Laurus Labs Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Laurus Labs Limited (LAURUSLABS) Q3 FY22 Earnings Concall

Management Update:

• In 3Q, the company faced some interim challenges due to logistics, raw material availability and higher prices, especially for solvents as like the industry. Though the company is seeing these challenges easing out, supply chain and logistics costs continue to remain challenging.

• The company said ARV market continued its sluggishness; however, the company is expecting demand increasing from 4Q. The company also added that it’s affirmative on its aspirational $1 billion revenue goal in FY23.

Q&A Highlights:

• Tushar Manudhane from Motilal Oswal asked that on the good traction of other API, if it was due to new molecule addition or market share gain in existing molecule. Satyanarayana Chava CEO answered that the company only added one molecule in the year and the growth was from contract manufacturing APIs to Europe customers.

• Tushar Manudhane from Motilal Oswal also asked about the company’s dedicated facility for a global life science company. Satyanarayana Chava CEO said that the size of the contract can’t be given but said it is a multiproduct, multiyear contract. The company added that, a part of the capex is funded through commercial advance and the building of the facility has just started.

• Sudarshan Padmanabhan from JM Financial enquired about the ARV business, where the drop was worse than expected on the API and formulation side. Satyanarayana Chava CEO replied that in 4Q, the company is expecting majority of normalization to happen and is not expecting ARV API sales to go back to INR500 crores.  Satyanarayana also said that since other divisions are doing well, the company doesn’t see any challenge  to get back to normal growth trajectory from 4Q onwards.

• Ritesh Rathod from Nippon India queried about the subsidiary revenue going up sharply to INR96 crores versus historical average of INR25 crores and if it’s related to any one-time income. V V Ravi Kumar CFO answered that there was not one-time income but the company’s one of the new subsidiaries started generating revenue which contributed to this.

• Krish Mehta of Enam Holdings asked about the ARV versus non-ARV split as a whole for the company for 3Q. Satyanarayana Chava CEO said that it was about 50%, both APIs and Formulations put together.

• Pranav Tendolkar from Rare Enterprises asked about the 5 percentage point increase in gross margin over pre-COVID. Satyanarayana Chava CEO said that it is because of the company’s non-ARV business growing much faster than ARV business. Satyanarayana added that the company’s non-ARV business, Synthesis business, Formulation business, other API business are more profitable, more gross margin business than the ARV business.

• Jeevan Patwa from Candyfloss Investment asked about the CDMO sales run rate that has been good in 3Q and if it’s a sustainable run rate for the next few years. Satyanarayana Chava CEO replied that the company’s synthesis business of INR200 crore is a very small part of its capabilities, therefore the company does expect significant growth in this business.

• Jeevan Patwa from Candyfloss Investment also enquired that on the Synthesis business, how much increase does the company see in the next 3-4 years. Satyanarayana Chava CEO answered that by FY25 the company wants this business to be at least 25% of its overall revenue.

• Hussain Kagzi from AMBIT Asset Management queried that since there is a decline in the ARV API side, is there a similar decline in the Formulation side, since 65-70% of Formulations is ARV. Satyanarayana Chava CEO said that there was a decline in the ARV Formulation not to the tune of ARV API decline, which saw a QoQ decline of 65%. But there was only a 20% decline in Formulation.

• Hussain Kagzi from AMBIT Asset Management also enquired of any update on the approvals that the company seeks to get on the Formulation side of API, non-ARV. Satyanarayana Chava CEO answered that one, the company is expecting this quarter and one maybe in the month of April. Satyanarayana added that the company has lot of approvals pending with various agencies but is on track to get those.

• Tushar Bohra from MK Ventures asked that gross margin expansion YoY was very high, while steep compression was there in EBITDA and what’s the breakdown of these slippages. Satyanarayana Chava CEO said that operational deleverage reduced the EBITDA margins. However, the gross margin improvement is due to the product mix.

• Ranvir Singh from Sunidhi Securities asked that on the ARV API side, where does the company see the normal revenue on quarterly basis coming to. Satyanarayana Chava CEO said that the company expects that Q4 onwards, it will reach that level closer to INR 400 crores on ARV APIs.

• Ranvir Singh from Sunidhi Securities also asked what is the current debt after the expansion. V V Ravi Kumar CFO replied that it’s around INR1,750 crore debt. The company also said that as indicated before, by March, its debt is going to increase. But from next year onwards, it is expected to reduce.

• Tarang Agrawal  from Old Bridge Capital enquired about the capex for the nine months FY22 and guidance for the next three months. Satyanarayana Chava CEO said it’s about INR700 crores for nin-months and for FY22 and FY23, the capex is expected in the range of 1,500 crores to INR 1,700 crores.

• Aejas Lakhani from Unifi Capital asked that from a gross margin perspective and EBITDA perspective, what’s the guidance for FY ’23, ’24. Satyanarayana Chava CEO replied that for FY22 and beyond the company is confident to maintain 30% EBITDA. The company added that looking at nine-months, since the company is very close and therefore it is comfortable to say that its business now is capable of generating EBITDA margins of around 30%.