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Laurus Labs Limited IPO Views - 03rd Dec 2016

Pharmaceutical | Published on Dec 03rd 2016

IT

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.

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