Laurus Labs: What hinders its growth?

While consistent revenue and earnings growth are crucial, every investor seeks share price growth as their primary objective. And the recent performance of Laurus Labs may have left its shareholders disappointed. Despite reporting impressive growth in revenue and earnings from FY20 to FY23, the company struggled to maintain the same momentum in this financial year. In fact, during the second quarter of FY24, its revenue and net profit declined by 22 and 83 per cent, respectively, on a year-on-year (YoY) basis. Consequently, the stock price plummeted from its peak of Rs 707 in August 2021 to Rs 397 on December 19, 2023, marking an annual decline of 27.5 per cent. Before delving into the current slump, let's reflect on the factors that fueled the company's initial growth. Growth from revenue diversification Laurus Labs primarily generates its revenue from the API (active pharmaceutical ingredients) segment, until FY18. Within this segment, antiretrovirals (ARVs) stood out as the major revenue driver, constituting a significant 74 per cent of the total revenue. In contrast, the CDMO (contract development and manufacturing organisation) segment contributed a relatively modest 11 per cent to the overall revenue. To enhance revenue diversification, the management strategically shifted focus to generic formulations and synthesis. This move paid off, as evidenced by the FY23 numbers, with the revenue share of ARV dropping to 37 per cent an