Laurus Labs CDMO momentum fuels FY27 earnings upgrade after blockbuster quarterly beat

Blockbuster 1QFY27 Performance

Motilal Oswal Financial Services retained its Buy recommendation on Laurus Labs after a blockbuster 1QFY27 performance led by CDMO momentum. Laurus Labs reported its highest-ever quarterly revenue and EBITDA during the quarter.

The margin expansion was principally driven by a better divisional mix. R&D expenditure stood at Rs 830 million, equivalent to 4% of revenue.

CDMO Momentum and Commercialisation Pipeline

CDMO, or small-molecule synthesis, was the central growth driver. Segment revenue increased 69% year on year to Rs 8.4 billion and accounted for 41% of sales. Growth was supported by commercial API supplies and late-stage clinical-project supplies, while execution across technologies and manufacturing sites remained strong.

Laurus Labs expanded its CDMO pipeline to more than 125 active projects. The company is developing additional small-molecule API capacity at Vizag and commercial-scale peptide capabilities in response to customer demand. Management expects a significant portion of non-commercial CDMO revenue to convert into commercial manufacturing after regulatory approvals. Non-commercial revenue represents 45% of CDMO revenue and is driven by Phase III supplies. One product has received global regulatory approval and is expected to scale up commercially.

Motilal Oswal forecasts a 34.8% CDMO revenue CAGR over FY26-FY28, driven by late-stage project commercialisation, customer additions, capacity expansion and complex modalities.

Generics Business and Capacity Expansion

The Generics business grew 10% year on year to Rs 11.6 billion, supported by stable ARV demand and formulation growth. FDF revenue rose 22% to Rs 5.0 billion, or 25% of sales, on volume growth, new launches and demand in regulated markets. API revenue increased 3% to Rs 6.5 billion, or 32% of sales.

Laurus Labs maintained a healthy order book despite global supply-chain challenges. It is expanding its commercial presence through registrations in emerging markets and a new South Africa office. The API and FDF capacity expansion programme remains on schedule, while the KRKA joint-venture formulation facility is targeting Phase I production from mid-2027. Cumulative filings reached 92 DMFs and 96 developed-market FDF dossiers.

Motilal Oswal expects Generics revenue to deliver a 9.5% CAGR over FY26-FY28.

Bio Business, Fermentation and Investment Programme

Management increased FY27 capex guidance to about Rs 20 billion from about Rs 15 billion to meet rising demand, including API and intermediate capacity for human-health and animal-health programmes.

The 400 KL-plus commercial fermentation facility and downstream-processing expansion at Vizag are expected to commission by end-CY26. Management expects a meaningful precision-fermentation ramp-up over the subsequent 12-18 months as customer programmes commercialise.

Bio revenue grew 21% year on year to about Rs 0.4 billion. Motilal Oswal expects the Bio business to deliver a 20.6% CAGR over FY26-FY28, aided by fermentation ramp-up, the biologics pipeline, partnerships and advanced therapy platforms including gene therapy, ADC manufacturing and CAR-T.

Earnings Outlook and Valuation

Motilal Oswal raised its FY27 and FY28 earnings estimates by 21% and 16%, respectively. The revisions reflect CDMO contracts across human health, animal health and crop science, FDF launches and operating leverage.

The broker’s target price of Rs 1,980 is based on valuing Laurus Labs at 65 times 12-month forward earnings. The investment thesis relies on continued CDMO commercial execution, conversion of late-stage projects, capacity commissioning and ramp-up, sustained ARV demand, FDF launches and improved operating leverage.

Key Operating Consideration

Global supply-chain challenges remain an operating consideration for the Generics business.