Laurus Labs Ltd reported a 47% decline in its net profit for the second quarter of FY25, with profits falling to ₹19.8 crore compared to ₹37 crore in the same quarter of the previous year. This sharp drop in profitability missed analyst estimates, as the CNBC-TV18 poll had projected a net profit of ₹46 crore. The company’s revenue from operations remained flat at ₹1,224 crore, slightly below the market expectation of ₹1,287 crore.

EBITDA and Margins

At the operating level, EBITDA declined 5.2% YoY to ₹180 crore, from ₹189 crore in the corresponding period of FY24. The company’s EBITDA margin stood at 14.7%, compared to 15.4% in the previous fiscal, falling short of the 16.6% margin predicted by the CNBC-TV18 poll. Lower asset utilisation and costs related to new growth projects impacted the overall margins for the quarter.

Dividend Declaration

Despite the decline in profits, the board of Laurus Labs approved an interim dividend of ₹0.40 per equity share for FY25, providing some return to shareholders.

H1 FY25 Performance

For the first half of FY25, Laurus Labs recorded revenues of ₹2,419 crore, reflecting a modest 1% growth. EBITDA for H1 FY25 stood at ₹353 crore, yielding an EBITDA margin of 14.6%, which was impacted by upfront costs for growth projects. However, the company maintained gross margins of 55.1%, marking an improvement of 3.5 percentage points compared to the previous year.

The management remains confident in its FY25 growth outlook, with expectations for a stronger performance in the second half, driven by ramping up production facilities and executing late-phase new chemical entity (NCE) projects.

CDMO and API Segments

Laurus Labs' CDMO-Synthesis business performed well, generating ₹513 crore in H1 FY25, an 8% increase YoY. Q2 FY25 CDMO revenues stood at ₹299 crore, reflecting a 33% year-on-year growth, driven by advancing clinical projects and strong demand for integrated service offerings.

In the API (Active Pharmaceutical Ingredient) segment, the company posted flat revenues of ₹1,221 crore for H1 FY25. Laurus Labs has filed 352 patents, of which 235 have been granted, and it has submitted 87 Drug Master Files (DMFs) as of September 2024. The company is working on long-term strategic initiatives to expand its contract manufacturing operations and improve efficiency.

Finished Dosage Form (FDF) Business

Laurus Labs’ FDF business saw a 2% decline in revenues for H1 FY25, largely due to lower volumes in the antiretroviral (ARV) segment, while developed markets showed positive growth. For Q2 FY25, FDF revenues stood at ₹328 crore, a 1% year-on-year decline. However, the company expects a ramp-up in the FDF segment in the coming quarters, supported by new product approvals in the US market, despite ongoing industry supply challenges.

Capital Expenditure and R&D Expansion

Laurus Labs continues to invest in capital expenditure (CAPEX) projects to support long-term growth, including the opening of a 200,000-square-foot R&D facility at IKP Knowledge Park. This new facility will enhance the company’s capabilities in flow chemistry, bio-catalysis, and high-potency chemistry, positioning Laurus Labs to meet the needs of global partners and early-phase projects.

KRKA Joint Venture (JV)

The company’s joint venture with KRKA is making good progress, with technology transfers initiated under the contract manufacturing organisation (CMO) model. Expanded formulation lines under this JV are expected to become operational within the next 12-15 months, further strengthening Laurus Labs’ manufacturing capabilities.

Bio Segment

The Bio segment posted revenues of ₹83 crore in H1 FY25, reflecting a 7% decline due to the impact of bunched-up shipments in the previous year and the discontinuation of low-margin non-core products. However, Q2 FY25 revenues for the Bio segment rose to ₹40 crore, representing a 3% YoY increase.

Outlook for H2 FY25

Laurus Labs expects a stronger performance in the second half of FY25 as it benefits from facility ramp-ups, new product deliveries, and improved margins. The company is optimistic about achieving its growth targets, driven by a healthy pipeline of NCE projects and increased demand for its CDMO services and complex APIs.

Stock Performance

Shares of Laurus Labs Ltd ended trading on October 24, 2024, at ₹450.35, up by ₹1.00 or 0.22% on the BSE. Despite the profit decline, the stock showed resilience, likely driven by the positive long-term outlook and dividend declaration.

Summary: Despite the sharp decline in profit, Laurus Labs remains confident about its long-term growth, driven by strong CDMO demand and upcoming facility expansions. The company’s flat revenue and lower margins in Q2 FY25 missed market expectations, but the interim dividend and the progress of key projects offer optimism for the upcoming quarters.

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