Dr Lal PathLabs a well recognised brand in the Diagnostic Sector

[Nitin_Naudiyal]

The non covid revenue growth is around 10% and PAT margins have improved to 15%.

However does the current valuation justify 10% growth?

Or is it due to increase in competition has resulted into decrease in growth and high single digit growth will be the norm.

Kindly share your opinions.

Thank you

[Debojit_Kangsa_Banik]

How I perceive this valuation:

• The company is net debt free and pays dividend regularly. This provides mental stability for investors.

• The industry is still dominated by unorganized players, so the shift to organized is a given and the growth can be seen for a long time duration ( > 10 years).

• The more the market dominance, the better would be their margins going forward. As per recent concall, the competition is slowly cooling down and reverting back to mean. One can scuttlebutt on this more.

• They are trying to expand their suburban business and make more efficient. Once it stabilizes, it will give a boost.

No reco, invested.

[raviinvestor]

Good quarterly result by Dr Lal Pathlabs.

Source - https://www.bseindia.com/xml-data/corpfiling/AttachLive/b2c675f3-8b1c-4538-b0d7-ba066ab36542.pdf

Note - Invested

[gsapte]

Looks good results.
Other Income has jumped from 9 to 18 Cr, OPM has improved to about 30% from 27% Y-o-Y, Tax % has reduced from 30% to 27%.
Also, on Yearly basis Net Profits are up by 22% at TTM level.
Inflation related pressure on margins is now under control, and may continue to reduce further in FY24.

[Adwait_Deshpande]

I have done an analysis of Dr. Lal. Any feedback would be appreciated. Learnt a lot from this thread through the years.

Adwait's Investment Approach and Journey

Here is the 2nd stock in my portfolio that I own - Dr Lal Pathlabs Ltd I have always been keen on investing in the diagnostics sector in India. This is because of the large unorganized segment present in the market, and the high CAGR of the industry itself. These twin tailwinds of size of the pie growing, along with the opportunity to grab of a larger slice of the pie for oneself, has the potential for outsized rewards in the long-term. (Demonstrated by PE/VC investments in the space, looking…

[karu_lamborghi_]

Q2 FY25 Concall Summary

Business Updates

• Dr. Om Manchanda will step down from position of MD to now an advisory position in the company
• Bundled test packages is leading to higher number of tests per patient leading to better realizations and better margins for the industry
• The processes in the bundled operations are much more simplified and growing contribution from such bundled offerings should help the performance improve further
• Sample volume growth was 8.6% and patient volume growth is 3.5% on a yoy basis for Q2FY25
• Net cash on balance sheet as on September 2024 is Rs 1095 crores

Participants

JM Financial

BNP Paribas

Indus Capital Advisors

Spark PMS

Emkay Global

Allegro Capital Advisors

Nomura

Ambit Capital

Elara Capital

Centrum Broking

ICICI Prudential Mutual

Goldman Sachs

Nippon AIF

QnA

• In terms of Suburban diagnostics operating leverage is playing out which is leading to better margins and intent is to drive growth rate further in Suburban business as overall margins for the company are pretty good
• The growth is uniformly spread across the country and West region has performed better due to higher incidence of fever in this region
• The challenges across all geographies remain the same which is conversion from unorganized to organized
• In smaller towns the doctor patient relationships are very strong so for new brands to enter Tier ¾ towns and then gain market share it becomes challenging and it takes time to build better relationships in these markets
• The company will add 15-20 labs in the current financial year and advertise in key towns where it makes a difference with better delivery from the marketing teams and all investments on ground are being made with even A&P spends inching up every quarter
• The company has not taken any price increase whereas many competitors have taken price increases for this year and despite this margins have improved
• The general perception is market is that competitive intensity has reduced but that is not the case as many new age players are competing strongly but they have stopped giving deep discounts in lieu of profitability. Only irrational pricing has reduced
• The growth rates in Suburban diagnostics should be maintained going forward considering the steps the management has taken and it should maintain double digit growth rate and possibly even improve from that
• Expansion into Tier ¾, opening up of new labs, opening up of new sales offices and building brand in South and West market are some initiatives the management are taking which should drive growth
• The covid period created a cushion for many single location labs as they made a lot of money and at the other end many single location labs look to close and exit their business
• The capex guidance for FY25 remains intact and on an annual basis expectations are that EBITDA margins should sustain at FY24 levels or be slightly better
• There is no aversion towards price hikes but Tier ¾ markets require affordable prices and as long as the same pricing can be maintained and the margins is not diluted then it’s an appropriate situation
• The number of collection centers per lab are being increased and last year the reported number was 29 collection centers per lab and this ratio should be maintained
• The company has done 28 M&A transactions in its history and the learning are to look at how the restated numbers will look like as these are challenges which management seems to under estimate
• Most of the bundled packages consist of routine tests and these bundles are going at 2x the rate of growth of other business which should stabilize going forward

[ranvir]

Dr Lal Pathlabs -

Q2 FY 25 results and concall highlights -

Revenues - 660 vs 601 cr, up 10 pc
EBITDA - 202 vs 178 cr, up 14 pc ( margins @ 30.7 vs 29.6 pc )
PAT - 131 vs 111 cr, up 18 pc

No of samples tested @ 2.3 vs 2.1 cr
No of patients tested @ 78 vs 75 lakh

Revenue per patient stood @ 844, up 6 pc YoY

Company’s subsidiary - Suburban Diagnostics ( acquired in FY 22 ) - saw its revenue grow by 11.5 pc while clocking an EBITDA margin of 20 pc ( a big improvement as their margins in Q1 were @ 14 pc )

On track to open another 10-15 labs, 800 collection centers in current FY. No of Labs as on 31 Mar stood @ 280, No of collection centers stood @ 11,600

Company’s portfolio of SwasthFit ( preventive check ups ) now contributes to 24 pc of company’s revenues

Major thrust area for company’s organic expansion continues to be Tier - 3 and beyond towns. Plus they are evaluating ways ( including inorganic ) to improve their presence in South India

Company is strong in North and East India. Is growing rapidly ( ie @ > company growth rates ) in West. Western India now contributes 15 pc of company’s revenues. This is a result of both - organic efforts + the growth in SubUrban brand ( acquired a few years ago )

Realization @ Rs 844 / patient doesn’t have any element of price hikes. Its happened because of better product mix

Cash on books @ 1095 cr

Company is enjoying negative working capital cycle. The board has declared an interim Dividend of Rs 6 / share

Factors leading to better margins @ Suburban include - use of technology, back end efficiencies, productivity enhancements, better operating leverage

Company’s thrust into Tier-3 and beyond geographies is currently restricted to their core geographies of North and East. Margins in these geographies are not dilutive vs the overall business margins

A lot of new age startups in the Diagnostics space have stopped deep discounting in the market. Hence there is reasonable pricing discipline in the market

Capex for full FY 25 should be in the range of 50-60 cr ( this should suffice for the targeted opening of 15-20 new labs )

Company is always on the lookout for organic expansions. Because that’s the only way they can use the cash on books to trigger future growth. Their organic growth requirements continue to remain modest - that’s the nature of their business, its capital light

Continue to maintain a revenue growth guidance of 10-11 pc for full FY 25. In H1, they have achieved a revenue growth of 10.5 pc. The company doesn’t want to take a price hike to drive revenue growth. They want to do more and more business in tier 3 and beyond cities which are a little more price sensitive. Expanding business should take care of both revenues and margins

At present, company has aprox 29-30 collection centers per lab. They ll aim to maintain it that way

Aim to clock slightly better margins than FY 24 for full FY 25

Q2 is always their best Qtr. Same is true for their subsidiary - SubUrban. For full FY 25, they intend to do a margins of around 17-18 pc for SubUrban

Over and above opening of new labs, other operating expenses that the company needs to continuously ramp up include investments in Technology, IT systems, A&P etc

Delhi NCR continues to contribute to 31 pc of company revenues

Company believes, there is still headroom for SwasthFit revenues to grow as a total percentage of company’s revenues

Disc: initiated a tracking position, stock price looks set for a bounce, biased, not SEBI registered

[ranvir]

Dr Lal Pathlabs -

Q3 FY 26 results and concall highlights -

Revenues - 660 vs 597 cr, up 10 pc

EBITDA - 179 vs 154 cr, up 16 pc ( margins @ 27 vs 26 pc )

PAT - 91 vs 98 cr ( impacted by an exceptional one time charge of 30 cr - impact of new labour laws )

For 9Ms FY 26, revenues and EBITDA have grown by 10 and 13 pc respectively @ 2060 vs 1859 cr and 596 vs 527 cr

Swasthfit’s contribution to total revenue @ 26 pc

Cash on books @ 1411 cr ( surplus cash position and internal accruals are expected to fund next leg of growth for the company )

Added 15 new tests to company’s product portfolio in Q3. Out of these, a few are first in India further strengthening their high end / complex testing capabilities

Current network @ 298 clinical labs, 6607 patient service centres and 12365 pick up points

Investing heavily in genomics / sequencing / complex allergy testing technologies. These techs may become big sometime in future ( by and large, its a futuristic investment )

Company’s radiology revenues are less than 5 pc of total revenues. Company is only into basic radiology at the moment ( like ultrasound, TMT, X Ray etc ). Currently not doing advanced radiology like - CT, MRI etc. Likely to keep focussing on pathology at the moment. However, advanced radiology can be a future growth driver

Company is currently running a test project in Delhi NCR for advanced radiological testing - MRIs / CT scans etc. It’s getting good response. Now they intend to scale it up. Likely to set up 1-2 more centers like that. Once successful, shall then roll out radiological testing in other mkts as well. However, expansion in Delhi NCR shall be their first priority

Notes from Q3 concall -

Launched ’ SOVAAKA ’ range of tests in Q3 - aimed at disease prevention vs detection

Patient volume growth in Q3 stood @ 2.7 pc

Rev per patient @ Rs 927 vs Rs 861, up 7.7 pc YoY ( led by better test mix )

Tests per patient @ 3.1 vs 2.9, up 7 pc YoY

Have declared an interim dividend of Rs 3.5 / share ( on a post split basis )

For last 2 yrs, company was focussing on organic only growth. With cash on books now, should go for inorganic growth as well

Expanding and promoting the SWASTHFIT tests in tier 2 and below mkts - its growing much faster than company’s topline growth rate of 10 odd pc

Seasonal fever portfolio saw a YoY decline in Q3 - dragging company’s overall growth rates

Annual EBITDA margin trajectory should be in the 28 +/- 1 pc kind of range

Have opened a second advanced radiology center in Delhi / NCR in Q3 ( after the first pilot lab was opened LY )

B2C share of sales in 9Ms FY 26 stood @ 75 pc

Radiology component of company’s business continues to remain under 5 pc. Radiology’s revenues may only become meaningful after 2-3 yrs

Company’s push and expansion ( opening new labs + collection centers ) into tier 3 and below + rural areas shall continue to drive their organic growth

Looking at inorganic acquisitions - specially in the South Indian mkts ( NE is another preferred geography )

Not looking to hike prices for next 2-3 Qtrs

Have passed on the benefits of GST cuts on reagents and other inputs to the customers by lowering the costs of tests proportionately ( in second half of Q3 ) - were still able to grow their revenues per patient

SOVAAKA also includes personalised tests + imaging / radiology tests ( unlike Swasthfit )

Disc: hold a trading position, biased, not SEBI registered, not a buy/sell recommendation, posted only for educational purposes