Motilal Oswal Financial Services has reiterated its BUY call on Laurus Labs, highlighting a robust earnings trajectory and strategic capital deployment in CDMO and generics segments. The brokerage has set a 12-month target price of Rs 1,110, citing strong performance in Q2 FY26, margin expansion, and continued scale-up in human and animal health verticals as key drivers. Driven by a compelling blend of operational leverage, renewed ARV momentum, and bold investments in technology and manufacturing, Laurus Labs emerges as a quintessential play on the Indian healthcare upcycle.

Research Report Summary: Laurus Labs Positioned for Sustained Growth

Laurus Labs has delivered an impressive quarter, marked by a broad-based surge in revenue, robust EBITDA expansion, and a strategic shift toward high-value CDMO operations. Motilal Oswal’s latest research underscores the company’s improving product mix, operational agility, and capital discipline, forecasting a substantial 50% compounded annual growth in earnings through FY28. With ongoing capex in Vizag and Hyderabad, and promising traction in ARV, non-ARV, and biosciences verticals, Laurus Labs stands out as a leader ready to capitalize on complex molecule synthesis and global generics demand. The report’s BUY call, coupled with a revised target of Rs 1,110, reflects both near-term upside and long-term sustainability.

Q2 FY26 Performance Sets a Benchmark

- Laurus Labs posted a 35% year-on-year revenue growth in Q2 FY26, reaching Rs 16.5 billion, propelled by exceptional gains in finished dosage formulations (FDF), custom synthesis, and APIs. - EBITDA margins shot up by nearly 980 basis points year-on-year to 24.4%, signaling improved cost control and a favorable sales mix. - Adjusted profit after tax mounted to Rs 1.94 billion, a nearly tenfold jump compared to the previous year, underscoring heightened operational leverage.

Strategic Focus: Diversifying Beyond ARV

- The company has successfully executed its API rebalancing strategy and is aggressively expanding capacity in Vizag, with Rs 50 billion earmarked for manufacturing and R&D infrastructure over the next eight years. - Laurus’ non-ARV formulations saw healthy sequential growth, buoyed by new launches and strong off-take of existing products. - Investments in animal health and crop science verticals are progressing, with validation batches underway and meaningful scale-up anticipated from FY27 onward.

CDMO: The Quiet Growth Engine

- Laurus' CDMO division logged 33% year-on-year growth in H1 FY26, with revenues climbing to Rs 32 billion on the back of late-phase and commercial-scale deliveries. - The CDMO business, with over 110 active projects spanning human health, animal health, and crop science, is expected to maintain a 30% CAGR, reaching Rs 30 billion by FY28. - Expansion of commercial manufacturing at Vizag and innovation in complex modalities, including peptides and antibody-drug conjugates, further cements Laurus’ global CDMO credentials.

Financial Snapshot and Valuation

- Motilal Oswal values Laurus Labs at 58x forward earnings, arriving at a 12-month target of Rs 1,110 per share—an upside from the prevailing Rs 934 close. - Earnings estimates for FY26–FY28 have been revised upwards on the back of strategic diversification, higher ARV contributions, and steady scale-up in CDMO. - Return ratios (RoE and RoCE) are projected to climb toward 16.5% and 13.1%, respectively, by FY28. - Asset turnover has improved from 0.77x in FY25 to 0.9x in H1 FY26, expected to rise with further operational ramp-up over the coming two years.

Key Operating Metrics and Business Mix

- Custom synthesis accounted for 29% of sales in Q2 FY26, with FDF and API contributing 31% and 37% respectively. - Gross margins improved to 59.9% (up 470 bps YoY), highlighting the ongoing transition toward high-value projects and a reduced cost-of-goods-sold ratio. - The company’s robust pipeline includes over 90 ongoing projects in human health and around 20 across animal health and crop science, backed by investments exceeding Rs 5 billion in the animal health segment to date.

Capex and Expansion Plans

- Laurus Labs was allotted 532 acres in Vizag, dedicated to pharma manufacturing and technological advancement, with a planned Rs 50 billion investment through FY33. - Construction of a new formulation plant in Hyderabad commenced in June 2025, with phased commissioning expected by mid-2027, aimed at diversifying into non-ARV and India-centric portfolios. - The first phase of a bio-fermentation facility in Vizag, with a 400KL capacity, is on track for completion by end-2026, targeting the company’s growing biosciences ambition.

Outlook: Guidance and Investor Recommendation

- Management guides the ARV division to generate Rs 25 billion in FY26, aided by market share gains and a superior product mix. - The FDF and API businesses are projected to post 17% and 7% CAGRs, respectively, over the next three years. - Motilal Oswal reiterates its strong BUY rating, citing Laurus’ ability to drive a portfolio transition, realize margin expansion, and deliver sustainable earnings growth, with a target price of Rs 1,110 for the next twelve months.

Valuations Table

Stock Levels and Targets

- Current Market Price (CMP): Rs 934 per share. - 12-Month Target Price: Rs 1,110 per share. - Recommendation: BUY, supported by anticipated momentum in both specialty and generic portfolios, robust pipeline execution, and operational excellence.