ANNUAL REPORT ANALYSIS 15 JUL 2019

Laurus Labs
BUY
FY20: To start on a strong note INDUSTRY PHARMA
For Laurus Labs, FY19 was a landmark year in which it  Key takes from AR: (1) Capex was at Rs 2.5bn, much CMP (as on 15 Jul 2019) Rs 344
finally commenced ARV formulations (TLD) supplies to the lower than last three year average of Rs 3.7bn, the Target Price Rs 515
Global Fund (GF) and has started to reap from the Rs 6- capex phase is largely over. (2) As per AR, it generated
Nifty 11,588
7bn investments made over the years for this segment. Rs 439mn FCF in FY19, we expect FCF to be positive in
The company also turned around its EBITDA margin from FY20 while substantial improvement should be visible Sensex 38,897
15% in 1QFY19 to 17% in 4QFY19 after facing severe price from FY21E. (3) Net debt at Rs 10.3bn increased by 6% KEY STOCK DATA
hikes (~60%) in a key raw material for the ARV API EMT, YoY (currency impact). Net D/E was unchanged at 0.7x. Bloomberg LAURUS IN
and partially overcoming it by way of backward Interest cost at 8.7% was high as domestic debt
No. of Shares (mn) 106
integration and alternate sourcing. Overall, it achieved component increased YoY. (3) ETR at 21.7% was aided
11% YoY revenue growth, while APAT declined 32% by deductions against R&D investments. (5) MCap (Rs bn) / ($ mn) 37/534
driven by a 450bps contraction in EBITDA margin. Outstanding cash flow hedges (forex forward 6m avg traded value (Rs mn) 66
contracts) are at a net-long position of US$ 12.3mn (at STOCK PERFORMANCE (%)
 What went right: (1) Laurus kick-started its a modest 4% of sales). (6) Related party transactions 52 Week high / low Rs 475/321
formulations revenues with TLD supplies to GF, launch only consisted of remuneration to key managerial
of Metformin in the US, and third-party EU contracts. 3M 6M 12M
personnel, which were at 0.7% of sales (1.5% in FY18).
(2) Received USFDA approval for HCQ and TDF, and Absolute (%) (14.8) (9.1) (26.5)
Laurus has a high visibility on the offtake in formulations
successfully completed an inspection at Unit 2. Filed Relative (%) (14.8) (16.2) (33.0)
to continue over FY20 with orders in hand for third-party
TLE 600/ TLE 400. Transferred TDF ANDA rights (China)
contracts in EU, 3 approvals in the US, and supplies to GF. SHAREHOLDING PATTERN (%)
to CASI Pharma and received US$ 2mn. Filed 9 ANDAs
It expects approvals for TLE/TEE in CY19. With 8-10 yearly Dec-18 Mar-19
in the US. (3) Strong ramp up in oncology APIs on the
ANDA filings, Laurus is likely to achieve a similar no. of
back of new launches, and in Synthesis led by Promoters 33.50 32.77
approvals, which will boost US revenues. On the margins
commissioning of the dedicated block for Aspen. FIs & Local MFs 38.30 31.86
front, ramp up in formulations will drive gross margin and
 What went wrong: (1) Severe price hikes for a key oplev. We expect a 14/38/63% revenue/EBITDA/PAT FPIs 8.07 12.77
intermediate led to a 350/300bps YoY/QoQ contraction CAGR over FY19-21E (low base). Maintain BUY with a TP Public & Others 20.13 22.60
in gross margin in 1QFY19. While the prices remain of Rs 515 (18x FY21E EPS).
Pledged Shares* 10.47 9.90
elevated, Laurus has since managed to backward Financial Summary (Consolidated) Source : BSE, *% of total
integrate and find alternate sources, thereby reducing (Rs bn) FY18 FY19 FY20E FY21E
the impact. (2) Decelerated growth in ARV APIs (4% Net Sales 20.69 22.92 26.28 29.58 Amey Chalke
YoY) which will remain muted over the next few years EBITDA 4.13 3.56 4.95 6.76 amey.chalke@hdfcsec.com
(in our view) due to: (a) captive consumption, (b) APAT 1.68 1.14 1.70 3.04 +91-22-6171-7321
further pricing pressure driven by funding agencies. (3) Diluted EPS (Rs) 15.8 10.7 16.0 28.6
Persisting erosion in the Hep-C API segment led by P/E (x) 21.8 32.2 21.5 12.0 Eshan Desai
increased competition in the formulations space RoE (%) 11.9 6.2 10.2 16.4 eshan.desai@hdfcsec.com
(thereby reducing profit-share from Natco). Source: Company, HDFC sec Inst Research +91-22-6639-2476
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
 LAURUS LABS : ANNUAL REPORT ANALYSIS

Annual report highlights Profitability was subdued

While the management is  While profitability in FY19 was subdued due to severe
confident in achieving high Segmental performance price hikes in a key intermediate for the ARV API,
single-digit growth in the ARV  Revenue grew 11% YoY to Rs 22.9bn over FY19. API EMT, improvement in mix (higher contribution from
APIs over the next few years sales at Rs 19.2bn were up 5% YoY. Within APIs, ARV Synthesis and Formulations) as well as backward
owing to expanding portfolio APIs grew 4% YoY to Rs 13.9bn, aided by supplies of integration led to a recovery in margins from 14.9% in
DTG and LMV and partly offset by pricing pressures. 1QFY19 to 17.6% in 4QFY19.
with the addition of 2L ARV
APIs, we remain conservative  Gross margin declined 250bps YoY in FY19 due to the
 Hep-C APIs declined further to Rs 1.2bn, down 28% RM price hikes. Further, EBITDA margin declined
and build-in a 5% decline over YoY due to increased competition in the formulations 450bps YoY led by a ~12% YoY increase in employee
FY19-21E owing to captive space which led to lower profit share from Natco. cost (additional capacities), and unabsorbed cost of
consumption and increasing Oncology APIs at Rs 2.2bn grew 34% YoY on the back ~Rs 0.8bn for the formulations segment.
pricing pressure of increased volumes and 2 new launches. Other APIs
at Rs 1.9bn grew 10% YoY.
 The key components of other operating expenses
include power & fuel, and maintenance costs.
 Nutrients sales were muted at Rs 0.6bn (flat YoY).
Other Opex Breakup
We expect overall API sales to Synthesis reported robust growth of 66% YoY to Rs
2.6bn aided by expanded capacities and % of % of
remain flat over FY19-21E, (Rs bn) FY18 FY19
commencement of the dedicated block for Aspen. sales sales
wherein growth within the Power & Fuel 0.94 4.6 1.09 4.8
onco API and other API sub-  Formulations sales came in at Rs 545mn. This was the
highlight of the year as ARV formulations supplies Maintenance 0.81 3.9 1.02 4.5
segments will offset decline in have finally started with TLD contracts from Global Other opex (excl
ARV API and Hep-C APIs 0.51 2.4 0.55 2.4
Fund. The company has 3 approvals in the US and above items)
multiple customers in EU for non-ARV formulations.
Segmental Revenues (Rs bn) Gross Margin Impacted By RM Price Hikes
With further ramp up in Hep-C ARV & Others (API) Gross Margin (%)
supplies to Aspen as well as Nutrients & Synthesis Formulations
Total Revenue Total Revenue YoY (%)
third-party EU contracts, we 50.0
34.3 29.6 48.4 48.6
foresee a ~20% CAGR over 47.5
26.3 46.1
FY19-21E 22.9 44.3
20.5 6.1
18.9 2.8
17.8 0.0 0.5 3.7 4.4
2.1 3.2
13.3 -
1.6 38.1
- 14.7
1.3 11.6
~52% of sales in FY19 were - 15.6
0.7 12.6
14.8 16.7 18.0 18.6 18.0
from exports, as against ~49% 14.5
8.5
12.3 6.2
in FY18 1.2 1.1 1.1
0.2 2.0 2.5 1.7 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Page | 2
 LAURUS LABS : ANNUAL REPORT ANALYSIS

Improvement In Revenue Mix Will Drive Oplev Cash Conversion Improves

Hep-C ARV & Others (API) Inventory (days) Debtors (days)
Nutrients & Synthesis Formulations Payables (days) Cash Conversion (days)
Margin (%) 22.9 200
21.1
20.0 20.0 154
18.9 145 149 144
138 134 131
1.8 150
15.0 15.5
0.5 0.3
0.3 0.9 1.3
0.2 0.7
2.7 100
2.7 3.3
0.1 2.7 3.4 3.2
Of the Rs 7.1bn trade 2.3
1.7 2.0 1.3
50
0.1 0.9 0.4 0.5
receivables (31% of sales) for -1.0 -1.0 -0.8
-0.5 -1.0 -
FY19, USD/EUR receivables
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY15 FY16 FY17 FY18 FY19 FY20E FY21E
are at Rs 2.6/0.4bn
Source: Company, HDFC sec Inst Research
(11.2/1.5% of sales) Source: Company, HDFC sec Inst Research
Movement in assets Debt scenario
 Working capital: Inventory and receivables period  Total debt increased by 5% YoY, coming up to Rs
increased by 18 days collectively, whereas payables 10.4bn for FY18. Debt has remained between 9.1-
Trade receivables amounting period increased by 23 days. As a result, cash 10.7bn over the last four years. Net D/E was
to Rs 3.7/3.0bn is pertaining conversion cycle contracted from 138 days to 131 maintained at 0.7x (same as FY18).
to those customers who days (also considering other current assets and
individually represent over 5% liabilities). While we don’t expect the sharp increase  Debt amounting to Rs 2.1bn is in foreign currency
of the total outstanding trade in payables to persist at current levels, we do see a (20% of total debt), remaining flat YoY. Debt of Rs
receivables. This comes up to steady improvement in cash cycle over the last 3 7.3bn is denominated in INR (71% of total debt),
~52% of the outstanding years and believe this trend will continue. which grew 13% YoY. Buyer’s credit amounting to Rs
receivables and 16.1/14.5% of 0.9bn, 9% of total debt, was down 23% YoY.
 Gross block increased by Rs 3.1bn in FY19 (net of
total sales in FY19/18 disposals). Capex for the year was Rs 2.5bn. We  Major bankers include SBI, HDFC, HSBC, Andhra Bank,
respectively expect ~Rs 2bn yearly capex over the next 1-2 years. and CITI bank.
Depreciation expense was at Rs 1.6bn.
 Finance cost comes to 8.7%, as against 8.4% for FY18.
 Goodwill on consolidation remained unchanged at Rs Interest rate on INR loans ranges from MCLR plus
97mn. Like FY18, there was no amortization or 0.75%. Buyer’s credit ranges from 1.06 to 2.46%.
Within other current assets, impairment charge.
balances with Govt
authorities reduced by Rs
230mn to Rs 246mn

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 LAURUS LABS : ANNUAL REPORT ANALYSIS

Net D/E Remains Steady Expect Turnaround In FCF

Net D/E (x) Net Debt (Rs bn) Capex (Rs bn) Free Cash (Rs bn)

10.4

10.3

10.3
1.2

9.8
9.1

8.2
0.9

6.7
0.7 0.7 0.7
0.6

0.9
3.8

3.3

3.8

4.1

2.5
0.3

1.9

2.0
2.9
0.4

(0.8)

(0.0)
(4.4)

Free cashflow was aided by
lower capex in FY19. We
expect capex requirements to
remain low over the next few
years owing to existing,
underutilized capacities
Dividend proposed for the
year was Rs 1.5/sh (same as
FY18)
(1.4)
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Lower capex aided FCF Others
 Operating cashflow at Rs 2.9bn in FY19 (Rs 4.0bn in  R&D expenditure at Rs 1.5bn was 6.7% of revenue.
FY18) was dragged down by lower profits (weak year) The company filed 9 ANDAs and 8 DMFs with the
and a significant increase in working capital. USFDA during FY19.
 Capex for the year was Rs 2.5bn, as against capex of  Tax aided by R&D deductions: ETR (consol) came in
Rs 4.1bn for FY18. at 21.7%. While tax rate in India is 35%, the company
benefitted from weighted deduction for R&D
 Aided by lower capex, free cashflow was positive for expenses and adjustments w.r.t. earlier years.
the year at Rs 348mn (Rs -45mn in FY18).
 Dividend maintained: The company announced a
 Overall, net cash generated during the year was nil, dividend of Rs 1.5/sh for FY19, same as the previous
as against Rs -34mn in FY18. year. Dividend payout comes up to ~14%.
 Return ratios: Owing to the significant hit on
profitability, return ratios contracted this year.

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 LAURUS LABS : ANNUAL REPORT ANALYSIS

Dividend Maintained Healthy Filings Track Record

EPS (Rs) Dividend Payout (%) DMF (No.) ANDA (No.) R&D (Rs bn)
1.5
Dividend payout comes up to 14.0 1.4
1.2
~14% in FY19
28.6 0.9
9.5
8.3 0.6
0.4 0.4
9
18.1 8 8
15.8 16.0 7 7
13.7 6
5
11.0 10.7 4.9 5.0 4
R&D spend was at 6.7% of 3
total revenue 0.0 2.4 1

FY15 FY16 FY17 FY18 FY19 FY20E FY21E

FY13 FY14 FY15 FY16 FY17 FY18 FY19

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Return Ratios To Improve

ROE (%) ROCE (%)

17.0 17.5
16.4
15.0

11.9
10.2
12.6 13.0 12.8 12.6
6.2
9.2 8.7
6.2

FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Source: Company, HDFC sec Inst Research

Page | 5

Details of hedges
 Cashflow hedges: Laurus uses foreign currency
Laurus’ cash flow hedges in forward contracts and hedges to hedge forex risk.
FY19 have a net long position These contracts are undertaken for debt repayment,
of US$ 12.3mn (~4% of receivables, payables, and sales. Cash flow hedges in
revenue) FY19 have a net long position of US$ 12.3mn (~4% of
revenue). For FY18, this was at US$ 8.2mn (long).
 Interest rate sensitivity: A 0.5% increase in interest
rate for a US$-denominated debt will lead to a
Related party transactions negative impact of Rs 17mn on the PBT (1.4% of FY19
only include transactions such PBT). Similarly, an increase of 0.5% in interest rate for
as remuneration to key an INR-denominated debt will reduce PBT by Rs
management personnel, 39mn (3.3% of FY19 PBT).
which was lower in FY19 as
 Foreign currency sensitivity: An increase of 1% in US$
compared to FY18 on an rate will reduce PBT by Rs 9mn (0.8%, FY19 PBT),
aggregate level
while the same for EUR would increase PBT by Rs
3mn (0.3%, FY19 PBT).
 Forex loss: Owing to a significant fall in the INR over
the year, Laurus booked forex loss in other operating
expenses to the tune of Rs 103/192mn for FY18/19,
0.5/0.8% of sales respectively. The forex component
included in finance cost was at Rs 67/115mn for
FY18/19, which is 8.4/13.1% of the interest expense.
LAURUS LABS : ANNUAL REPORT ANALYSIS
Commitments and contingencies
 Lease receivable: Laurus has an agreement to
manufacture and supply intermediates produced at a
dedicated block exclusively for the lessee. Future
minimum rentals receivable under non-cancellable
operating and financing leases are as follows: (1) Rs
202mn within a year, (2) Rs 697mn between 1 to 5
years, (3) Rs 752mn beyond 5 years.
 Lease payable: Laurus has operating leases
agreement on Land, with lease terms between 33-51
years. It has also taken certain office premises on
leases, with lease term of 5 years and renewable for
further periods. Total lease payment for FY18/19 was
at Rs 11.9/10.6mn, <1% of sales. Minimum payments
under non cancellable terms are as follows: (1) Rs
12mn within a year, (2) Rs 47mn between 1 to 5
years, (3) Rs 274mn beyond 5 years.
 Commitments: Estimated amount of ‘contracts
remaining to be executed on capital account’ and not
provided for amounted to Rs 430mn on Mar-19, as
against Rs 732mn on Mar-18.
 Contingent liabilities: Include outstanding bank
guarantees, bills discounted, claims arising from
disputes, and provident fund liability. Total
contingent liabilities amounted to Rs 1,028/924mn on
Mar-19/Mar-18 respectively (~4.5% of sales). As a %
of APAT, this stood at 90/55% for FY19/18
respectively.
 Allowance for doubtful debt: At Rs 23mn was largely
unchanged YoY. This came up to 2.1/1.4% of APAT for
FY19/18 respectively.
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 LAURUS LABS : ANNUAL REPORT ANALYSIS

Related-party transactions List of subsidiaries

Holding as Change in
 There were only remuneration related activities in
Entity
Country of
on Mar-19 holding YoY
Related party transactions related part transactions. Remuneration for key incorporation
only include transactions such (%) (bps)
management personnel (KMP) was lower as
Laurus
as remuneration to key compared to the previous year. For Dr C USA 100 -
Synthesis
management personnel, Satyanarayana, the remuneration was at Rs 72.65mn
(v/s Rs 118.87mn in FY18). Aggregate remuneration Sriam Labs India 100 -
which was lower in FY19 as
to KMP was at Rs 166/304mn In FY18/19, 14.6/18.1% Laurus
compared to FY18 on an Holdings
UK 100 -
aggregate level of APAT respectively.
Laurus
USA 100 -
Generics
Movement in shareholding Laurus
Generics Germany 100 -
 Over the year, promoter shareholding increased GmbH
220bps YoY to 32.77% as on Mar-19. Additionally, the Source: Company, HDFC sec Inst Research
promoter pledge reduced from 65% of promoter
holding on Mar-18 to 30% in Mar-19.
 FIL Capital reduced its stake from 11.54% (Mar-18) to
5.75% (Mar-19). Amansa Holdings invested in the
company and held 5.90% equity stake as on Mar-19.
Movement In Key Shareholders (>5% Stake)
% of Holding
Particulars
Mar-19 Mar-18
Blue Water Investments Ltd 19.72 19.80
Dr C Satyanarayana 17.70 15.83
Amansa Holdings Pvt Ltd 5.90 -
FIL Capital Management (Mauritius)
5.75 11.54
Ltd
Mrs C Naga Rani 6.93 5.89
Source: Company, HDFC sec Inst Research

Page | 7

The commencement of ARV
formulations supplies was one
of the most significant events
for Laurus in FY19
The co is expecting approval
for TLD from WHO in CY19
Key achievements over FY19
API (84% of rev)
 Completed validation of all second-line ARV APIs and
key anti-diabetes APIs
 Received DMF approvals from WHO for DTG & LMV
 Expanded Lamivudine capacity is now operational
Formulations (2% of rev)
 Began commercial supplies to EU markets, Metformin
tablets to the US, and TLD to the Global Fund
 USFDA approval for Hydroxychloroquine, USFDA
tentative approval and South Africa approval or TLD
Synthesis (11% of rev)
 Completed several projects from pre-clinical to
commercial, with development and manufacturing
 New orders from existing CMO partners and
manufacturing opportunities from several companies
Ingredients (3% of rev)
 Set up a dedicated block in Unit 4 for C2 Pharma
 Started commercial supplies to C2 Pharma for Digoxin
and other products
 Expanding portfolio of natural extraction-based
excipients
Facilities, Approvals, and Inspections
 Completed the following inspections:
 Unit 1 & 3: Russian GMP
 Unit 2 (FDF): USFDA, Tanzania, Uganda, Kenya,
Zimbabwe, Malawi
 CRAMS: JAZMP (Slovenia) for EU supplies
 Unit 6: USFDA inspection with 1 procedural
observation
LAURUS LABS : ANNUAL REPORT ANALYSIS
 Received the following formulations approvals:
 USFDA and Global Fund approval for TLD
 Tenofovir (TDF) approved by WHO, USFDA, and
several EU countries
 Key formulations filings/ validations:
 Filed TLE 600 & 400 with USFDA and WHO
 Completed 5 formulation product validations
M&A/ Partnerships:
 Entered into a strategic partnership with Global Fund
for a three-and-a-half year period for ARV supplies
 Transferred Tenofovir (TDF) ANDA rights (only for
China) to CASI Pharma for US$ 3mn. Already received
US$ 2mn of this based on milestone payments
 Reduced products under partnership with Dr Reddy’s
and Rising Pharma from 18 to 7, the remaining 11
products to be independently developed by Laurus
Focus areas for FY20
 Enhancing current portfolio, stepping up R&D, and
strengthening manufacturing capabilities
 Capitalize on leadership position in APIs in key areas
such as oncology, cardio-vascular, anti-diabetic and
ophthalmology. Foray into other regulated markets
 Leverage API cost advantage for forward integration
into Generic FDF (formulations)
 Develop the Synthesis business through various
global innovators, including Aspen
 Evolve from a synthetic process to natural extraction
for the Ingredients business
 8-10 ANDA filings yearly in the US with a focus on
ARV, oncology, and a few Para IV opportunities
Page | 8
 LAURUS LABS : ANNUAL REPORT ANALYSIS

Peer Valuations
Mcap CMP Adj EPS (Rs/sh) P/E (x) RoE (%)
Reco TP/FV
(Rs bn) (Rs/sh) FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E FY18 FY19 FY20E FY21E
Sun Pharma 1,013 422 BUY 540 12.7 14.9 18.0 24.6 33.3 28.4 23.5 17.2 8.2 9.0 10.0 12.4
Cipla 443 551 BUY 625 18.6 19.1 20.8 28.4 29.7 28.9 26.5 19.4 11.2 10.5 10.6 12.9
Dr Reddy's Labs 436 2,628 BUY 3,360 59.2 104.9 128.5 148.9 44.4 25.0 20.5 17.7 7.8 13.1 14.3 14.5
Divi's Labs 429 1,614 SELL 1,445 32.4 48.8 56.7 65.6 49.9 33.1 28.5 24.6 15.2 20.1 20.4 20.8
Lupin 346 764 BUY 910 38.2 16.4 25.8 41.4 20.0 46.5 29.7 18.5 12.8 5.4 8.2 12.2
Aurobindo Pharma 337 576 BUY 790 41.7 42.9 48.8 52.8 13.8 13.4 11.8 10.9 23.2 19.7 18.8 17.1
Torrent Pharma 262 1,550 NEU 1,710 37.0 40.1 52.9 69.4 41.9 38.6 29.3 22.3 14.0 14.5 17.7 20.0
Cadila Healthcare 244 238 BUY 280 12.7 11.1 12.0 15.7 18.8 21.4 19.9 15.2 16.5 11.9 11.2 13.2
Alkem Laboratories 212 1,770 BUY 2,225 57.6 64.7 78.7 101.0 30.7 27.4 22.5 17.5 14.8 15.0 16.3 18.4
Abbott India 188 8,870 NR 8,990 188.8 211.9 248.6 299.6 47.0 41.9 35.7 29.6 26.1 24.3 24.1 24.5
Glenmark 126 446 BUY 565 17.5 27.4 29.6 35.4 25.5 16.3 15.0 12.6 9.4 13.3 13.1 13.9
Alembic Pharma 101 535 NEU 570 21.9 25.8 25.1 31.6 24.4 20.7 21.3 17.0 20.0 19.7 16.4 18.1
Jubilant Life Sciences 73 461 BUY 885 45.5 53.8 56.4 73.5 10.1 8.6 8.2 6.3 19.3 19.3 17.2 19.1
Laurus Labs 37 344 BUY 515 15.8 10.7 16.0 28.6 21.8 32.2 21.5 12.0 11.9 6.2 10.2 16.4
Dishman Carbogen Amcis 34 213 BUY 375 13.2 16.7 19.6 24.9 16.1 12.7 10.9 8.6 14.6 15.4 15.1 16.4
Strides Pharma 33 371 BUY 650 13.2 6.9 30.4 41.5 28.2 54.0 12.2 9.0 2.9 2.3 9.9 12.3
Suven Life Sciences 30 236 NR 455 9.7 6.8 9.1 10.7 24.3 34.6 26.0 22.0 17.2 10.9 13.2 13.9
J B Chemicals & Pharmaceuticals 30 368 NR 485 16.6 24.1 28.8 34.6 22.2 15.3 12.8 10.6 9.9 13.3 14.7 15.6
Granules India 24 96 BUY 170 5.2 9.3 11.4 13.9 18.4 10.3 8.4 6.9 12.0 16.7 17.5 18.5
Solara Active Pharma Science 11 424 NR 650 2.4 26.0 26.9 43.1 175.0 16.3 15.7 9.8 2.9 13.4 10.9 12.6
Neuland Labs 7 515 BUY 920 10.8 12.8 32.1 65.8 47.6 40.2 16.1 7.8 2.2 2.6 5.7 10.9
Source: HDFC sec Inst Research

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 LAURUS LABS : ANNUAL REPORT ANALYSIS

Income Statement (Consolidated) Balance Sheet (Consolidated)

Year ending March (Rs mn) FY17 FY18 FY19 FY20E FY21E As at March (Rs mn) FY17 FY18 FY19 FY20E FY21E
Net Revenues 19,315 20,690 22,919 26,277 29,580 SOURCES OF FUNDS
Growth (%) 6.7 7.1 10.8 14.7 12.6 Share Capital - Equity 1,058 1,060 1,064 1,064 1,064
Material Expenses 9,968 10,637 12,356 13,796 14,790 Reserves 12,247 13,766 14,520 16,092 18,951
Employee Expenses 2,462 2,580 2,892 3,285 3,698 Total Shareholders Funds 13,304 14,826 15,584 17,157 20,015
Selling and Administration Long Term Debt 1,246 1,417 2,587 2,587 1,837
695 1,084 1,444 1,458 1,464
Expenses Short Term Debt 7,848 8,382 7,772 7,772 6,772
Other Operating Expenses 2,114 2,255 2,667 2,785 2,869 Total Debt 9,094 9,799 10,359 10,359 8,609
EBITDA 4,076 4,133 3,560 4,953 6,759 Net Deferred Taxes (699) (529) (534) (534) (534)
EBITDA Margin (%) 21.1 20.0 15.5 18.9 22.9 Long Term Provisions & Others 722 855 902 1,022 1,159
EBITDA Growth (%) 12.5 1.4 -13.9 39.1 36.5 TOTAL SOURCES OF FUNDS 22,422 24,952 26,311 28,004 29,249
Depreciation 1,060 1,255 1,642 1,883 2,046 APPLICATION OF FUNDS
EBIT 3,017 2,879 1,918 3,070 4,713 Net Block 12,202 14,711 16,193 16,710 16,664
Other Income (Including EO
334 292 162 205 250 CWIP 1,433 1,764 1,167 680 680
Items)
Goodwill 97 97 97 97 97
Interest 999 796 882 984 854
Investments 34 34 34 34 34
PBT 2,352 2,374 1,198 2,291 4,110
Other Non-current Assets 671 556 656 1,925 1,925
Tax (Incl Deferred) 439 698 260 588 1,068
Total Non-current Assets 14,437 17,162 18,148 19,446 19,400
RPAT 1,913 1,676 938 1,703 3,041
Share of profit / (loss) from Inventories 5,090 5,848 6,819 7,370 7,537
(11) - - - - Debtors 5,676 5,706 7,099 7,199 7,942
associate
RPAT after share of Other Current Assets 591 892 681 1,007 1,114
1,903 1,676 938 1,703 3,041
profit/(loss) from associate Cash & Equivalents 41 31 30 45 404
EO (Loss) / Profit (Net Of Tax) 200 Total Current Assets 11,398 12,476 14,630 15,621 16,997
APAT 1,913 1,676 1,138 1,703 3,041 Creditors 2,631 3,123 4,883 4,913 4,863
APAT Growth (%) 42.6 -12.4 -32.1 49.7 78.6 Other Current Liabilities & Provns 782 1,563 1,584 2,150 2,286
Adjusted EPS (Rs) 18.1 15.8 10.7 16.0 28.6 Total Current Liabilities 3,413 4,686 6,467 7,063 7,149
Source: Company, HDFC sec Inst Research Net Current Assets 7,985 7,790 8,163 8,558 9,849
TOTAL APPLICATION OF FUNDS 22,422 24,952 26,311 28,004 29,249
Source: Company, HDFC sec Inst Research

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 LAURUS LABS : ANNUAL REPORT ANALYSIS

Cash Flow Key Ratios

Year ending March (Rs mn) FY17 FY18 FY19 FY20E FY21E FY17 FY18 FY19 FY20E FY21E
Reported PBT 2,352 2,374 1,198 2,261 4,110 PROFITABILITY (%)
Non-operating & EO items (334) (292) (162) (175) (250) GPM 48.4 48.6 46.1 47.5 50.0
EBITDA Margin 21.1 20.0 15.5 18.9 22.9
Interest expenses 999 796 882 984 854
APAT Margin 9.9 8.1 4.1 6.4 10.3
Depreciation 1,060 1,255 1,642 1,883 2,046
RoE 17.5 11.9 6.2 10.2 16.4
Working Capital Change (487) 433 (427) (1,529) (795)
RoIC (or Core RoCE) 11.7 8.5 5.8 8.5 12.9
Tax Paid (589) (528) (265) (588) (1,068) RoCE 12.8 9.2 6.2 8.7 12.6
OPERATING CASH FLOW ( a ) 3,000 4,038 2,868 2,836 4,896 EFFICIENCY
Capex (3,762) (4,083) (2,520) (1,913) (2,000) Tax Rate (%) 18.7 29.4 21.7 26.0 26.0
Free cash flow (FCF) (761) (45) 348 924 2,896 Fixed Asset Turnover (x) 1.4 1.2 1.1 1.1 1.2
Investments 36 - - - - Inventory (days) 96.2 103.2 108.6 102.4 93.0
Non-operating Income 334 292 162 175 250 Debtors (days) 107.3 100.7 113.1 100.0 98.0
Other Current Assets (days) 9.3 15.6 10.8 10.3 10.1
INVESTING CASH FLOW ( b ) (3,391) (3,791) (2,359) (1,738) (1,750)
Payables (days) 49.7 55.1 77.8 68.3 60.0
Debt Issuance/(Repaid) (1,557) 705 560 (1,750)
Other Current Liab & Provns (days) 12.9 26.8 24.2 26.3 25.0
Interest Expenses (999) (796) (882) (984) (854) Cash Conversion Cycle (days) 150.2 137.5 130.5 118.2 116.1
FCFE (3,317) (137) 26 (60) 292 Debt/EBITDA (x) 2.2 2.4 2.9 2.1 1.3
Share Capital Issuance 234 3 4 0 0 Net D/E (x) 0.7 0.7 0.7 0.6 0.4
Dividend (38) (192) (192) (100) (182) Interest Coverage (x) 3.0 3.6 2.2 3.1 5.5
FINANCING CASH FLOW ( c ) (2,360) (280) (509) (1,085) (2,786) PER SHARE DATA (Rs)
NET CASH FLOW (a+b+c) (2,751) (34) (0) 14 360 EPS 18.1 15.8 10.7 16.0 28.6
Closing Cash & Equivalents 41 31 30 45 404 Dividend 1.5 1.5 1.5 0.8 1.4
Source: Company, HDFC sec Inst Research Book Value 125.8 139.8 146.4 161.2 188.0
VALUATION
P/E (x) 19.0 21.8 32.2 21.5 12.0
P/BV (x) 2.7 2.5 2.3 2.1 1.8
EV/EBITDA (x) 11.1 11.2 13.2 9.5 6.6
EV/Revenues (x) 2.4 2.2 2.0 1.8 1.5
OCF/EV (%) 6.6 8.7 6.1 6.0 10.9
FCF/EV (%) (1.7) (0.1) 0.7 2.0 6.5
FCFE/Mkt Cap (%) (9.1) (0.4) 0.1 (0.2) 0.8
Dividend Yield (%) 0.4 0.4 0.4 0.2 0.4
Source: Company, HDFC sec Inst Research

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 LAURUS LABS : ANNUAL REPORT ANALYSIS

RECOMMENDATION HISTORY
Date CMP Reco Target
Laurus TP
10-Jan-19 372 BUY 480
600
3-Feb-19 354 BUY 480
550 28-Mar-19 401 BUY 535
500 9-Apr-19 401 BUY 535
450 6-May-19 397 BUY 535
400 9-Jul-19 345 BUY 515
350 15-Jul-19 344 BUY 515
300
250
200 Rating Definitions
Dec-18
Oct-18
Aug-18

Apr-19
Nov-18

Jan-19
Sep-18

Feb-19

May-19
Jun-19
Jul-18

Jul-19
Mar-19

BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

HDFC securities
Institutional Equities
Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park,
Senapati Bapat Marg, Lower Parel, Mumbai - 400 013
Board : +91-22-6171-7330 www.hdfcsec.com
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 LAURUS LABS : ANNUAL REPORT ANALYSIS

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