Capacity-driven margins set to improve to nearly 20% by end of fiscal year 2025: Laurus Labs

Satyanarayana Chava, Founder and CEO, Laurus Labs, is confident that the earnings before interest, tax, depreciation, and amortization (EBITDA) margin will improve to around 20% by the end of fiscal 2024-25 (April-March).

Chava explained in an interview with CNBC-TV18 that the company’s EBITDA margins were temporarily lower due to significant investments in capacity expansion and research and development, especially in new areas such as biotechnology, cell and gene therapy.

These investments, aimed at future growth, were not capitalized, which impacted the EBITDA margin.

In the April-June 2024 period (Q1 FY2025), the EBITDA margin was 14.3%. The last time the company recorded a margin above 20% was in the January-March 2023 quarter.

Chava expects its net debt to EBITDA ratio to improve from the current level of 3.3 times to 2.5 times by the end of fiscal year 2025.

Net debt will remain stable at around ₹ 2,633 crore.

The company’s revenue rose 11% in the first quarter, but profits fell.

During a conference call following the earnings announcement, the company said it would maintain its fiscal 2025 guidance and was optimistic about growth in the second half of the year.

Capital expenditure in fiscal 2025 and 2026 is expected to be Rs 20 billion, mainly for contract development and manufacturing organisation (CDMO) initiatives.

In his opinion, the CDMO development process is optimistic and indicates the company’s transition from a very general API focus to a diversified CDMO model.

“The main reason is this transformation that the company has embarked on, going from a highly generic, focused API to a highly focused, highly differentiated CDMO is taking a little longer than we thought. Other than that, we are very happy with the way we are investing in the future,” Chava explained.

The company, which has a market capitalisation of ₹ 23,156 crore, has seen its shares rise 25% in the last one year.