Why Laurus Labs Shares Dropped 15% on Monday?

Shares of Laurus Labs Ltd. fell by 15% on Monday, January 27, erasing the gains made on Friday after the company reported its December quarter results. The stock closed at Rs.512.25, reflecting investor concerns over potential disruptions to its key business segments.

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Impact of US Aid Pause on ARV Funding

The sharp decline follows reports that the US government has paused foreign aid funding, which could halt the President's Emergency Plan for AIDS Relief (PEPFAR) as early as Monday. This program provides anti-retroviral medications (ARVs) to over 20 million people in 55 countries and is a significant contributor to Laurus Labs’ revenue.

PEPFAR, initiated under the George W. Bush administration, has saved millions of lives by combating HIV globally. However, a recent executive order by President Donald Trump has triggered a 90-day review of all US foreign aid programs, raising uncertainties about its future.

Key Highlights of Laurus Labs’ Financial Results

Laurus Labs reported promising results for the December quarter, with EBITDA margins reaching 20% for the first time in seven quarters. The company remains optimistic about meeting its full-year guidance.

Segment Contribution:
Antiviral APIs: 22% of revenue
Onco-APIs: 12% of revenue
ARVs (related to PEPFAR): 9% of consolidated sales
ARVs constitute 46% of total revenue.
However, analysts noted that ARV-related sales are less profitable, with the potential financial impact on Laurus’ FY26 EBITDA estimated at 4-5%.

Analysts’ Views on Laurus Labs

Motilal Oswal: Maintains a "buy" rating with a revised price target of Rs.720, citing the company's medium-term growth foundation.

Goldman Sachs: Maintains a "sell" rating with a price target of Rs.475, highlighting a lack of quantitative guidance for FY25.

Analysts Consensus: Out of 16 analysts, 7 recommend a "buy," 3 suggest "hold," and 6 advise "sell."

What’s Next for Laurus Labs?

As uncertainties around the PEPFAR program continue, Laurus Labs faces potential revenue challenges. While the company's management remains confident in its growth trajectory, the situation underscores the need to diversify its revenue streams to reduce dependency on ARV-related sales.

Investors are advised to monitor developments related to US foreign aid policies, which could significantly impact Laurus Labs’ business outlook.

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