Laurus Labs is a Hyderabad based company engaged in manufacturing of Active
Pharma Ingredients (API). Company derives 80% of its revenues from exports
while rest comes from the domestic markets. Its client base features companies
like Cipla, Natco, Mylan, etc. API is its largest segment which contributes 92% of
the revenues while rest 8% comes from its Synthesis and Ingredients business. On FY2016’s PAT of Rs133.3cr, the issue, at its upper
band, is priced at P/E of 32x which looks expensive. Accounting for FY2017E PAT,
the valuation still looks high at P/E of 28x. We believe that this kind of valuation is
commanded by domestic pharma companies who have branded formulations
business, healthy product pipeline and strong return ratios. Considering Laurus’
1) high client concentration, 2) low pricing power 3) asset heavy model and 4)
high valuation, we rate this IPO as Neutral.
