Brokerages stay bullish on Laurus Labs as CDMO momentum and margins improve

ET Intelligence Group: Shares of Laurus Labs have gained 30% in two months following a strong FY26 financial performance driven by growth in the contract development and manufacturing organisation (CDMO) segment, improved product mix and operating leverage. The company has guided for a capex of ₹3,000 crore over the next two years, primarily towards CDMO, peptides, fermentation and advanced therapies. Analysts have raised earnings estimates by 6-8% for FY27-28.

The drug maker is undergoing a structural shift towards higher-value segments, with CDMO contributing over 30% to total revenue, up from 13% six years ago. This share is expected to reach 50% by FY30. The company has reduced dependence on the traditional segment of antiretroviral (ARV) therapies, with their contribution declining to about 41% from 67%.

The CDMO segment grew 36% year-on-year to ₹2,080 crore in FY26, driven by late-stage pipeline progress, higher commercialisation of novel molecules, and strong outsourcing demand from global pharma players. Laurus is also expanding into non-pharma segments such as crop science and animal health. From a current base of about ₹150 crore, Motilal Oswal Financial Services (MOFSL) expects these segments to scale beyond ₹1,000 crore over time. The brokerage highlighted that CDMO growth has been supported by both development projects and commercialised molecules, and expects the segment to maintain momentum, projecting a 22% annual growth over FY26-28.

The operating margin before depreciation and amortisation (Ebitda margin) expanded 670 basis points year-on-year to 26.8%, driven by higher operating leverage. While the company expects to sustain margin at current levels, its trend will depend on the extent of volatility in raw material prices.

The company has outlined capital expenditure of ₹3,000 crore over the next two years, with over 90% allocation towards expanding mid and large-scale manufacturing capacities. Its key projects include greenfield Unit 7 facility with over 2,000 cubic meters of reactor capacity and a second commercial block slated for validation by the September 2026 quarter, alongside investments in animal health, fermentation and a formulation facility.

MOFSL has maintained a ‘BUY’ rating on the stock and raised earnings estimates for FY27 by 8% and for FY28 by 6% citing stronger CDMO traction, steady growth in ARV and non-ARV segments, continued operating leverage and ongoing capacity expansion. The stock closed 0.2% lower at ₹1,450.6 on Thursday from the previous day’s close on the BSE.