Laurus Labs Ltd Q2 FY2027 Concall Summary

Key Takeaways

• Record revenue, CDMO-led beat: Q2 revenue hit a record INR 2,206 crores, powered by an 86% surge in the small molecule CDMO business, while affordable medicines grew a steady 15%.
• Margins expanded on operating leverage: EBITDA margin rose 2.7 pp to 34.5% as the revenue jump flowed through, even with a 34% YoY increase in R&D spend for future capabilities like gene therapy and ADCs.
• Peptide capacity build-out is the big bet: A commercial-scale peptide block is now commissioned, and management is already expanding it further, signaling conviction that the GLP-1 and peptide opportunity will be material, though commercial revenues are not expected until around '29.
• Two bolt-on acquisitions fill technology gaps: Deals for Galenvs Sciences (oligonucleotides) and SI & C Resins (peptide resins) were announced, directly addressing customer requests and talent gaps in these emerging modalities.
• What to watch next quarter: The pace of customer commitments for the new peptide and fermentation capacities, any update on the KRKA JV formulation facility timeline, and whether the CDMO growth rate can be sustained as the base effect normalizes.

CDMO Performance & Pipeline

• Small molecule engine: The 86% YoY growth in the CDMO segment was driven by successful delivery of critical late-stage programs and commercial API supplies to multiple global partners, with no single one-off event behind the QoQ ramp.
• Customer diversification: Management stated there is no significant concentration of customers or programs currently, and no significant launch or destocking events are expected, providing good visibility for the next 18 to 24 months.
• Integrated project focus: The strategy remains centered on securing fully integrated projects, supporting partners from preclinical development through to finished drug product services, which deepens relationships and expands the revenue opportunity per program.
• Capability breadth: The company can now offer any chemistry, any modality, any scale, and any potency except for monoclonal antibodies, cephalosporins, and penicillins, a scope that management argues means it rarely has to turn away a partner's tech pack.
• Crop Science CDMO: Discussions with several partners are ongoing, and while management hopes for a meaningful contribution eventually, the business remains minuscule compared to human and animal health.

Satyanarayana Chava: "Today, if any partner comes with a tech pack, we will not say no because we don't have capabilities, except monoclonal antibodies and cephalosporins and penicillins. Those are the areas we don't have right now. Other than that, we can offer any chemistry, any modality, any scale, any potency also."

Peptide & GLP-1 Strategy

• Commercial-scale block commissioned: A peptide manufacturing block with over 16,000 liters of solid-phase synthesis reactor volume is now operational, and the capability is fully integrated, offering complete API synthesis, purification, and isolation rather than just fragments.
• Capacity already being expanded: Management stated that current capacities may not be enough for near-to-midterm requirements, so a significant further expansion is underway to ensure early clinical-phase programs can move directly into a commercial manufacturing plant when they reach validation.
• Commercial revenue timeline: Commercial revenues from some of these peptide capacities are expected around the FY29 time frame, though validation campaigns themselves will drive fairly high asset utilization in the interim.
• GLP-1 ambition: Management "certainly expect[s] to play a very meaningful role" in peptide GLP-1 contracts over the next five years, given the capabilities and capacities being invested in, but declined to comment on involvement with existing GLP-1 products.
• Manufacturing approach: Current programs are mostly solid-phase, liquid-phase, or hybrid synthesis, and capacity expansion is directed into those areas; fermentation-based peptides depend on the number of natural amino acids in the sequence and are a separate track.

Krishna Chava: "For the commercial revenues, we expect somewhere around the '29 time frame for some of these peptide capacities that we are talking about today. But with that being said, in terms of utilization, even for some of these validation campaigns also, it will be fairly high for the asset itself."

Acquisitions & Capability Build-Out

• Galenvs Sciences (oligonucleotides): A 60% majority stake was agreed for this Canada-based company specializing in oligonucleotides and precision magnetic nanoparticles-based purification. The investment is a direct response to customer requests for Laurus to enter the oligo space.
• SI & C Resins (peptide resins): A majority stake in this Hyderabad-based peptide resin technology company was also announced, aimed at strengthening the supply chain and technology position in peptide synthesis.
• Talent bridge: Both acquisitions were described as investments to bridge R&D and synthesis talent gaps in oligonucleotides and solid-support resins, accelerating internal capability development.
• Oligo outlook: The oligo investment is expected to add significant value in the near to medium term, but management cautioned it will not reach the scale of the ARV business in the next four to five years.

Satyanarayana Chava: "We are investing because our customers are asking. It's not that we are investing, we are liking. Our customers are asking us to get there."

Laurus Bio & Fermentation

• Revenue softness is phasing: Laurus Bio revenue declined 16% YoY in H1 on a base of roughly INR 200 crores, attributed to campaign phasing, customer allocations and project scale-up schedules rather than demand loss; the prospect pipeline remains strong.
• LB4 facility on track: The commercial fermentation facility (LB4) will be qualified in Q3 FY27, with trials in Q4 FY27 and actual commercial supplies may start in Q1 FY28, putting the business on a good track from the start of next fiscal year.
• Fermentation capacity expansion: A 500,000-liter food-grade/industrial-grade facility in Tumkur will be operational this quarter (Q3 FY27), and a GMP-grade fermentation facility for animal health products is being built, with operations expected in the second half of next year.

Affordable Medicines & Formulations

• Steady growth: The affordable medicines portfolio delivered 15% YoY growth, driven by expansion of the order book across established portfolios and supported by stable pricing in the ARV portfolio and developed market portfolios.
• Formulation revenue growth: Driven by project registrations in multiple countries, with management expecting continued growth in upcoming quarters.
• KRKA JV timeline: The formulation facility is getting ready, with product validations expected to start in mid-2027 and meaningful revenues anticipated in FY28–FY29 after validations and filings are completed.

Financials & Capital Allocation

• Margin walk: Gross margin was sequentially flat at approximately 63%, but EBITDA margin improved to 34.5% as the INR 200 crores QoQ revenue increase generated operating leverage and R&D costs normalized from a Q1 spike.
• R&D investment rising: R&D spend jumped 34% YoY to 4.3% of sales, primarily directed at capability development for gene therapy and ADC technology infrastructure, reflecting the commitment to invest ahead of the revenue curve.
• Balance sheet strengthening: Debt-to-EBITDA improved to approximately 1.02x from 1.28x last quarter, and ROCE moved up to 22.5% in H1 from 17.7% in FY26, both driven by strong internal cash flows.
• Free cash flow trade-off: Operating cash flow fell 26% on strategic inventory build, and free cash flow was slightly negative after INR 864 crores in capex. Management framed this as a deliberate choice to prioritize growth capex over near-term free cash flow, given net debt/EBITDA remains around 1x.
• Capex plan on track: The INR 3,000 crores capex plan for FY27–FY28 combined is on track despite a lower first-half run rate. Beyond that, management expects approximately INR 1,500 crores per year, with the potential to increase if opportunities arise.

V. V. Ravi Kumar: "Last year only we have a free cash flow when you are making that kind of a capex investment, we have taken a call between the free cash flow versus the growth capital, and then we are investing growth capex."

Guidance & Commitments

Key Metrics