Key Takeaways
- Revenue grew ~30% YoY in 9MFY26, driven by CDMO and formulation expansion.
- EBITDA margin hit 26%, well above most Indian CDMO peers.
- INR 39 bn capex plan (FY22‑26) with ~78% earmarked for CDMO/API capacity.
- Projected PAT: INR 8.5 bn FY26 → INR 11.5 bn FY28 (16% CAGR).
- Motilal Oswal values the stock at 62× forward earnings, target INR 1,280, reiterating BUY.
You’ve been missing the pharma surge that could explode your portfolio.
Why Laurus Labs’ Margin Expansion Beats CDMO Peers
Laurus Labs (LAUR) posted a 26% EBITDA margin in the nine‑month period ending March 2026. Most Indian contract development and manufacturing organizations (CDMOs) are still wrestling with margin compression caused by delayed programs, destocking, and slower commercial conversions. Laurus’s ability to keep margins high stems from two intertwined forces:
- Scale‑up in CDMO & formulation segments: The company completed several large‑capacity lines in FY22‑23, allowing it to absorb fixed costs faster than rivals.
- Strategic capex allocation: Roughly INR 39 bn is slated for FY22‑26, with 78% directed at CDMO and API facilities. This focused spend accelerates the conversion of pipeline orders into billable work.
By contrast, peers such as Divi’s Laboratories and Aurobindo Pharma have spread capital across diversified product lines, diluting the impact on CDMO profitability.
Impact of Laurus Labs’ Capex on Future Growth
The massive capex programme is not just a balance‑sheet line item; it is a growth engine. Here’s how:
- Capacity Utilisation: New reactors and fill‑finish lines push utilisation above 85%, a level where incremental revenue translates into disproportionately higher EBITDA.
- Pipeline Conversion Speed: With more slots available, Laurus can lock in long‑term contracts faster, shortening the order‑to‑revenue lag that has plagued the sector.
- Pricing Power: Scarcity of high‑quality CDMO capacity in India lets Laurus command premium rates, further protecting margins.
Analysts estimate that the capex will lift FY27 revenue growth to 25‑28% YoY, a tempo that outpaces the sector’s historical average of 12‑15%.
Historical Context: CDMO Cycle Patterns and Laurus Labs
India’s CDMO landscape has experienced three full cycles since 2010. Each cycle follows a classic “boom‑bust‑re‑boom” pattern:
- Early‑stage boom (2010‑2014): Global pharma companies outsourced early‑stage R&D to India, driving rapid capacity additions.
- Mid‑cycle correction (2015‑2018): Over‑capacity and delayed launches forced many firms to reset guidance.
- Current re‑boom (2019‑present): The pandemic accelerated API shortages, prompting a resurgence in outsourcing.
Laurus entered the current cycle with a head‑start. Its FY22‑26 capex was timed to hit just as demand for API and sterile manufacturing spiked, positioning the firm at the front of the growth curve while many peers are still catching up.
Investor Playbook: Bull vs. Bear Cases
Bull Case
- Revenue CAGR of 16% through FY28, driven by full utilisation of new CDMO capacity.
- Margin expansion to 30%+ as scale benefits lock in.
- Forward P/E compression to 45‑50× as earnings accelerate, validating the 62× target price of INR 1,280.
- Strategic positioning for long‑term contracts with multinational pharma giants seeking Indian API supply.
Bear Case
- Capex overruns or execution delays could defer capacity benefits.
- Regulatory setbacks in API approvals may throttle the commercial ramp‑up.
- Macroeconomic headwinds—currency volatility or higher input costs—could erode margins.
- Competitive entry from global CDMOs expanding in India could pressure pricing.
Overall, the upside potential outweighs the risks, especially given Motilal Oswal’s 62× forward earnings valuation and a BUY reiteration.