Nuvama Institutional Equities has initiated coverage on Laurus Labs with a 'Buy' rating and a target price of ₹2,520, implying a 24% upside from the current market price. According to reports from The Economic Times, the brokerage expects the drugmaker's shift from its traditional anti-retroviral (ARV) business towards contract development and manufacturing (CDMO) to drive its next phase of growth. The brokerage believes the company is entering a more favourable phase as the large investments made over the past few years begin to support higher CDMO revenue and better margins.
Laurus Labs has been transforming its business mix, reducing its dependence on anti-retroviral (ARV) drugs and expanding its contract development and manufacturing organisation (CDMO) business. As reported by The Economic Times, the company has been using cash flows from its earlier ARV business to build capabilities across different areas of CDMO, including small molecules, fermentation, peptides and newer therapies. The shift represents a strategic pivot away from the traditional ARV pricing model that was largely driven by tenders. This transformation is already visible in the business mix, with CDMO accounting for 21% of revenue in FY22, rising to 30% in FY26 and 43% in Q1FY27, and Nuvama expects it to account for more than half of revenue by FY29.
Nuvama believes this shift could drive the drugmaker's next phase of growth as the company enters a more favourable phase. According to The Economic Times, the brokerage expects the large investments made over the past few years to begin supporting higher CDMO revenue and better margins. The CDMO business has a better growth and margin profile than the older ARV business, and Laurus is seeing a larger share of CDMO revenue come from commercial supplies, suggesting that some of the projects it has worked on are moving beyond the development stage. Nuvama expects CDMO revenue to more than triple to ₹71.6 billion by FY29, while ARV revenue remains broadly flat, with the brokerage forecasting a 35% EBITDA CAGR over FY26-29.
Laurus has spent heavily on expanding its manufacturing capacity, but the brokerage believes the focus is now shifting from building capacity to filling it with business. The company has more than 125 active CDMO projects and around 275 clients, working with seven of the top 10 global innovators. The next opportunity could come from peptides, with Laurus setting up a dedicated peptide facility, where Nuvama expects the unit to generate ₹10-16 billion of revenue once it scales up. The brokerage also sees potential for Laurus to participate in Amgen's MariTide supply chain. Nuvama expects the company's EBITDA margin to improve as the CDMO mix increases, and believes free cash flow should improve once the current capex cycle peaks.
