Record margins, a Bio segment scaling fast, CDMO contribution set to double by FY30
There is a version of the Laurus Labs story that is genuinely exciting — a pharma company that began as an ARV API supplier and has, over the last several years, methodically built a contract development and manufacturing business serving global innovators with complex molecules. The fourth quarter of FY26 added more evidence for that thesis: record gross margins, strong CDMO growth, a Bio segment that more than doubled year-on-year, and a capacity expansion programme that signals management’s confidence in the order pipeline ahead.
The Quarter in Brief
The numbers were clean. Sales grew 5.3%, EBITDA grew 21.8% and PAT grew 19.8% — with EBITDA margin coming in 144 basis points above BOB Capital’s estimates at 28.3%, the highest the company has reported. Gross margin expanded 685 basis points year-on-year to 61.4%. The margin expansion was not accidental — it reflects a deliberate shift in product mix toward higher-margin CDMO work, better capacity utilisation, process improvements and raw material cost rationalisation. “Healthy product mix, process improvement, better utilisation and RM cost rationalisation led to a 685 basis point year-on-year increase in gross margin,” the report notes.
The CDMO Engine Is the Story
CDMO — small molecules, contract development, supplying novel chemical entity APIs to global innovators — is the segment that the market is paying attention to, and for good reason. The small molecules segment grew 13.7% year-on-year in the quarter and 38% for the full year FY26, driven by late-stage pipeline molecules and commercial API supply. Laurus is a strategic supplier to global partners for complex APIs across human health, animal health and — still in development — crop science.
The capacity expansion underway reflects the order visibility management has. Reactor volume capacity is being increased from 8,200 kilolitres to 10,000 kilolitres by FY28. BOB Capital expects the CDMO segment to grow at 30% CAGR from FY26 to FY29, reaching Rs 41 billion — and to contribute 50% of total company sales by FY30, up from 31% in FY26. That mix shift, if it plays out, fundamentally changes the margin and return profile of the business.
Laurus Bio — The Other Option
If CDMO is the current growth engine, Laurus Bio is the emerging one. The segment grew 124% year-on-year in the quarter — off a low base, but the trajectory is now undeniable. The business spans biocatalysis, enzyme manufacturing, cell culture ingredients, precision fermentation, cell therapy, gene therapy and pharmaceutical fermentation intermediates. Current fermentation capacity of 240 kilolitres is being expanded to 400 kilolitres by calendar year 2026, with the facility capable of accommodating up to 600 kilolitres. One product in the pipeline, if commercialised, would require scaling to one million litres — a step-change in the Bio business’s scale and contribution.
The Generics Business
The ARV and oncology API generics business — where Laurus built its original franchise — remains significant, contributing 41% of total sales. ARV revenue grew 10% for the full year, with 66% of ARV sales going to Aspen. BOB Capital expects this segment to grow at a modest 5% CAGR through FY29, driven by stable prices and higher volumes rather than any dramatic expansion. The formulations segment, meanwhile, grew 26% for the full year following a capacity expansion at the KRKA joint venture to 12 billion units, with further incremental capacity coming onstream.
What the Margins Look
As CDMO’s contribution rises — from 31% in FY26 to an expected 42% by FY29 — margins should follow. BOB Capital projects EBITDA margin expanding to 27.5% in FY27, 28% in FY28 and 28.5% in FY29, even as annual capex steps up from Rs 10 billion to Rs 15 billion for the next two years. The margin trajectory is upward, but the capex investment required to sustain it means free cash flow will be deployed actively rather than returned to shareholders in the near term.
The Scorecard
| Metric | Value |
|---|---|
| Current Market Price | Rs 1,101 |
| 12-Month Target Price | Rs 1,160 |
| Upside | ~5% |
| Rating | HOLD |
| Valuation | 50x FY28E EPS |
| FY28E EPS | Rs 23.3 |
| Revenue CAGR FY26-29E | 15% |
| EBITDA CAGR FY26-29E | 19% |
| EPS CAGR FY26-29E | 19% |
| EBITDA Margin FY26 / FY29E | 25.6% / 28.5% |
BOB Capital raises FY27 EPS by 8% and FY28 EPS by 1% following the quarter, and introduces FY29 estimates. The stock trades at 47x FY28 earnings at current prices — a valuation that the brokerage is comfortable ascribing a 50x multiple to, but which leaves limited room for further re-rating without an earnings surprise. The HOLD is a valuation call, not a fundamental one.
Laurus Labs is the kind of business that rewards investors who got in early on the CDMO transition — and tests the patience of those deciding whether to enter now. BOB Capital’s HOLD simply reflects that the stock price has been a good reader of all of this. For investors with a three-to-five year view, the question is whether the FY30 CDMO contribution target of 50% — and whatever Bio commercialisation brings — justifies paying today’s price. That is a bet on execution, and Laurus has, so far, earned the benefit of the doubt.