Laurus Labs reports challenging Q2 earnings with hope for recovery

Laurus Labs encountered disappointing earnings in Q2FY24. This marked the third consecutive quarter in which the company experienced declining revenue, and it was the fifth instance in a row that earnings fell short of street expectations.

The pharmaceutical company faced particular challenges in its Contract Development and Manufacturing Organization (CDMO) business, constituting approximately 18% of its revenue in the last quarter. This segment was notably affected by reduced sales of Paxlovid, a medication used to treat COVID-19 patients. The high demand for Paxlovid during the pandemic years has waned with the decline in infections, resulting in a 69% reduction in revenue for the CDMO segment.

While there is optimism for improved revenue growth in the second half of the fiscal year, profit margins may encounter headwinds. The absence of visible commercial CDMO contracts and the prolonged weakness in the core CDMO business pose challenges.

In Q2FY24, Laurus Labs reported a 23% YoY decline in revenue, totaling ₹2,406 crores. Operating profit also saw a significant 61% YoY decrease, reaching ₹356 crores.

Despite the setbacks, there are positive signs of recovery. Improved growth prospects across all segments, capacity expansion plans to bolster the CDMO business, and opportunities in off-patent drugs offer a ray of hope for Laurus Labs.

Satyanarayana Chava, the Founder and CEO of Laurus Labs, expressed confidence in the CDMO division's potential, emphasizing the need for patience. While the division recorded lower sales YoY, gross margins are expected to remain stable, and the company anticipates increased sales in H2.