Laurus Labs shares rise despite weak Q2, analysts say valuations expensive

Shares of Laurus Labs Ltd. were trading with gains of as much as 6% on Friday, even after reporting another weak performance for the September quarter.

Laurus Labs missed the Q2 EBITDA estimate from brokerage firm Kotak Institutional Equities by 20%. On a positive note, Kotak highlighted an encouraging 40% quarter-on-quarter uptick in Synthesis sales (+33% year-on-year).

From 14.5% in the first half of FY25, a revival in EBITDA margins depends primarily on much-improved Synthesis sales, which management remains confident about.

With macro tailwinds for this segment continuing to increase, the brokerage projects a substantial 37% CAGR in Synthesis sales over FY2024-27 estimates.

However, aside from the animal healthcare and, later, the crop science contracts in FY26E, the lack of visibility on any other CDMO contracts remains a concern.

At 48 times the FY26 price-to-earnings estimate, Kotak believes that the long-anticipated earnings recovery is fully factored in, retaining a ‘Sell’ rating due to expensive valuations.

The brokerage firm has lowered its ex-Synthesis sales assumptions, leading to a 4-9% earnings per share cut in its estimates for FY25-27.

Owing to a low base, better utilisations, and a higher Synthesis mix, the brokerage projects a 29% CAGR in EBITDA over FY2024-27E.

“We assign a 28 times EV/EBITDA (up from 25 times) multiple to the Synthesis segment due to continued macro tailwinds and roll forward to December 2026E, deriving a fair value of ₹370 (up from ₹330),” it said.

At the current market price, the implied valuations for Laurus’ Synthesis segment are over a 75% premium to Syngene’s FY26E EV/EBITDA multiple, which is untenable, according to Kotak.

Shares of Laurus Labs are currently trading 6.10% higher at ₹474.60. The stock has risen 10% so far in 2024 and is up 33% over the last 12 months.