Q2FY20 result highlights
Impact on financials: Increase FY20e/FY21e earnings by 21% / 19% to primarily account for lower tax rates.
Valuations & view
While the macro story for the fragmented, yet steadily consolidating Indian diagnostic space remains exciting, increasing competitive intensity along with pricing pressures has impacted the organic profitability growth of even the industry leaders. This is reflected in DLPL’s 12% CAGR EBITDA growth over FY16-19. However, DLPL seems to be effecting a comeback with 16% EBITDA growth in H1FY20 underpinned by a good job on the cost optimisation front. With meaningful price hikes still unlikely in the near term, DLPL’s cost excellence will continue to provide an edge over peers. Mgt’s growing intent to step up M&A activity to support organic growth is another positive. Despite these positives, at current price, valuations are rich and offer limited upsides. Any change in government regulations, mainly price caps, continues to be a potential risk. Maintain Neutral with a price target of Rs1,316 (35x FY21E).
Dr. Lal PathLabs Limited is engaged in providing diagnostic and related healthcare tests and services. The Company is engaged in the business of running laboratories for carrying out pathological investigations of various branches of Bio-chemistry, Hematology, Histopathology, Microbiology, Electrophoresis, Immuno-chemistry, Immunology, Virology, Cytology, other pathological and radiological investigations. The Company's geographical segments include India and Outside India. The Company offers a range of tests by condition, which includes allergy, diabetes, health checkups, viral infections, fever, heart diseases, hypertension, cancer, abortions, anemia, arthritis, breast cancer, diphtheria, disorder of liver, disorders of bone, drugs of abuse, infertility, lymphoma, water purity, tuberculosis, ovarian cancer, osteoporosis, multiple sclerosis, muscular disorder, pregnancy and viral infections. The Company's other offerings include diabetes care program, loyalty card and wellness card.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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