Laurus Labs IPO - Should you subscribe?

Laurus Labs is a leader in generic active pharmaceutical ingredients (APIs). These APIs are used in the treatment of HIV, Hepatitis C and Cancer and contribute about 91% of its revenues. Laurus also carries out contract manufacturing for global pharma players and has small but fast growing cosmeceutical (cosmetics that have medicinal properties) ingredient division. Laurus Labs supplies products to 32 countries and has 9 out of 10 largest pharma companies in the world as its customers. It currently has 3 manufacturing facilities and is in the process of up setting two more. The Good Unlike traditional pharma companies, Laurus Labs does not sell its products directly to end consumers but instead to other pharma companies significantly reducing marketing and distribution costs. The potential for growth is huge. In HIV, only 46% of the infected are given active treatment. This figure should increase with rising incomes, progressive government intervention and NGO support. In case of Hepatitis C, patent holder Gilead has shared its technology with 11 Indian companies including Laurus for supplying its products to 91 countries. In cancer treatment, a majority of drugs are either off patent or are very soon going to lose their patent status, thus opening the market for Laurus. The Bad Laurus is highly dependent on APIs, especially those involved in the treatment of HIV. Pharma products are frequently made targets of price controls and this is a significant risk. This has already occurred with one of the company's products called Sofosbuvir used to treat Hepatitis C with effect from April 2016. It is also highly dependent on a small number of pharma companies as customers. Last but not least, Laurus also takes a long time to convert raw materials to cash from sales. The Verdict In all, the company passes 17 out of our 27 applicable tests. We invite you to go through them before you answer the principal one in your