83% rally in six months: Why Nuvama expects 25% upside in this pharma stock

Laurus is expected to record a 23% compound annual growth rate (CAGR) in revenue, 35% in EBITDA and 45% in profit after tax (PAT) between FY26 and FY29. Return on equity (RoE) is forecast to rise from 16% in FY26 to 23.3% by FY29.

The stock has been assigned a ‘BUY’ rating with a target price of Rs 2,520, based on 35 times September 2028 estimated EBITDA. Laurus is undertaking a major capital expenditure cycle, having already invested about Rs 4,300 crore in the business, with more than Rs 3000 crore of capex under way.

Contract development and manufacturing organisation (CDMO) revenue is forecast to grow 3.4 times to Rs 7160 crore by FY29, when the segment is expected to contribute more than 50% of total revenue. This is projected to improve the company’s EBITDA margin to nearly 35%.

Laurus is also expected to open its closely guarded peptide facility soon. The facility could provide a revenue opportunity of INR10-16 billion at a margin of about 35%.

A DuPont analysis by Nuvama indicates that the projected improvement in RoE is sustainable as it is driven by margins. Free cash flow is also expected to improve sharply after FY27 as the capital expenditure cycle peaks.

The stock trades at 25 times FY29 estimated enterprise value-to-EBITDA, despite the projected 35% EBITDA CAGR. The EBITDA estimates are 21% above the consensus, as Street estimates factor in margins of about 29% in FY28, the brokerage said.

Key risks include high customer concentration in the Animal Health and Crop Science CDMO segment, delays in the utilisation of new units and potential non-linearity in the CDMO business.

The estimates project strong revenue, EBITDA and PAT growth through FY29, with RoE exceeding 23% and CDMO becoming the largest contributor to revenue.

Laurus Labs is engaged in Development, manufacturing & services of Chemical & Chemical products, Pharmaceuticals, Medicinal Chemical, Bio & Botanical Products.