Dr Lal PathLabs: Focus on improving the revenue mix

14 Feb 2024 , 02:08 PM

Analysts of IIFL Capital Services hosted Dr Lal PathLabs at IIFL’s Investor Conference in Mumbai. DLPL’s focus remains on accelerating volume growth and price-increases would be the last resort to drive revenue growth as mgmt believes pricing is not a key lever to gain business. The company is on track to penetrate deeper in the core markets of North and East India by adding 15-20 new satellite labs p.a., while in non-core markets like South India DLPL’s focus is to acquire pathology assets. With focus on (i) driving top-line growth led by test mix management and up-selling tests to patients, (ii) gradually scaling-up Suburban, and (iii) investing into new labs and digital marketing to penetrate into 6,500 new towns across India, mgmt targets to maintain overall Ebitda margins at 25-26%. 

Revenue growth has slowed down for the industry: 

Patient volume growth has declined to 7% Cagr vs 10-11% Cagr during pre-covid period, largely due to patient fatigue, bundling of routine tests which leads to lower no. of patient visits and higher competition in the industry from Healthtech and Hospital players. To improve the top-line growth mgmt is focusing on mix management to drive revenue per test and up-selling tests to patients based on the diagnosis. The company is on track to add 15-20 new satellite labs p.a. across the core markets of North and East India while in non-core markets like South India focus is to acquire pathology assets. 

Gradually scaling-up Suburban: 

DLPL is hopeful of pick-up in Suburban led by the new RL (reference lab) and expanded collection centre footprint which has now been operational for the past 12 months. Mgmt is looking to rationalise the institutional business by increasing the share of B2C business. Mumbai, Pune and Goa will have Suburban branding while the rest of Maharashtra market will be through DLPL brand. The next phase of integration includes IT integration for the two companies. 

Will target to maintain overall Ebitda margins at 25-26%, as mgmt looks to reinvest into the business by investing into new labs and digital marketing to penetrate into 6,500 new towns across India. DLPL has created decent presence in new markets of UP and Bihar. DLPL’s 36-38% of the costs are variable including regent costs (20-21%) & franchise costs (16-17%), while the rest are all fixed. DLPL’s employee headcount has remained flat on a like-to-like basis and wages have increased in line with inflation, while higher productivity led to double-digit top-line growth