Motilal Oswal Financial Services has reiterated a BUY call on Laurus Labs, assigning a target price of Rs 1,280, implying an upside of nearly 19% from the current market price of Rs 1,076. Motilal Oswal argues that Laurus Labs stands at the forefront of the next commercial ramp-up cycle in the CDMO (Contract Development and Manufacturing Organization) space. After navigating sector-wide volatility in FY24 and FY25, the company has delivered superior execution, clocking ~30% YoY growth and ~26% EBITDA margin in 9MFY26. A decisive product mix shift toward CDMO, sustained capital investments of Rs 39 billion over FY22–26, and expanding technological capabilities position Laurus for structural margin expansion and earnings recovery. The brokerage expects PAT to rebound sharply to Rs 8.5 billion in FY26 and reach Rs 11.5 billion by FY28.

Reaffirmed BUY: Valuation Anchored on Earnings Recovery

Motilal Oswal values Laurus Labs at 62x 12-month forward earnings, arriving at a target price of Rs 1,280.

Key Investment Metrics:

Current Market Price: Rs 1,076

Target Price: Rs 1,280

Implied Upside: ~19%

FY26E EPS: Rs 15.9

FY27E EPS: Rs 17.8

FY28E EPS: Rs 21.3

After a cyclical trough in FY24, when PAT collapsed to Rs 1.6 billion, Laurus is projected to deliver a sharp earnings rebound. The brokerage estimates 16% PAT CAGR over FY26–28, with profitability stabilizing and expanding as high-margin CDMO programs scale commercially.

CDMO Divide: Execution Leaders vs Guidance Resetters

The CDMO sector has been marked by uneven recovery. Several peers faced guidance downgrades due to destocking, molecule concentration risks, and delays in late-stage program conversion. Laurus, however, stands out.

9MFY26 Performance Snapshot:

Revenue growth: ~30% YoY

EBITDA margin: ~26%

CDMO segment growth: >50% YoY

Formulation growth: ~48% YoY

Unlike peers who struggled with revenue visibility, Laurus upgraded its FY26 outlook, demonstrating strong alignment between guidance and execution.

This consistency distinguishes Laurus as an execution-led growth platform rather than a narrative-driven story.

Financial Snapshot: Earnings Momentum Returns

Below is a summary of projected financial performance:

Revenue is expected to compound at roughly 17% CAGR over FY25–28, while EBITDA is projected to grow at an even faster clip due to operating leverage. Gross margins have structurally improved from ~56% in FY22 to nearly ~60% in 9MFY26, reflecting mix benefits from CDMO scale-up.

Product Mix Transformation: CDMO Becomes the Core Engine

One of the most critical structural shifts underway is the evolution of Laurus’ revenue mix.

CDMO Contribution:

FY21: ~11% of revenue

9MFY26: ~27% of revenue

At the same time, ARV (antiretroviral) exposure has moderated from nearly 69% historically to roughly 43%, indicating diversification rather than decline.

Importantly, ARV revenues remain broadly stable at Rs 21–26 billion annually, providing predictable cash flows that fund expansion. This internal cash generation mitigates balance sheet stress despite aggressive capital expenditure.

Capex-Led Scale: Investing Ahead of the Curve

Laurus has deployed nearly Rs 39 billion in capex over FY22–26, with ~78% directed toward API and CDMO capabilities.

Strategic Capex Focus Areas:

Peptide manufacturing scale-up

Vizag capacity expansion

Client-specific CMO infrastructure

Emerging modalities: ADCs, gene technologies, microbial fermentation

Commercial spray-drying capabilities

FY26 capex intensity remains elevated, at roughly Rs 7.4 billion in 9MFY26 alone. However, approximately 85% of current investments are classified as growth capex, underscoring a forward-looking capacity build rather than maintenance spending.

This positions Laurus to capture the next wave of commercial supply conversions as biotech funding stabilizes and innovator outsourcing deepens.

Margin Expansion: Operating Leverage Kicks In

Historically, Laurus operated at lower margins due to its higher ARV exposure. As CDMO’s share rises, margin gaps versus innovation-focused peers are narrowing.

EBITDA Margin Trajectory:

FY24: 15.4%

FY25: 19.0%

FY26E: 25.8%

FY28E: 26.3%

Operating leverage is becoming increasingly visible. Higher-value CDMO programs, recurring commercial contracts, and improving utilization rates underpin this structural margin re-rating.

Balance Sheet Strength and Return Ratios

Despite elevated capex, leverage remains controlled.

Key Ratios (FY26E–FY28E):

Net Debt/Equity: 0.4 → 0.3

RoE: 17–17.4%

RoCE: 12.8–13.8%

Interest Coverage: 7.5x → 9.6x

Return ratios are projected to rebound meaningfully from FY24 lows as earnings normalize.

Industry Tailwinds: Structural CDMO Opportunity

The CDMO industry is evolving toward strategic, long-term partnerships rather than transactional outsourcing.

Key structural drivers include:

Rising molecule complexity

China+1 supply chain diversification

Innovator cost optimization

Increasing regulatory focus on geographic resilience

Revenue volatility is inherent due to molecule lifecycle timing, but companies with integrated platforms and diversified pipelines — like Laurus — are structurally better positioned.

Investment Thesis: Positioned for the Next CDMO Cycle

Motilal Oswal’s conviction rests on three pillars:

1. Execution Leadership: Laurus has outperformed peers in delivering guidance-consistent growth.

2. Structural Mix Upgrade: CDMO’s expanding share enhances margins and earnings visibility.

3. Capex-Funded Growth Engine: Rs 39 billion in investments create capacity for multi-year commercial conversion.

With PAT projected to surge from Rs 1.6 billion in FY24 to Rs 11.5 billion by FY28, the earnings inflection appears both sharp and durable.

At Rs 1,076, the stock trades at 60–68x FY26–27 earnings — a premium valuation justified, in Motilal Oswal’s view, by superior growth visibility and structural margin expansion.

Target: Rs 1,280 | Rating: BUY

Disclaimer: Investment in securities is subject to market risks. Investors should conduct their own due diligence and consult financial advisors before making investment decisions.