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  1. Edelweiss puts ‘Buy’ rating on PathLabs with target price of Rs 1,230

Edelweiss puts ‘Buy’ rating on PathLabs with target price of Rs 1,230

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.

By: | New Delhi | Published: February 8, 2017 5:02 AM
Volume growth fell to 5% y-o-y versus 14% growth in the last quarter. Volume growth fell to 5% y-o-y versus 14% growth in the last quarter.

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.

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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.

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