After much fanfare both Dr Lal Path & Thyrocare have fallen significantly. However by plain intuition, diagnostics seems to be a long runway, non discretionary esp considering 1.3 bn population and slowing getting towards 35+ mean age. Also Lal Path, Thyrocare and SRL seems to have good brand recall. Considering low cost of test and good pricing power, the fall of stock price is indeed counter intuitive.
Also, looking at financials of both, there is no reason to doubt on fundamentals. Market is discounting technology disruption & govt regulations beyond reasonable levels, IMHO. Healthcare is a fundamental need and it will only increase with ageing population.
Itās only bull market effect when we start calling PE >30 cheap due to long term 10-15% CAGR growth, that too susceptible to disruption and no entry barrier at all.
Agreedā¦ Just no entry barrier businessā¦ I already see Apollo clinics coming up in several places in Chennaiā¦ A reputed hospital backed network is any day a reliable lab.
Theory and practice are two different things. Health is an issue which would involve so called experts. In India I donāt see many people doing self test similar would be case in developed countries
If you look at average price per test - the increase over the last 5 years is barely able to cover inflation. Their margins are coming from bundling and increasing number of tests per patient. However, I do not fully agree with the fact that they have pricing power. Cost per test data of past 5 years says something else. Look at ROE over the last 5 years. It has been decreasing. Competition from small mom and pop labs is quite intense as it competition from PE backed regional labs
Overhang from regulatory policy is just too high. There is some work going on as per news and media. This can cause a sudden disruption to the business the impact of which cannot be calculated today. I feel uncomfortable paying 43PE due to this.
The title of this conversation says "Well recognized Brand", on regard to that I want to understand how the brand really helps in this industry. Does the brand create customer (Doctors/ Patient/ Hospital) stickiness or it is just way these diagnosis players differentiate themselves where they cant find anything else that can provide them differentiation.
Just trying to understand a bit more about this company and the sector. One thing that caught my eye was an announcement on 1 March regarding the sudden resignation of one of the independent directors - Arun Duggal. The company didnāt mention anything except that they received a letter of resignation with immediate effect. Nothing was mentioned in the call as well (and nobody asked the question).
I would have thought a director would simply wait out his/ her term and simply not come up for re-election.
Disclosure: Recently entered in Dr Lal and Metropolis both. I intend to hold it for a 5-7 years unless my thesis changes
Dr Lal doesnāt need cash to run the business as cash conversion cycle is negative
My thesis is that both of them are going to kill the local competition in the long run. I use them in analogy to the Freecharge and Paytm of the early 2010s world where they were competing against the local recharge shops. I believe all the MD Pathos of the world will have to work in these well funded and established players few years down the line. Here are some of the articles I have been reading which might be useful to take a call. Metropolis cash conversion cycle is increasing over the years.
Agree that CCC is an important parameter. But it is one of the several parameters. On the flip side look at the board of directors of metropolis. Impeccable board with illustrious independent directors. And compare it with Dr Lalpath.
With such a BoD, Metropolis shall have a high quality of governance.
Here is some of my thesis notes for investing in these twins:
Dr lal roce is decreasing over the years while Metropolis is increasing
Fixed asset turnover is increasing for Dr lal: 4
Metropolis fixed asset turnover: 3
Dr. Lal probably has succession issues
Routine Test(small labs also do)
Specialized tests(Genetic diseases tests: Good for Doctor, Margins are good)
Bundle tests(Society is getting aware, Volume is high/Margin is high): Clinical labs,Home collection, Delhi & Kolkata clinical labs, 40% walk in methods)
Average tests conducted by a patient is higher for Dr.lal path lab when compared to metropolis healthcare where average test conducted by a patient is 2.08 in 2018.
Majorly Mr Manchanda got these benefits. He got the stock at 110 bucks when issue price was much higher and has been continued seller of the same pocketing handsome gains for himself. Good way to utilise excess cash.
