Detailed Narrative
Robust Q2 FY26 Financial Performance
Laurus Labs reported a strong Q2 FY26 with total income from operations reaching ₹1,653 crores, marking a 35% year-on-year growth. The company achieved a gross margin of 59.9% and an EBITDA margin of 26%, which expanded by 11 percentage points. This performance was attributed to better operating leverage and a favorable product and segment mix, with profit after tax (PAT) for the quarter standing at ₹195 crores.
Strong Momentum in CDMO Segment
The CDMO division demonstrated significant growth, with Q2 sales of ₹471 crores and H1 sales reaching ₹964 crores, an impressive 88% year-on-year increase. This growth was primarily driven by deliveries from mid-to-late phase programs and commercial contracts, alongside contributions from newly operational manufacturing assets. The company noted a strong pipeline momentum with a balanced mix of big pharma and biotech clients, indicating continued demand for its CDMO services.
Generics and ARV Business Stability
The Generics division also performed well, recording revenues of ₹1,135 crores in Q2, a 28% growth, and H1 sales of ₹2,183 crores, up 20%. This was largely supported by volume growth in the Anti-Retroviral (ARV) segment and formulation supplies. Laurus Labs successfully completed capacity debottlenecking within its key API businesses, particularly ARVs, and reiterated its FY26 ARV sales guidance of approximately ₹2,500 crores, plus or minus ₹200 crores.
Strategic Capex and Capacity Expansion Initiatives
Laurus Labs continues its aggressive capital expenditure, with H1 FY26 capex at ₹489 crores and a full-year target of approximately ₹1,000 crores for existing projects. A major new initiative includes the allotment of 532 acres in Vizag for a world-class pharmaceutical manufacturing complex, where the company plans to invest $600 million over 8 years. Additionally, ₹250 crores will be invested over the next three years in opex and capex for genes and ADC facilities.
Investment in New Modalities and Laurus Bio Progress
The company invested $2 million in an ADC technology platform company to enhance its integrated ADC services, gaining expertise in bioconjugation, purification, and fill-finish. Investments in specialized modalities like gene therapy, ADC, and fermentation are on track. The commercial-scale fermentation facility in Vizag is progressing, with Phase 1 capacity of 400 kilolitres expected to be ready by the end of 2026, although significant revenue ramp-up from this new capacity is not anticipated until after 2026.
Margin Outlook and Capital Efficiency
Management expressed confidence in continued margin improvement, with gross margins now closer to 60% (up from 50-55% previously) and EBITDA margins expected to improve further due to operating leverage and a favorable product mix shift towards CDMO. While ROCE is currently compressed at 16.3% due to ongoing capex, return ratios are targeted to improve closer to 25% within the next two years. The net debt to EBITDA ratio improved to 1.3x from 1.8x, reflecting prudent financial management.
Animal Health and Crop Science Progress
The Animal Health and Crop Science segments are progressing through validation and filing stages. While Crop Science did not contribute materially to Q2 revenues, the Animal Health business has commenced commercial supplies for one asset. Management expects Animal Health revenues to contribute meaningfully or continue to grow from the next financial year onwards, as validations are completed and commercial supplies begin.