According to Kotak Institutional Equities, the true extent of Laurus Laboratories’ margin pressure remains to be seen. Hence, the brokerage downgraded the stock to sell with a target price of Rs 350. The price target implies a potential downside of 22% from Monday’s close.

The equity research firm believes Laurus Labs‘ troubles with antiretroviral (ARV) pricing and Paxlovid’s impending sales halt are undervalued.

Paxlovid is an antiviral medicine that stops the virus that causes coronavirus (Covid-19) from growing and spreading in the body. Notably, ex-Paxlovid’s Laurus Labs reported an EBITDA margin of 19% in the first half of the fiscal year.
As Paxlovid sales decline, the true extent of the hit to margins will become apparent, Kotak said.

On the other hand, Laurus Labs’ ARV implementation may continue to come under pressure, even with higher volumes, as the drugmaker bids “winner takes all” and lowers its long-term bid, according to a report from Kotak.
Shares of Laurus Labs plummeted last month after the company said it could only meet 90% of its revenue target for the current fiscal year. It had guided for $1 billion in revenue by fiscal 2023.

For the September quarter, the company’s revenue rose 31% from a year earlier to Rs 1,576 crore, beating estimates of Rs 1,539 crore. Revenue growth was driven by the synthetic business, which contributed nearly half of the total revenue. Shares of Laurus Labs fell 6.1% to Rs 422.70. It touched a 52-week low of Rs 419.10 intraday.