Laurus Labs: A hot startup in the pharma sector
After studying law I vectored towards journalism by accident and it’s the only job I’ve done since. It’s a job that has taken me on a private jet to Jaisalmer – where I wrote India’s first feature on fractional ownership of business jets – to the badlands of west UP where India’s sugar economy is inextricably now tied to politics. I’m a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.
When Dr Satyanarayana Chava started Laurus Labs in 2007, he invested nearly Rs 60 crore of his own money into it. His confidence in its success was neither bravado nor bluster, but defined by his knowledge of the pharmaceutical industry. Eight years on, the Hyderabad-based company is on track to reach revenues of Rs 2,000 crore by the end of FY2016.
A Master s degree in chemistry was never on the cards for Chava. In the early 1980s, the best students usually studied physics, and he had planned to do the same. But when he went to his college in Amravati (Andhra Pradesh) to enroll, his elder sister s friend suggested he study chemistry too. Chava took up the subject on a whim. He ended up liking chemistry so much so that in his final year he topped his batch despite not having written one out of the four required papers. He went on to complete his PhD in the subject in 1991.
Why it is a gem
Laurus Labs is targeting a Rs 2,000-crore topline in eight years. Even in the profitable pharmaceutical business, such a rapid pace is not seen very often. This success can be attributed to Chava s decision to develop APIs, through which the company is able to enjoy higher margins compared to an average generic drug manufacturer. APIs generally constitute between 20 and 35 percent of the total cost of a drug, but the ones that Laurus Labs develops, like ARVs, constitute 70 to 75 percent of the cost of the drug.
Apart from the fact that Laurus Labs is a relatively new player in an already crowded market, it does not manufacture over-the-counter products and follows a business-to-business model. But investors always on the lookout for the next new kid on the block were aware of its potential.
For now though, Laurus Labs is still a fledgling company with about 20 customers; the top 10 make up 80 percent of its sales. Chava admits that one client accounts for a quarter of his company s sales. While acknowledging this risk, he says, We haven t lost a single customer and are growing with them.
Chava has big plans for his company, which, is still seen primarily as an API manufacturer. This will change as Laurus Labs is planning to also become a consumer-facing business by getting into areas like manufacturing health care supplements. Active plans for this are already under way. And while he may be a chemist by profession, Chava is also a canny businessman. He knows that such a move has the potential to increase the company s valuations. Only then will Chava consider an initial public offering.