Laurus Labs has been transforming its business mix, reducing its dependence on anti-retroviral (ARV) drugs and expanding its contract development and manufacturing organisation (CDMO) business. Nuvama believes this shift could drive the drugmaker’s next phase of growth.

Nuvama Institutional Equities has initiated coverage on Laurus Labs with a ‘Buy’ rating and a target price of Rs 2,520, implying 24% upside from the current market price. The brokerage believes the company is entering a more favourable phase as the large investments made over the past few years begin to support higher CDMO revenue and better margins.

From ARV dependence to CDMO growth

Laurus' earlier growth was closely linked to its ARV business , where pricing was largely driven by tenders. The company has since used those cash flows to build capabilities across different areas of CDMO, including small molecules, fermentation, peptides and newer therapies.

That shift is already visible in the business mix. CDMO accounted for 21% of revenue in FY22, rising to 30% in FY26 and 43% in Q1FY27. Nuvama expects it to account for more than half of revenue by FY29.

This is important because the CDMO business has a better growth and margin profile than the older ARV business. Laurus is also seeing a larger share of CDMO revenue come from commercial supplies, suggesting that some of the projects it has worked on are moving beyond the development stage. Nuvama expects CDMO revenue to more than triple to Rs 71.6 billion by FY29, while ARV revenue remains broadly flat.

Capex is moving towards monetisation

Laurus has spent heavily on expanding its manufacturing capacity, but the brokerage believes the focus is now shifting from building capacity to filling it with business. The company has more than 125 active CDMO projects and around 275 clients. It also works with seven of the top 10 global innovators, giving it a broad customer base as more projects move towards commercial supply.

The next opportunity could come from peptides. Laurus is setting up a dedicated peptide facility, with Nuvama expecting the unit to generate Rs 10-16 billion of revenue once it scales up. The brokerage also sees potential for Laurus to participate in Amgen's MariTide supply chain.

Nuvama expects the company's EBITDA margin to improve as the CDMO mix increases. It forecasts a 35% EBITDA CAGR over FY26-29 and believes free cash flow should improve once the current capex cycle peaks. The brokerage therefore believes the market is already pricing in Laurus' investments, but not the full earnings potential from those investments. It has initiated coverage with a ‘Buy’ and a target price of Rs 2,520.