUY 1,125 38.0 27.9 38.7 55.2 22.0 30.1 21.6 15.2 12.7 9.0 11.6 14.9
Cadila Healthcare 358 350 BUY 480 13.0 15.9 19.3 22.8 26.9 22.0 18.1 15.4 17.0 17.2 17.7 17.9
Torrent Pharma 314 1,857 NEU 1,940 40.1 47.3 66.6 95.4 46.3 39.3 27.9 19.5 15.1 16.2 19.9 24.0
Alkem Laboratories 236 1,970 BUY 2,400 57.6 71.8 90.0 115.6 34.2 27.4 21.9 17.0 14.8 16.5 18.1 20.0
Glenmark 188 668 BUY 835 17.5 27.0 35.2 46.4 38.2 24.8 19.0 14.4 9.4 12.8 14.7 16.9
Jubilant Life Sciences 114 717 BUY 1,030 45.5 54.5 62.2 77.3 15.7 13.1 11.5 9.3 19.3 19.4 18.6 19.5
Alembic Pharma 112 594 NEU 650 21.9 23.3 29.7 38.7 27.1 25.5 20.0 15.3 20.0 17.8 19.0 20.9
Strides Shasun 43 480 BUY 535 12.7 6.9 22.3 37.3 37.8 69.5 21.5 12.9 4.4 2.6 7.7 11.9
Laurus Labs 40 372 BUY 480 15.8 8.6 17.4 29.8 23.5 43.0 21.3 12.5 11.9 4.8 11.3 16.9
Dishman Carbogen Amcis 38 237 BUY 375 13.2 16.1 20.9 26.6 17.9 14.7 11.4 8.9 14.6 15.2 16.7 18.0
Suven Life Sciences 29 227 NR 450 9.7 8.9 10.8 12.3 23.3 25.6 21.0 18.4 17.2 13.9 14.9 15.1
Granules India 23 90 BUY 150 5.2 8.4 10.6 13.3 17.3 10.8 8.5 6.8 12.0 15.4 17.0 18.4
Neuland Labs 7 508 BUY 885 11.0 15.5 51.8 67.2 46.3 32.8 9.8 7.6 2.2 3.2 9.1 10.8
28
LAURUS LABS
Income Statement & Balance Sheet (Cons.)
Year ending March (Rs mn) FY17 FY18 FY19E FY20E FY21E
Net Revenues 19,315 20,690 22,357 25,117 28,714
Growth (%) 6.7 7.1 8.1 12.3 14.3
Material Expenses 9,968 10,637 11,961 12,634 13,783
Employee Expenses 2,462 2,580 2,951 3,240 3,589
Selling and Administration Expenses
695 1,084 1,408 1,394 1,421
Other Operating Expenses 2,114 2,255 2,701 2,859 3,125
EBITDA 4,076 4,133 3,336 4,990 6,796
EBITDA Margin (%) 21.1 20.0 14.9 19.9 23.7
EBITDA Growth (%) 12.5 1.4 -19.3 49.6 36.2
Depreciation 1,060 1,255 1,624 1,815 2,004
EBIT 3,017 2,879 1,712 3,176 4,792
Other Income (Including EO Items)
334 292 250 250 350
Interest 999 796 968 882 803
PBT 2,352 2,374 994 2,544 4,339
Tax (Incl Deferred) 439 698 273 687 1,172
RPAT 1,913 1,676 720 1,857 3,167
Share of profit / (loss) from associate
(11) - - - -
RPAT after share of profit/(loss) from associate
1,903 1,676 720 1,857 3,167
EO (Loss) / Profit (Net Of Tax) 200
APAT 1,913 1,676 920 1,857 3,167
APAT Growth (%) 42.6 -12.4 -45.1 101.7 70.6
Adjusted EPS (Rs) 18.1 15.8 8.6 17.4 29.8
Source: Company, HDFC sec Inst Research
As at March (Rs mn) FY17 FY18 FY19E FY20E FY21E
SOURCES OF FUNDS
Share Capital - Equity 1,058 1,060 1,060 1,060 1,060
Reserves 12,247 13,766 14,443 16,189 19,166
Total Shareholders Funds 13,304 14,826 15,504 17,249 20,226
Long Term Debt 1,246 1,417 1,717 1,717 967
Short Term Debt 7,848 7,585 8,085 8,085 7,085
Total Debt 9,094 9,002 9,802 9,802 8,052
Net Deferred Taxes (699) (529) (529) (529) (529)
Long Term Provisions & Others 722 855 760 760 760
TOTAL SOURCES OF FUNDS 22,422 24,155 25,536 27,282 28,509
APPLICATION OF FUNDS
Net Block 12,202 14,711 15,587 16,272 16,269
CWIP 1,433 1,632 1,000 680 680
Goodwill 97 97 97 97 97
Investments 34 34 34 34 34
Other Non-current Assets 671 689 1,925 1,925 1,925
Total Non-current Assets 14,437 17,162 18,643 19,009 19,005
Inventories 5,090 5,848 5,735 6,057 6,608
Debtors 5,676 5,706 6,003 6,537 7,473
Other Current Assets 591 892 399 426 462
Cash & Equivalents 41 31 588 704 507
Total Current Assets 11,398 12,476 12,724 13,725 15,050
Creditors 2,631 3,123 3,277 3,115 3,398
Other Current Liabilities & Provns
782 2,360 2,554 2,337 2,148
Total Current Liabilities 3,413 5,484 5,831 5,452 5,547
Net Current Assets 7,985 6,992 6,893 8,273 9,504
TOTAL APPLICATION OF FUNDS 22,422 24,155 25,536 27,282 28,509
Source: Company, HDFC sec Inst Research
29
LAURUS LABS
Cash Flow & Key Ratios (Cons.) Year ending March (Rs mn) FY17 FY18 FY19E FY20E FY21E
Reported PBT 2,352 2,374 994 2,544 4,339
Non-operating & EO items 3 224 (250) (250) (350)
Interest expenses 931 761 968 882 803
Depreciation 1,060 1,255 1,624 1,815 2,004
Working Capital Change (525) (570) (675) (1,264) (1,429)
Tax Paid (501) (619) (273) (687) (1,172)
OPERATING CASH FLOW ( a ) 3,320 3,425 2,387 3,040 4,196
Capex (2,775) (3,911) (1,868) (2,180) (2,000)
Free cash flow (FCF) 545 (486) 519 860 2,196
Investments -234 - - - -
Non-operating Income 122 62 - - -
INVESTING CASH FLOW ( b ) (2,887) (3,849) (1,868) (2,180) (2,000)
Debt Issuance/(Repaid) (2,387) 1,372 800 (1,750)
Interest Expenses (950) (761) (718) (632) (453)
FCFE (2,904) 186 601 228 (8)
Share Capital Issuance 2,860 3 (0) (0) (0)
Dividend (59) (191) (43) (111) (190)
Others - - - - -
FINANCING CASH FLOW ( c ) (536) 422 38 (744) (2,393)
NET CASH FLOW (a+b+c) (103) (2) 557 116 (198)
EO Items, Equivalents 16 0
Closing Cash & Equivalents 41 31 588 704 507
Source: Company, HDFC sec Inst Research
FY17 FY18 FY19E FY20E FY21E
PROFITABILITY (%)
GPM 48.4 48.6 46.5 49.7 52.0
EBITDA Margin 21.1 20.0 14.9 19.9 23.7
APAT Margin 9.9 8.1 3.2 7.4 11.0
RoE 17.5 11.9 4.8 11.3 16.9
RoIC (or Core RoCE) 11.7 8.6 5.2 9.5 13.5
RoCE 12.8 9.4 5.6 9.3 13.2
EFFICIENCY
Tax Rate (%) 18.7 29.4 27.5 27.0 27.0
Fixed Asset Turnover (x) 1.4 1.2 1.1 1.1 1.2
Inventory (days) 186.4 200.7 175.0 175.0 175.0
Debtors (days) 207.8 195.8 183.2 188.9 197.9
Other Current Assets (days) 18.1 30.3 5.3 5.1 4.6
Payables (days) 96.3 107.2 100.0 90.0 90.0
Other Current Liab & Provns (days) 24.9 79.5 70.0 60.0 50.0
Cash Conversion Cycle (days) 291.1 240.1 193.5 218.9 237.6
Debt/EBITDA (x) 2.2 2.2 2.9 2.0 1.2
Net D/E (x) 0.7 0.6 0.6 0.5 0.4
Interest Coverage (x) 3.0 3.6 1.8 3.6 6.0
PER SHARE DATA (Rs)
EPS 18.1 15.8 6.8 17.4 29.8
Dividend 1.5 0.8 0.3 0.9 1.5
Book Value 125.8 139.8 145.7 162.1 190.0
VALUATION
P/E (x) 20.6 23.6 55.1 21.4 12.5
P/BV (x) 3.0 2.7 2.6 2.3 2.0
EV/EBITDA (x) 11.9 11.7 14.7 9.8 7.0
EV/Revenues (x) 2.5 2.3 2.2 1.9 1.6
OCF/EV (%) 6.8 7.1 4.9 6.2 8.9
FCF/EV (%) 1.1 (1.0) 1.1 1.8 4.6
FCFE/Mkt Cap (%) (7.4) 0.5 1.5 0.6 (0.0)
Dividend Yield (%) 0.4 0.2 0.1 0.2 0.4
30
LAURUS LABS
Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-) 10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-) 10% returns over the next 12 month period
300
350
400
450
500
550
600
Jan
-18
Feb
-18
Mar
-18
Ap
r-1
8
May
-18
Jun-
18
Jul-
18
Au
g-1
8
Sep
-18
Oct
-18
No
v-1
8
Dec
-18
Jan
-19
Laurus
1yr Price Movement
31
LAURUS LABS
HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171 7330 www.hdfcsec.com
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