Stock corner: Maintain ‘buy’ on Dr Lal Pathlabs’, company best positioned to competition – Edelweiss

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Published: May 22, 2019 8:24:42 AM

While Delhi-NCR revenue/volume grew 10.6%/8.0%, east India sales/volume jumped 29%/20%. Management expects KRL to break even in one year, led by operating leverage from volume growth.

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Dr. Lal Pathlabs’ (DLPL) 13% and 18% y-o-y growth in revenue and PAT respectively, in Q4FY19 came in line with estimates. Growth was driven by steady ramp up at Kolkata Reference Lab (KRL) and good uptick in SwasthFit Wellness package, partly offset by a weak flu season. The company is gradually transforming its product, channel and geography mix to de-risk from Delhi NCR.

Going forward, volumes of rest of India, which now comprises 57% of group sales, is expected to grow in high teens. DLPL is also looking at process automation in a big way. We remain positive on DLPL as it is best positioned to outperform competition underpinned by a strong brand, quality-focused testing, steady margin and expansion to new geographies. Maintain ‘buy’ with TP of `1,240.

Volumes grew 12.5% y-o-y due to weak flu season and absence of promotional activity. SwasthFit Wellness package grew to 14% of total sales leading to increase in tests per patient to 2.5 from 2.3. While Delhi-NCR revenue/volume grew 10.6%/8.0%, east India sales/volume jumped 29%/20%. Management expects KRL to break even in one year, led by operating leverage from volume growth.

Management commented that while 40% of their tests fall under the recently published National Essential Diagnostics List, this list is only a guideline for availability of essential tests in government hospitals.

Management stated that competitive intensity has stabilised compared to the peak hit in the past two years. Despite this, DLPL has been ahead of the curve in de-risking from the competitive Delhi-NCR (now 43% of group) by focusing on non-core regions in east and central India.

The company’s East India venture i.e., the Kolkata Reference Lab, now supports a variety of tests and is the main centre for diagnostics in that region.

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