Laurus Labs: Brokerages Bullish as CDMO Segment Drives Growth

Laurus Labs has witnessed a significant 30% surge in its share price over the last two months, fueled by a strategic pivot toward high-value segments. Driven by robust momentum in the Contract Development and Manufacturing Organisation (CDMO) space and expanding margins, the company is positioning itself for long-term structural growth.

Strategic Shift from ARV to High-Value CDMO

Laurus Labs is undergoing a fundamental transformation in its revenue mix to reduce reliance on traditional segments. Previously, antiretroviral (ARV) therapies accounted for a massive 67% of total revenue; however, this contribution has now declined to approximately 41%.

In its place, the CDMO segment has emerged as a powerhouse. Six years ago, CDMO contributed just 13% to total revenue, but it has climbed to over 30% in FY26. Analysts expect this trajectory to continue aggressively, with the CDMO segment projected to represent 50% of total revenue by FY30. This shift is supported by strong outsourcing demand from global pharmaceutical players and the successful commercialization of novel molecules.

Explosive CDMO Growth and Margin Expansion

The financial metrics for the CDMO segment reflect this successful transition. In FY26, the segment grew by 36% year-on-year, reaching ₹2,080 crore. This growth was propelled by progress in late-stage pipelines and increased commercialization efforts.

Simultaneously, the company's profitability has seen a significant boost. The EBITDA margin (before depreciation and amortization) expanded by 670 basis points year-on-year to reach 26.8%. This expansion is primarily attributed to higher operating leverage. While the company aims to sustain these margins, management noted that future performance will depend on managing raw material price volatility.

Massive ₹3,000 Crore Capex Plan for Capacity Expansion

To sustain this momentum, Laurus Labs has announced a capital expenditure (capex) plan of ₹3,000 crore over the next two years. Notably, over 90% of this capital will be directed toward expanding mid and large-scale manufacturing capacities.

Key investment areas include:

  • Greenfield Unit 7 facility: Featuring over 2,000 cubic meters of reactor capacity.
  • New Commercial Block: Slated for validation by the September 2026 quarter.
  • Diversification: Significant investments in peptides, fermentation, advanced therapies, and a dedicated formulation facility.
  • Non-Pharma Segments: Scaling up in crop science and animal health, which are expected to grow from a ₹150 crore base to over ₹1,000 crore in the future.

Brokerage Outlook and Earnings Estimates

Reflecting confidence in this expansionary roadmap, Motilal Oswal Financial Services (MOFSL) has maintained a 'BUY' rating on the stock. The brokerage has raised its earnings estimates by 8% for FY27 and by 6% for FY28. This optimistic outlook is based on the company's ability to maintain a 22% annual growth rate in the CDMO segment through FY26-28, combined with steady performance in both ARV and non-ARV segments.

Key Takeaways

  • Revenue Transformation: The company is successfully shifting from a heavy dependence on ARV therapies (67% to 41%) toward a CDMO-led model, aiming for CDMO to hit 50% of revenue by FY30.
  • Aggressive Expansion: A ₹3,000 crore capex plan is underway, focusing on large-scale manufacturing, fermentation, and diversification into animal health and crop science.
  • Strong Financial Momentum: CDMO revenue grew 36% in FY26, contributing to a significant EBITDA margin expansion to 26.8%.