Dr Lal Pathlabs Ltd: Updated 1.0

The detailed research article on Dr Lal Pathlabs is available on our blog - Click to Read

Read the following updates on -

  • Performance of Dr Lal Pathlabs in FY20
  • Outlook ahead
  • Valuation Parameters

(A) Geographical Classification of Revenue

For FY20, Dr Lal PathLab generates its 99% of Revenue from India & remaining only 1% comes from outside India.

Delhi NCR Region alone contributes 40% to the Total Revenue of the company in FY20 & 29% comes from the Rest of North. On the other hand, East contributes 14%, West 8%, South 6% others contribute 3% to the Total Revenue of the Company.

dr lal pathlabs revenue segmentation on the basis of regions

Dr. Lal PathLabs continues to increase its presence in Uttar Pradesh, Bihar, Jharkhand, Orissa, Madhya Pradesh, Chhattisgarh, West Bengal, North East, Bengaluru and Pune.

In addition, revenue contribution from rest of India market increased to 60% in FY20 from 58% in FY19 with double-digit growth of 15% in FY20.

(B) Dr Lal Pathlabs Network Expansion in FY20

The Company continually adds new Clinical Laboratories, Patient Serving Centers(PSCs), and Pick-up Units(PUPs) to its Network. Company increased its Pick-up Units from 6426 in FY19 to 6995 in FY20. Patient Serving Centers (PSCs) increased by 526 units in FY20. Clinical Laboratories increased from 200 Units in FY19 to 216 Units in FY20.

The patient service centers manage the bulk of the sample collection & thus the growth
in network is largely asset light.

Stock research update on dr lal pathlabs network expansion

(C) Operational Parameters

Inspite of Covid-19 disruptions, company's volume increased in FY20. No. of Patients Served by the company during FY20 increased to 19.40 Millions from 17.60 Millions in the last Fiscal Year. Company's Processed Samples increased from 41.80 Millions to 47.70 Millions in FY20.

Revenue growth for FY20 is 10.55%. Patients served increased by 10.23% and samples count increased by 14.11%.

dr lal pathlabs volume growth of patients and samples processed

(D) Group Structure of Dr Lal Pathlabs

Dr. Lal PathLabs has 10 Subsidiaries and 1 Step-down Subsidiary i.e. Centrapath Labs Private Limited.

stock research update of dr lal pathlabs

*Dr. Lal PathLabs International B.V., incorporated on March 20, 2014, is yet to commence its operations. No Investments have been made by the Company.

*Centrapath Labs Private Limited is the Subsidiary of PathLabs Unifiers Limited, Company’s Wholly Owned Subsidiary.

(E) Impact of Covid-19 on DLPL business

Dr Lal Path Labs is currently testing for COVID-19 at its National Reference Lab in Delhi, Kolkata Reference Lab and Central Lab, Indore. The company's capacity for PCR/Covid-19 testing is about 4,000 samples per day.

The COVID-19 outbreak significantly impacted Sample Flow in the Non-COVID Segment, as company's demand is largely a function of private OPDs. During lockdown, these OPDs actually came down drastically. But the company continued to keep its infrastructure of labs & collection centers open as much as possible.

stock research update of dr lal pathlabs with details of covid and non covid revenue for FY22

After the COVID-19 breakout & the resulting lockdown, the shift in the industry from unorganized to organized players is expected to happen at a higher rate. The unorganized sector constitutes around 48% of the market, while the organized national branded and regional chains constitute around 15%. The remaining is occupied by hospital-based diagnostic centers.

The management observed a channel mix change. Company's infrastructure is a large walk-in format, where on a daily basis, some labs actually have even 200, 300, 400 patients coming in. But now due to significant changes, a lot of this moved into a home collection. People now hesitate to walk into a Retail Facility. Due to this change company believes that home collection segment will tend to grow.Thus, proportion of sales coming from collection center network will tend to rise. Therefore, Company's expansion further is based on growing franchisee model.

Realization per patient in case of Covid tests is higher than the non Covid tests. For instance, Realization per patient for Q1 FY21 stood at Rs. 760 as against Rs. 685 in Q1 FY20. The higher RPP is primarily driven by COVID-19 RT-PCR testing.

But margins reduce significantly in case of Covid tests. PAT margin for half year FY 21 reduced to 16.5% from 20% for the half year FY20.

(F) Geographical Expansion Strategy Continues

The company continues to drive volumes by expanding the reach in Rest of India Market through cluster approach. Dr Lal pathlabs also acquired smaller but high-quality local labs in the west & south regions of India to grow its presence in lesser tapped regions of the country, that is beyond North and East.

The company made 5 acquisitions of small sized labs in West region during FY20. Dr Lal Pathlabs created a holding company, which is PathLabs Unifiers, where all the acquisitions are done through that vehicle.

The vast & expansive hub & spoke model constinues to remain competitive advantage for Dr Lal Pathlabs.

The expansion of network in Non-DNCR regions shall be the growth strategy ahead for the company. The margins for rest of the regions remain lower than the DNCR region. Thus, further growth shall be volume based for Dr Lal Pathlabs.

(G) Key Financial highlights

10 years net sales growth of dr lal pathlabs
10 years profit growth of dr lal pathlabs
10 years ROCE growth of dr lal pathlabs
10 years PAT margin growth of dr lal pathlabs
10 years free cash flow growth of dr lal pathlabs

Revenue growth of Dr Lal Pathlabs remained above 10% for last 10 years. The revenue grew at CAGR of 21% in last 10 years. PAT growth also remained above 10% in last 10 years & grew at a CAGR of 25%.

On the other hand, return on capital employed (ROCE) decreased over the years.

Dr Lal Pathlabs is a cash rich company with good growth of free cash flow.

(H) Valuation

As on 19 November 2020:

  • Market Cap = Rs 17,709 crore.
  • Cash & Investments for the half year ended 30-09-2020 = Rs. 836 crore.
  • P/E = 87.23
  • Enterprise Value (EV) = Rs 16,994
  • EV/EBITDA = 46.53
  • Earning Yield = 2.15%

*DLPL - Dr Lal Pathlabs
*DNCR - Delhi NCR region

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications. 

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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