Choice Equity Broking has initiated a "BUY" call on Laurus Labs with a target price of Rs 750, projecting a 16% upside from current levels. The brokerage highlights Laurus Labs' strong Q4FY25 performance, driven by its CDMO division, and expects sustained margin expansion, robust revenue growth, and a transformation into a diversified life sciences player. Despite near-term execution risks, Laurus' strategic shift towards high-value businesses positions it as an attractive long-term investment opportunity.

Choice Equity Broking Recommends BUY on Laurus Labs

Choice Equity Broking has upgraded Laurus Labs to a "BUY" rating, setting a target price of Rs 750. This bullish stance is based on the company’s improving financial metrics, growing presence in the CDMO segment, and an optimistic outlook for margin expansion over the next two years.

Q4FY25: Stellar Performance Led by CDMO Business

• Revenue Growth: Laurus Labs reported a 19.5% YoY increase in revenue to Rs 17.2 billion, exceeding estimates.
• EBITDA Margin Expansion: EBITDA rose 74.2% YoY to Rs 4.2 billion, with margins improving to 24.4%.
• Profit After Tax: PAT surged by 210% YoY to Rs 2.3 billion, aided by a Rs 0.6 billion gain from land sales.

CDMO Segment: The New Growth Engine

The CDMO (Contract Development and Manufacturing Organization) vertical grew an impressive 95.3% YoY, contributing 26.8% of total revenue. Management aims to increase the CDMO share to 31.7% by FY27, supported by over 110 ongoing projects and expanded manufacturing capacity.

API Business: Recovery Expected from FY26

The API division declined 7.9% YoY but rebounded 29.2% QoQ. Management expects the API segment to stabilize and rebound starting FY26 as price pressures ease and order conversions improve. Laurus remains a market leader in ARV APIs with a commanding 40% market share.

Formulations (FDF) Segment: Positioned for Acceleration

• Revenue Jump: Formulations revenue rose 26.5% YoY, driven by CMO contract execution.
• Future Launches: Non-ARV launches in the US and Canada expected to gain traction from Q3FY26 onward.

Financial Outlook: Margin and Earnings Expansion

• Margin Trajectory: EBITDA margin is projected to expand from 19% in FY25 to 24.6% by FY27.
• Earnings Growth: EPS is forecasted to rise from Rs 6.6 in FY25 to Rs 17.0 by FY27, driven by higher contribution from high-margin businesses.

Capital Expenditure and Balance Sheet Strength

• Capex Plan: Laurus plans to invest Rs 800–1,000 crore in FY26 to expand CDMO and fermentation capacities.
• Debt Levels: Despite expansion, debt metrics are expected to remain under control, protecting financial stability.

Long-Term Strategy: Building a Diversified Life Sciences Platform

Laurus Labs is evolving into a diversified CDMO player across small molecules, biologics, animal health, and crop sciences. Management’s focus on differentiated, high-value businesses is expected to drive multi-year growth beyond FY27.

Valuation and Target Levels for Investors

Conclusion: A Transformative Journey Worth Backing

Laurus Labs is strategically pivoting toward high-margin, diversified revenue streams, strengthening its foundation for sustainable growth. While short-term execution risks remain, the structural improvements in its business model, coupled with disciplined capital allocation, position it for long-term wealth creation. Investors with a medium- to long-term horizon are recommended to accumulate Laurus Labs for potential outperformance, targeting Rs 750 over the next 12 months.