Thread by @financial_monk

#Lauruslabs Management Interview 📝🧵

Talks about:

-Strategy
-Richcore
-Formulation Journey
-API and all other segments
-Revenue mix & Guidance
-New Growth Areas

@punitbansal14 @drprashantmish6 @Investor_Mohit @AnyBodyCanFly @rdkriplani @caniravkaria

1/ Strategy from beginning

-Strategy is to start putting resources into development, create large scale manufacturing and then grow that biz

-They first did API then focused on custom synthesis then in 2014-15 they focused on formulations.

-From no revenues in 2016-17, they crossed 800-900 cr revenue in this first half and going to do very well ahead.

2/ Richcore Acquisition

-They had 3 seg already & thought that next growth driver can be biotechnology

-Gestation period in greenfield biotechnology is 6-7yrs, they wanted to cut down this period by doing acquisition & richcore was setting in their cup & closed the deal.

-They only acquired stake from private equity and other investors, they want promotors to keep driving the richcore’s growth.

-Currently richcore makes animal origin ingredients for cell culture, this is their unique proposition. They make enzymes for health and nutrition and they have just started doing contract manufacturing for proteins.

-They do R&D and capacity building, one of the capacities will get ready by march next year. And at this time, quantum jump in revenues will come.

-Even Laurus is going to help them in building capacities for contract manufacturing opportunities in recombinant protein space.

3/ Laurus’s Advantage

-Laurus has got backward integration in biocatalysis, fermentation, sterile intermediates.

-They will leverage richcore’s expertise in enzyme designs & manufacturing, while laurus will help them to build large facilities to produce ingredient, enzymes. They're focusing on protein contract manufacturing where main cream lies & major capex would be behind this cream only

-First revenue growth driver will be March end capacity & next driver would be a new facility for which they have already taken land & this will come on stream by end of next yr

-Laurus wont infuse more equity, richcore will generate its own cash & do capex with a mix of debt.

-They have currently 17000 lts fermentation capacity and 18000l ts coming in march end and further one plant is about to set in 2022.

-They acquired majority of stake and rest stake is with promotors who will continue to grow biz and laurus will complement them.

4/ Laurus’s Formuation

-Strategy is based on backward integration of APIs and similar thing that want to do in richcore and it already has all ingredients to be a fully integrated biotech company.

-Richcore will help them to make process more clean and green with their expertise in biocatalysis, fermentation and steriles.

-They will redesign enzymes for laurus from where a complete new growth area will be opened.

5/ Formulation biz journey
From 160cr to 450 cr in last 3-4 years.

-It is now almost the size of generic API biz.

-There is no one off thing which gave this growth. Growth is led by increased volume with existing products and customers.

-These are backed by their investments in previous yrs, they ramped up their API capacities, API growth and also they supplied API to formulation vertical

-Growth in formulation will come from their investments in capacity expansion which will come by April partly and by June they will be in phase 2 expansion coupled with debottlenecking of existing capacities.

-This will almost double their capacities with regular approval check

-Growth in formulation is already well cemented by way of filings, building capacities, launches and increasing market share.

-Last quarter formulation biz did 183% yoy growth in revenues.

-Biz is 75% ARV tender biz to low middle income countries and 25% for generics and contract manufacturing for developed countries.

-As they add capacities, they hope to sell more of non ARV products in a phased manner from June next year respective to capex and debottlenecking benefits will be for ARV tender.

-In formulations, it is a tender driven biz, orders are placed 3-6 months in advance, there is a reasonable visibility in order book as well.

-Here not one formulation company gets the whole tender, the company which offers lowest price will get highest share of tenders and laurus believe they can get 35% of tender share with respect to their pricing for its orders.

-They maintained price stability.

6/ Growth in API revenue

-It is also significant than they anticipated.

-Although API and formulation both biz are equivalent currently but API biz will be much bigger for them this year while they are growing formulations.

-They have lot of steam left to grow in API biz bcz they are adding more non ARV APIs and formulations.

-Going ahead API growth will come from non ARV as they have limited portfolio in ARV which has already been sucked.

-Similar thing will be done in formulations, they will clear all the filings and approvals by FY23 for non ARV. This is also improve their profitability.

-When it comes to API, majority of them goes into nonintegrated players in ARV formulations where they service 6 out of 8 biz. API sales here is very sustainable.

7/ ARV Formulation Market Share

-They are gaining market share in ARV formulations not from peers but from new patients.

-1.2 million patients are added to the treatment.
-Each million patient is 70-80 million dollar revenue, 2 million patients means 150 million dollar biz.

-This is significant. They grabbing new market rather than snatching the market.

8/ ARV API

-People are buying more APIs bcz of switching the therapies where their partners have approvals for all APIs.

-They are selling more combination of 3 drugs which go into one formulation.

-Main biz comes from DMF and ANDA based API and if you change this then it takes 18-24 months.

-This shift is happening since 9 months but they don’t see this shift effect on their generic and formulation biz.

-However custom synthesis is experiencing this shift. So the growth in API and formulation has nothing to do with this sentiments.

9/ Custom synthesis

-It is also growing well, lifting the gross margins not for this segment but for whole company.

-Q3 &Q4 will be much better.

10/ Revenue Guidance

-In 2016, 82% of revenue was from ARV API which is now 34%.

-Generic FTF is about another third and laurus expect to change this mix further.

-They do expect the shift in ARV vs non ARV which is right now 75-25% and going ahead it will be 50-50%.

-They expect to remain at 30% in ARV API as there is some growth.

-Non ARV might continue with 20% and 30-35% from formulations and low teens % from custom synthesis.

-This should be maintained in nxt 2 years.

11/43% growth in oncology API

-They have been growing this biz by 20-25% since last few quarters and will continue to grow bcz they have largest capacities in the country in this biz.

-They have launched significant drugs and captured the market share.

-This market share is not dependent on pricing but it is dependent on right quality with right supply.

12/ Outlook

-They are evaluating PLI schemes for some products.

-In pharma companies, the current growth is result of 3-4 years pain, so the growth they expect in FY21 Q3 &Q4 will not be because of FY20 but was already cemented since years ago.

-Growth will not come from new products or new facilities but from existing products and existing facilities.

-They see little risk.

-They were even capable of running biz at optimum level during COVID crisis when fright costs were touching highs and still they are able to come out with impressive results.

-Margins are still left to grow in oncology and synthesis biz.