Economic overview
Global economy
In the fiscal year 2023, the global economy encountered several headwinds, including
geopolitical conflicts and mounting inflationary pressures, which had far-reaching effects
on supply chains and impacted global trade and employment. The Russia-Ukraine war
triggered further economic upheaval, leading to food insecurity concerns in several
developing nations. Moreover, high inflation eroded real incomes, resulting in a global
cost-of-living crisis and pushing millions into poverty and economic hardship. However,
there are early indicators offering hope about a possible rebound for the global economy,
especially in emerging markets and developing economies (EMDEs). The EMDEs have
demonstrated remarkable resilience amid global economic turmoil. Their demographic
dividend, combined with sustained growth and attractive investment opportunities, makes
them an attractive destination for businesses seeking expansion. Furthermore, substantial
investments in infrastructure in emerging markets have spurred growth opportunities for
various industries.1 In the years ahead, advanced economies are anticipated to
experience a resurgence owing to the fiscal and monetary policies implemented by central
banks. A stronger boost from pent-up demand in numerous economies or a faster fall in
inflation is likely in the course of 2023.
Indian economy
The Indian economy has emerged as one of the fastest-growing major economies, according
to estimates by the National Statistical Office (NSO) in FY23. Based on NSOs latest
advanced estimates, India has registered a growth of 7.2% during the year under review2.
This growth can be attributed to robust construction activity aided by increased
infrastructure investment both by the Central Government and state governments, which
paved the way for large-scale employment opportunities. The domestic economys growth is
also driven by rising private consumption, despite a projected headline inflation rate of
6.8% for FY233. Private consumption accounted for 58.4% of the GDP in Q2 of
FY23., reflecting reviving consumer sentiment.
Looking ahead, the Indian economy is anticipated to witness considerable expansion,
supported by increased capital investment, a rebound in export trade post-pandemic and a
reduction in global uncertainties. The strong rebound of the MSME sector, facilitated by
government schemes bodes well for economic growth. The Indian economy is expected to
benefit from increasing foreign investment and exports. However, challenges such as
inflation and rising oil prices may also impact the economys performance in the long run.4
Industry overview
Indian healthcare sector
Indias healthcare sector has been growing at a compound annual growth rate (CAGR) of
22%5 driven by several factors including population demographics, a growing middle class,
higher earnings, greater health awareness and an increase in lifestyle disorders. The
increasing prevalence of non-communicable diseases (NCDs), making up 50% of the disease
burden and 60% of total deaths in India6, is creating a demand for advanced healthcare
services. The Indian healthcare market is expected to reach USD 367 billion by 20237 . Due
to digitisation, innovation and novel hybrid business models that incorporate conventional
and technology companies, the sector has experienced substantial growth over the last five
years. The pandemic also sparked a long-lasting change in behaviour towards personal
hygiene, health insurance, fitness and nutrition, as well as health surveillance and
physical examinations. Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY), which
was allocated Rs 7,200 cr in FY24 (12% more than Rs 6,412 cr in 2022-23), highlights the
governments focus on extending the AB-PMJAY health coverage to more than 400 million
additional people who are not currently covered under any government or private health
insurance scheme.8 Rising insurance coverage, the growth of telemedicine and government
initiatives like e-health, tax benefits and incentives have also contributed to the
development of Indias healthcare market. Investments of over USD 200 billion are expected
in medical infrastructure by FY 2024, resulting in improved healthcare facilities
nationwide.
Government initiatives
In the recently released Union Budget 2023-24, the Government has encouraged the
deployment of Artificial Intelligence (AI) in research and innovation in India. This
targeted focus on the AI sector, which has strong connections to diagnostics has the
potential to bring about substantial changes in the industry. The governments initiative
to establish three AI centres of excellence in leading Indian institutions will contribute
to the development of sustainable healthcare solutions. Considering the critical role of
AI research in diagnostics, these centres will aid in the creation of indigenous products
for the industry9.
Ensuring public health is a key focus area of the Indian government. The Government has
allocated an amount of Rs 88,956 crore in the Union Budget for the year 2023-24 for
healthcare expenditure which marks a 2.71% increase compared to the previous year14.
The Indian government has undertaken numerous initiatives to ensure universal
healthcare coverage and insurance for its citizens through Ayushman Bharat - Pradhan
Mantri Jan Aarogya Yojana (AB-PMJAY). The AB-PMJAY scheme aims to provide benefits to an
estimated 500 million beneficiaries, granting each family up to Rs 5 lakh each year to
cover hospitalisation expenses. The programme is recognised as the one of the largest
government-funded healthcare initiative and has been allocated Rs 7,200 crore in the India
Budget 2023-2410.
Indian diagnostic sector
Indias diagnostic sector has witnessed unprecedented growth in recent years. The
pandemic has compelled companies to cater to the increasing demand for testing, faster
results and precise diagnosis. The rapid adoption of technology, growing middle-class
population, greater awareness of preventive healthcare and increased expenditure on
healthcare are all acting as tailwinds for this sector. Within the diagnostics market,
pathology and radiology are the two main segments. The industry is highly fragmented, with
unorganised standalone centres catering to approximately half of the market share, while
hospital-based diagnostics centres hold a 37% share11. Pathology testing, the
preferred choice for diagnosing a wide range of diseases, accounts for nearly 60%12
of the market, while radiology testing, which includes procedures like X-rays and
ultrasounds, represents a little over 40% 13.
The size of Indian diagnostics estimated at $ 10 billion in FY 20 is expected to reach
$ 20 billion by FY26. Standalone centres and hospitals based labs account for 85% of this
market. National and Regional diagnostics centre accounts for 15% of the market share.
Outlook
The outlook for the healthcare and diagnostic market in India appears promising with
strong revenue growth projected for the upcoming years. It offers attractive margins and
has room for expansion. Specialised tests and pathology are driving growth. The industry
is fragmented however, it presents opportunities for new business models. Medical device
manufacturers have also uncovered growth prospects in India. With considerable capital
expenditure for cutting-edge diagnostic facilities, the nation has also emerged as one of
the foremost locations for high-end diagnostic services, serving a larger section of the
populace. Future demand for healthcare services is anticipated to increase due to factors
such as improved income levels, an ageing population, rising health awareness and shifting
attitudes towards preventive healthcare.
Risks and concerns
Regulatory headwinds
The diagnostics industry in India is subject to existing regulations and guidelines set
forth by the Central Government and State governments. These regulations ensure that the
industry adheres to specific standards and practices, thereby safeguarding the best
interest of patients. In times of seasonal outbreaks or pandemics, the Government may
intervene to protect public health. The Company leaves no stone unturned to ensure
compliance with all applicable regulations. As the Company is part of a largely
unorganised industry, it is aware of the unique challenges that may emerge due to sudden
changes in regulations. However, its well-established infrastructure and robust
operational capabilities position it favourably to navigate such changes and restore
normalcy faster.
Evolving competition
The diagnostics industry in India is predominantly unorganised, presenting a
significant opportunity for businesses to enter the market. The industry has witnessed the
emergence of online portals and web aggregators, who have integrated themselves into
certain aspects of the diagnostic business value chain. To gain traction faster, these new
players are not hesitant to leverage pricing as a marketing strategy.
In response to the intense competition, the Company has adopted a comprehensive
approach that focuses on brand building and network expansion. By prioritising the
delivery of high-quality services, it has managed to differentiate itself from industry
peers. Additionally, the Company has made consistent investments in digital technologies,
which has enabled it to create a distinct identity in the market.
Investment in building capacities and newer tests
The Company has been expanding its laboratory network to meet the growing demands of
existing and emerging sampling requirements. This includes establishing patient touch
points through franchisee partnerships, integrating home collection services, and
continuously evaluating and introducing new tests to its portfolio. These initiatives
ensure that the Company remains agile, adaptable, and well-positioned to meet the demands
of its customers while maintaining a competitive edge in the diagnostic sector.
Technology paradigm
In certain situations, diagnostic testing is becoming more accessible to a wider
population. Point-of-care testing is gaining popularity due to its affordability and
convenience. While the Companys established testing infrastructure provides comprehensive
and reliable diagnostic outputs, it recognises the potential of integrating such
technologies into its service delivery framework. The Company is actively exploring ways
to incorporate these advancements to enhance its offerings and improve the patient
experience. At the test menu level, a dedicated team of specialists plays a crucial role
in evaluating and advising on new developments. This diligent approach ensures that the
Company stays at the forefront of technological advancements in the field of diagnostics,
providing accurate diagnoses and trend analysis for patients. The integration of advanced
diagnostic tools and techniques allows for improved patient care and reinforces the
Companys position as a trusted provider of accurate and reliable diagnostics.
Further, we are actively managing the risks, emanating from Technology also. To that
end, weve deployed cutting edge cyber security technologies using defence-in-depth model.
Further, we periodically perform the cyber security assessments across our IT ecosystem to
evaluate the control effectiveness. In addition to that, we follow industry reputed
Information Security Mgmt System such as ISO 27001.
Other risk factors
The Company has been diligent in monitoring and addressing risk factors associated with
its operations since its IPO in December 2015. It has implemented robust mechanisms to
ensure ongoing mitigation and is vigilant in identifying any potential challenges. Through
regular assessment and analysis, the Company strives to safeguard its operations and
maintain a resilient and sustainable business model. This commitment to risk mitigation
underscores the Companys dedication to maintaining a secure and stable foundation for its
stakeholders and ensuring long-term success.
Targeted business expansion and future strategy
The Company reached a significant milestone in January 2023 with the inauguration of
its Reference Lab at Vidyavihar, in Mumba
i. This advanced facility has not only expanded high-end testing capabilities but also
holds the distinction of being the first private lab in West India to feature a BSL
Level-III biocontainment lab. By establishing this advanced facility, the Company
reaffirmed its commitment to delivering cutting-edge diagnostic services. Dr. Lal PathLabs
has expanded its National Reference Lab in Rohini, Delhi, by adding a second electron
microscope, an upgraded lab information system and advanced tools such as artificial
intelligence and data mining. These technological advancements have substantially enhanced
the accuracy and efficiency of diagnostic outcomes. Staying true to its culture of
innovation, the Company consistently expands its test menu to offer a comprehensive range
of diagnostic solutions. Moreover, efforts are underway to widen the franchise network and
extend the reach of patient service centres, ensuring more individuals have access to
high-quality healthcare services. With 277 labs across the country, including 70 labs in
Tier-III towns, the Company has established a strong geographic footprint. The Company is
investing in scalable and profitable digital programmes to improve healthcare
accessibility in Tier-III and Tier-IV cities by setting up 10 to 15 labs in these cities.
Recognising the increasing importance of digital solutions, the Company is integrating
medical excellence with digital and analytical capabilities to enhance the patient journey
and elevate the overall customer experience. This commitment to digital transformation is
reflected in the launch of Chips, a recommendation engine and patient wallet. These
initiatives will provide personalised and scalable digital customer relationship
management programmes. To optimise revenue growth and gain market share in the Western
region particularly in Maharashtra. The Company will execute a dual-brand strategy, with
Dr. Lal PathLabs focusing on the B2B side of the business and Suburban Diagnostics, its
subsidiary, expanding its footprint in the B2C segment. By prudently investing in
consumer-facing elements such as technology integration and home collections, the Company
aims to expand its reach in West India and maximise capacity and infrastructure
utilisation for both entities. As part of its growth strategy, the Companys expansion not
only includes a diversified portfolio of services, but also involves the enhancement of
technology infrastructure.
The Company has implemented several initiatives to boost productivity in key areas such
as reagents and chemicals, rentals, repair and maintenance, logistics, and home
collections. These measures include exploring alternative testing platforms, implementing
a differentiated equipment strategy, and enhancing the productivity of field executives.
To optimize rental expenses, the Company has successfully renegotiated lease agreements,
relocated certain spaces, and surrendered partial spaces, all aimed at improving overall
productivity. Additionally, efforts have been made to optimize electricity consumption and
annual maintenance contracts for equipment, effectively managing costs in these areas.
The Company is actively focused on improving its technological capabilities. It has
initiated the upgradation of a lab information system along with advanced tools such as
artificial intelligence and data mining. These technological enhancements have
significantly contributed to enhancing operational efficiencies. The Company has
successfully reduced its debtor outstanding and inventory to a remarkable 28 days.
Moreover, the implementation of these advanced technologies has led to quicker turnaround
times, further streamlining and improving the Companys overall performance.
Return to growth
During the fiscal year under review, the Company operated a vast network of clinical
laboratories, including the prestigious National Reference Lab in Delhi and Regional
Reference Labs in Kolkata, Bangalore and Mumba
i. Additionally, the Company established a nationwide presence through Patient Service
Centres (PSCs) and Pickup Points (PUPs). The Companys comprehensive range of diagnostic
services, including pathology, radiology and cardiology tests, enabled it to sustain its
market leadership in the business-to-consumer (B2C) segment, even with reduced revenue
from COVID-related testing. Dr. Lal PathLabs also achieved remarkable growth in their
non-COVID operations, with increased revenue, sample collection and patient numbers. This
positive trend reflects their success in providing quality diagnostic services to a
diverse customer base. One of the key growth drivers for the Company was its strategic
expansion efforts, particularly in the Western region. Dr. Lal PathLabs continues to make
progress in the southern region. The company experienced a growth rate in the South that
was on par with its overall growth rate, indicating steady expansion. Dr. Lal PathLabs
remains focused on further expanding its presence and market penetration in the South and
other geographical areas where it currently operates.
Opportunities and threats
For the Indian healthcare industry, the pandemic was a shocking revelation. There was
an immense lack of adequate testing, accessibility and report delivery in the wake of an
unprecedented medical crisis. The diagnostics industry endured an emergency, but it was
able to emerge from it due to breakthroughs in technology and innovation.
Today, people are increasingly interested in preventive healthcare and a majority of
medical practitioners around the world rely on tests before prescribing treatment.
Furthermore, the proliferation of healthcare services and insurance has elevated the
diagnostic industry to a critical sector.
The Indian diagnostics market is its highly fragmented, with large chains, hospital
laboratories, and standalone centres. This poses a major threat to the sector. The lack of
entry barriers and absence of strict regulations in the business have also resulted in
higher number of unaccredited labs and unorganised players, which form a key component of
this fragmented market.
This affects the quality and credibility of the industry, which is dominated by a few
large chains besides various small and regional players. Therefore, the industry runs on a
high-volume, low-cost testing model adopted by most companies. The lack of regulations
also leads to a gap in pricing, especially between urban and rural cities, and therefore
demands an urgent look into stricter laws. The COVID has also raised the challenge for
several small players who struggle to offer fast and accurate tests simultaneously.
However, players who adapt intelligent solutions will aid in bridging the gap between
hospitals and patients, improving access to care, especially in smaller Indian cities.
These improvements coupled with stringent regulations, and a people-friendly approach and
policies, will help the sector achieve immense growth in the years ahead.
Geographywise Breakup
Particulars |
FY 2021 |
FY 2022 |
FY 2023 |
| DNCR |
578 |
714 |
636 |
| Rest of North India |
465 |
597 |
610 |
| East India |
264 |
306 |
287 |
| West |
153 |
287 |
309 |
| South |
88 |
139 |
127 |
| CTL & Intl. |
34 |
44 |
47 |
Total |
1,581 |
2,087 |
2,017 |
Year |
RPP |
TPP |
| FY 21 |
781 |
2.46 |
| FY 22 |
765 |
2.42 |
| FY 23 |
750 |
2.69 |
Revenue
The Companys consolidated revenues totalled 2,017 crore for the financial year ending
March 31, 2023. Non-Covid revenue stood at 1954 crore, representing a growth of 15.5%.
Costs
Cost Management is a key focus area for Dr. Lal Pathlabs. The Companys Operating
expenditure for the financial year ending March 31, 2023 is in line with last year. The
major cost line items for the company are cost of reagents and chemicals, personnel costs,
fees to collection centres, cost associated with logistics, information technology and
infrastructure among others.
EBITDA
Normalised EBITDA margins (excluding notional depreciation, RSU, CSR and exceptional
expenses) totalled 528 crore during FY23, recording a margin of 26.2% .
PBT and PAT
PBT for FY23 was 344 crore and Normalised PBT (excluding notional depreciation and
exceptional expenses) stood at 400 crore at a margin of 19.8%.
PAT margin reported at 12.0% year-on-year at 241 crore. Normalised PAT (excluding
notional depreciation and exceptional expenses) stood at 297 crore at a margin of 14.7%.
Cash and Bank
Cash and Cash Equivalents as of March 31, 2023, is 838 crore, cash balance after
netting of borrowings is 601 crore.
Key financial ratios
According to the SEBI (Listing Obligation and Disclosure Requirements) Regulation of
2015, the Company is obligated to provide information about significant changes in key
financial ratios. These changes are considered significant if they show a difference of
25% or more compared to the previous financial year. The Company has identified the
following ratios as key financial indicators:
Particulars |
FY 2023 |
FY 2022 |
(%) Variance |
Reason for variance |
| Debtors Turnover- |
25.8 |
27.4 |
-5.9% |
- |
| Inventory Turnover |
10.4 |
10.6 |
-1.9% |
- |
Interest Coverage Ratio |
11.5 |
17.4 |
-33.9% |
Interest Cost in FY22 is for part of the year while it is for full year
in FY23. |
| Current Ratio |
2.1 |
1.8 |
18.3% |
- |
Debt Equity Ratio |
0.2 |
0.3 |
-28.8% |
Improved due to reduction in borrowings |
| Operating Profit Margin (%) |
19.3% |
22.6% |
-14.7% |
|
Net Profit Margin (%) |
12% |
17% |
-28.8% |
Decline due to significantly high base of Covid in FY22 and increase in
notional depreciation on consolidation of Suburban |
| Normalised Net Profit Margin |
15% |
18% |
-16.7% |
|
Revenue growth declines due to lower contribution from Covid (3%) as compared to last
year (19%) whereas non-COVID revenue registered a growth of 16%. While the revenue per
patient has reduced compared to last year, as a result of lower contribution from Covid
test portfolio. The inventory turnover ratio has improved due to efficient inventory
management during the year ending March 2023.
Operational highlights
During the course of FY 2023, Dr. Lal PathLabs successfully operated a network of 277
clinical labs, which includes the prestigious National Reference Lab in Delhi and the
Regional Reference Lab in Kolkata, Bangalore and Mumba
i. Additionally, with 5,102 Patient Service Centres (PSCs) and 10,938 Pick-up Points
(PUPs), the Company has established a nationwide presence. This extensive infrastructure
enabled the Company to offer a comprehensive range of diagnostic services, consisting of
481 test panels, 2,763 pathology tests, along with 1,947 radiology and cardiology tests.
The Companys revenue mix remained skewed towards business-to-consumer (B2C) channels,
which accounted for 72% of the total revenue. Dr. Lal PathLabs served 26.9 million
patients in the year under review, with a total of 72.3 million samples collected and
processed. Despite a considerable reduction in revenue from COVID-related testing, which
predominantly belonged to the B2C segment, Dr. Lal PathLabs has maintained its market
leadership in the B2C space. Moreover, the Company achieved remarkable growth in the
Western region, primarily driven by strategic initiatives aimed at expanding its presence.
This region contributed 16% of the Companys overall revenue, demonstrating the
effectiveness of targeted expansion efforts. The Companys consistent expansion of
clinical labs, the wide network of PSCs and PUPs and the diverse range of tests offered
have positioned it as a trusted provider of high-quality and precise diagnostic services
across India. 14
Human resource management
Dr. Lal PathLabs has a workforce of 4048 employees (onroll) as of March 31, 2023. The
Company considers its people to be the true contributors to its success. It, therefore,
aims to implement policies that foster employee well-being and professional growth. The
Company continuously strives to nurture a positive work culture and believes in
maintaining a diverse yet cordial workforce. The Companys hiring and retention policies
are also aimed at creating a team of experts that can further aid the Company to sustain
its market leadership.
Internal control systems and their adequacy
The Company has implemented a robust internal controls system that encompasses policies
and procedures across all financial and operating functions. These policies and procedures
are well-documented. This system ensures the maintenance of accurate accounting records
and provides reasonable assurance in terms of the reliability of financial reporting,
effective monitoring of operations, safeguarding of assets against unauthorised use or
losses, and compliance with applicable regulations.
Cautionary statement
The statement provided in this Management Discussion and Analysis acknowledges that the
Companys objectives, projections, estimates, expectations, or predictions may be
considered as forward-looking statements under applicable securities laws and
regulations. It cautions that actual results may differ significantly from those expressed
or implied. Various important factors, such as global and Indian demand and supply
conditions, prices of finished goods, availability and prices of input materials, cyclical
demand and pricing in the Companys main markets, changes in government regulations and
tax regimes, economic developments in India and other relevant countries, as well as
factors like litigation and labour negotiations, can impact the Companys operations. The
Company does not assume any responsibility to publicly amend, modify, or revise the
forward-looking statements based on subsequent developments, information, events, or any
other circumstances.
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