On Friday, Jefferies maintained an Underperform rating on Laurus Labs Ltd (LAURUS:IN) stock, while increasing the share price target to INR300.00 from INR250.00. The adjustment follows Laurus Labs' second-quarter performance, where gains in the Contract Development and Manufacturing Organization (CDMO) sector were offset by the Active Pharmaceutical Ingredients (API) segment, leading to a shortfall in meeting the analyst's expectations.
Laurus Labs encountered operational challenges that affected its margins during the second quarter of the fiscal year 2025. Despite these issues, the CDMO sales showed improvement after several stagnant quarters. The management of Laurus Labs chose not to provide sales guidance but reaffirmed their commitment to achieving a 20% EBITDA margin for the year.
The analyst from Jefferies noted that while the CDMO segment appears to be on an upswing, this positive development is already reflected in the company's current valuation. Meanwhile, other divisions within Laurus Labs are still hindering overall growth. Consequently, the firm has revised its earnings per share (EPS) estimates for fiscal years 2025 and 2026 downward by 3% and 2%, respectively.
In summary, Jefferies has acknowledged the progress in Laurus Labs' CDMO business but remains cautious due to the underperformance of other segments and the impact on the company's margins. The revised price target of INR300.00 reflects a tempered outlook, factoring in both the challenges and areas of improvement within Laurus Labs.
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