This pharma stock surged 10X, crashed 60%, and rose to an all-time high again. Can it sustain the momentum?

Mint

5 days ago

In just 15 months, a relatively lesser-known pharma stock surged 10X, rising from a low of ₹68 (in March 2020) to an all-time high of ₹724 in August 2021. This surge was led by a fourfold jump in profits, from ₹255 crore in 2019-20 to ₹984 crore in 2020-21.
Retail investors took notice. During the period, the number of public shareholders grew fivefold to 236,000. At the same time, domestic institutions sharply cut their stake, from 31.6% to just 3.6%.
But like many fast rallies, this one didn't last long. As earnings momentum slowed, the stock corrected sharply, falling 60% to ₹293 by March 2023. Its profit fell to ₹162 crore in 2023-24, but early signs of a recovery have started to emerge.
Over the past year, the stock has rebounded by 50%, now trading at ₹642, within touching distance of its all-time high. If you haven't guessed already, the company is Laurus Labs. So what's changed lately? Is this a real comeback or just another bounce?
Let's break it down.
Why the boom and the bust?
For starters, Laurus Labs began as a contract research-focused pharmaceutical company. Later, it expanded into active pharmaceutical ingredients (APIs), including antiretrovirals (ARV)—the core components used to manufacture HIV medications.
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Thereafter, Laurus expanded into the formulation business, where active drugs are converted into final products like tablets or syrups. To support this expansion, Laurus had to significantly ramp up manufacturing capacity.
Its fixed assets nearly tripled—from ₹499 crore in 2013-14 to ₹1,629 crore in 2018-19. This expansion turned out to be a blessing in disguise. When the pandemic struck in 2020, global demand for ARV drugs surged.
Laurus, with its expanded manufacturing capacity, was well-positioned to meet this rising demand. ARV revenue almost doubled from ₹1,763 crore (2019-20) to ₹3,296 crore in 2020-21. In 2020-21, Laurus' global market share in the overall API and formulations segment of ARV drugs grew to 33%.
Higher capacity utilisation drove operating leverage, resulting in sharp growth in revenues, profits, and margins. In 2020-21, revenue grew 70% to ₹4,814 crore, while net profit zoomed 286% to ₹980 crore. Operating margins expanded from 20% to 32%. With revenue growth, average asset turnover grew from 1.1x (FY20) to 1.5x.
As a result, Laurus' share price surged almost 10X in just a year, peaking in June 2021, as the pandemic-driven boom peaked. Global demand for HIV drugs also began to taper off, compounding the problem. Their revenue contribution declined to 46% in 2024-25, down from 68% in 2020-21.
Expansion and diversification in play
To diversify, Laurus undertook another round of expansion during FY22-FY25, investing ₹3,200 crore. This time, it bet big on the contract development and manufacturing organization (CDMO) and other emerging areas, such as cell and gene therapy. Its 74% of the capex was directed towards API/CDMO, and 26% towards drug products.
But expansion hit margins hard
Of this, 32% of the capacity is already ramped up, while 51% is operational, and 16% is still under expansion. However, the underutilised capacity severely impacted Laurus' profitability due to operating deleverage. Operating margins nearly halved to 16% in 2023-24 (from 33% in 2020-21), as operating costs surged.
Interestingly, gross margin remained relatively stable, indicating a strength in the underlying business. On the upside, revenue contribution from the CDMO business has started to pick up, which has helped drive the recent rebound in stock price.
CDMO: The next growth engine?
Laurus currently operates three business segments: generics, biotechnology, and CDMO. Traditionally, the low-margin generics business dominated the revenue mix; however, a shift towards CDMO is gradually playing out. As capacity ramps up, CDMO's revenue contribution has increased to 25% in 2024-25 (versus 18% in 2023-24). At the same time, the generics segment declined to 72% from 79%.
This shift followed a 49% jump in CDMO revenue, which reached ₹1,534 crore in 2024-25. In comparison, generics revenue rose just 2% to ₹4,020 crore. The biotech segment remained small, with ₹160 crore in revenue and flat growth in 2024-25.
Notably, CDMO brings higher margins—and it's already doing much of the heavy lifting. As its contribution increased, Laurus' operating margin also expanded 400 basis points to 20% in 2024-25. Net profit also rose 121% to ₹358 crore, driven by higher margins and better operating efficiency.
Return on capital employed (RoCE), which had declined from 34% (2020-21) to 6% (2023-24), has now improved to 10% (2024-25)–early signs of better asset utilisation and operational pick-up. Return on equity (RoE) improved from 4% (2023-24) to 8%—reflecting the earnings recovery.
The company's asset turnover also expanded from 0.77x in mid-FY25 to 0.83x (now), and it expects this to return to historical levels (1.1x) over the next two years.
What's driving confidence in the CDMO pipeline?
Laurus is eyeing strong growth in the CDMO business, supported by a strong drug development pipeline. As of March 2025, it has over 110 active projects, including 90 in human health. Importantly, most of these are in Phase II and III clinical stages—closer to commercialisation. This improves revenue visibility and the potential for long-term contracts.
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There are also 15+ commercial projects, including API and intermediaries. One API was commercialised in Q3, and revenue scale-up is expected in 2025-26. For now, the CDMO revenue is driven by human health and is expected to scale up from 2025-26 onwards.
So far, only 32% of the capacity has been ramped up, while 51% is still in process, and 16% is yet to go live. Thus, the gradual ramp-up of capacity is expected to drive Laurus Labs' next phase of growth.
In parallel, Laurus is focusing on serving early-stage clinical programmes. It recently commissioned a small-molecule research and development facility, aimed at winning more high-value, high-margin work from big pharma. According to the company, the mix here is increasingly shifting toward such complex, higher-return projects.
CDMO pipeline extends beyond human health
In addition to human health, 20 projects are in the pipeline for animal health and crop sciences. The company is currently supplying products as part of a verification phase. It expects peak capacity utilisation by 2026-27, meaning full revenue and margin contribution will come in only by then.
It's not just a strong pipeline; Laurus is also witnessing solid client traction. It has received several requests for proposals, and multiple contract negotiations are ongoing. The management believes the CDMO business could contribute 50% by 2029-30, up from 25% (2024-25). Motilal Oswal estimates the CDMO revenue to grow to ₹2,500 crore by 2026-27 ( ₹1,534 crore in 2024-25).
Operating margins are also expected to improve, driven by improving asset utilization and shift mix towards high-margin CDMO. In addition, it sees no operating deleverage at least in 2025-26, as production blocks are being added within existing facilities.
Biotech expansion: fermentation capacity to double
Within biotechnology, Laurus plans to more than double fermentation capacity by the end of 2026 and strengthen its enzyme engineering platform. Strong client interest is visible—its biotech client base grew 1.5x on-year. This could support growth beginning 2026-end.
Gene and cell therapy bets are early but promising
In gene therapy, Laurus plans to invest around ₹128 crore in a Good Manufacturing Practices (GMP) facility. It will cater to plasmids, vectors, and antibody drug conjugation.
In cell therapy, Laurus associate company ImmunoACT has completed Phase I trials for NexCAR19 (a CAR-T therapy) for paediatric use. ImmunoACT is also expanding capacity for NexCAR19, with a new facility expected to be ready by Q2FY26. This will add 2,500 treatment capacity, to existing 300 annually. ImmunoACT revenue will come from direct product sales to hospitals.
For context, cell and gene therapy modify cells and genes to treat genetic disorders such as spinal muscular atrophy, haemophilia, sickle cell disease, and cancer.
Generics remain stable, non-ARV to pick up
In the generic drugs space, Laurus expects ARV revenues to remain stable at ₹2,559 crore (2024-25) for the next 2-3 years. In contrast, non-ARV revenue is expected to pick up from Q3FY26 onwards, supported by approvals in the US and Canada, and client additions.
Laurus doesn't expect a material impact from US HIV funding cuts, as only 20% of global HIV treatment depends on US aid. Laurus' exposure could be limited to around ₹250 crore.
So, where does that leave Laurus Labs?
The company has clearly pivoted from being a traditional generics player to building a stronger presence in CDMO–high-growth, high-margin areas. Its investments are starting to pay off, with better asset utilisation, improving margins, and return ratios.
Motilal Oswal notes that after three years of declining earnings, Laurus ended 2024-25 on a strong note. With improving asset utilisation, especially in CDMOs, it expects revenue to grow at 18% and profit at 57% CAGR during FY25-FY27.
However, much of the new capacity is still ramping up. In addition, meaningful revenue contribution from biotech and gene therapy may take a few more years. This makes execution crucial in the CDMO business in the medium term.
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Also, Laurus is not a cheap stock. It currently trades at a price-to-equity multiple of 108, well above the five-year median of 35. Morgan Stanley estimates the CDMO sector one-year forward P/E at 58x—still above historical averages.
But if execution continues and the CDMO shift plays out as expected, the premium valuations may find support. Delay in CDMO project commercialisation or slower-than-expected capacity utilisation could prolong the earnings recovery.
Madhvendra has over seven years of experience in equity markets and has cleared the NISM-Series-XV: Research Analyst Certification Examination. He specialises in writing detailed research articles on listed Indian companies, sectoral trends, and macroeconomic developments.
Disclosure: The writer does hold the stocks discussed in this article. The purpose of this article is only to share interesting charts, data points, and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.