Dr Lal Pathlabs’ (Dr Lal) Q3FY17 revenue, adjusted EBITDA and adjusted PAT grew 10%, 10% and 18% y-o-y, respectively, afflicted by demonetisation that impacted the company’s core geography the worst.
Volume growth fell to 5% y-o-y versus 14% growth in the last quarter. While price hike taken in June 2016 will continue to benefit Dr Lal for another 2 quarters, it may not recur in future due to the aggregation phenomenon currently building up in the sector. With a cautious stance on rising competitive intensity in diagnostics, we maintain ‘buy’ with a TP of R1,230.
Dr Lal’s volume growth dip to 5% y-o-y versus 14% growth in the last quarter led to subpar revenue growth of 10% y-o-y. While collection centres were better off, walk-ins (1-2% volume growth) and pick-up points were severely impacted by demonetisation. Price hikes taken in June 2016 improved gross margin by 84bps y-o-y.
Backed by private funding, a number of regional players’ aggregator companies have cropped up and are looking to scale up, thereby exerting downward pressure on prices in a competitive landscape.
Dr Lal believes that EBITDA margin may stabilise at ~25- 26% levels as it builds capacity and it has a few levers to manage costs.