Laurus’ global leadership in select, high growth APIs/ therapies and efforts to move up the value chain into formulations augur well for long-term growth. However, a lot hinges on execution and the big growth drivers appear over a year away. Valuations are reasonably fair at 22x FY18E EPS (+20% since IPO), and we seek more visibility on long term drivers playing out before getting more constructive. Our TP of R580/share is based on 20x Sept’18E earnings.
We forecast revenues, EBITDA and earnings to grow at 16%, 22% and 40% respectively, over FY16-19E. Longer term, sustenance of efavirenz (vis-à-vis dolutegravir) and outlook on Hep-C sales are key variables to watch. Fig4 provides a snapshot of key revenue drivers.
Key risks are customer and product concentration, slower/ faster than expected ramp up in formulations or synthesis businesses and regulatory compliance hiccups. We initiate coverage on Laurus Laboratories with a ‘neutral’ rating and target price of R580/ share.