Dr Lal PathLabs' Q3FY19 results (Outperformer) - Soft quarter; impacted by seasonality
Q3FY19 result highlights
- DLPL reported sales of Rs2.9b (+11% yoy; Q2 Rs3.17bn) led by +17% volume growth (4.3mn samples; est 4.5m) vs est of +14% yoy. Patients tested grew +12% yoy. Mgt cited lower temperatures prevailing in North India and shift of festive season to Q3 for lower volumes.
- Realization / patient inched up qoq to Rs683 from Rs669 in Q2 which aided revenue growth. Mgt cited reduction in promotional activities in Eastern region as a key driver for realization improvement.
- GMs came in at 77.7% (78.7% in Q2) in line with est while SGA&A cost were also inline. Reported EBITDA came at Rs656m (+16% yoy) vs est of Rs730m with margins of 22.4% (27.3% in Q1) vs est of 24.4%.
- Reported PAT came lower at Rs462m vs est Rs500m. Lower tax rate (32% vs est 34%) aided PAT.
- Management aims to maintain the current volume growth momentum and will continue to focus on improving test mix. No price hikes over last 2.5 years and none planned in near term. Margins to be sustained through productivity enhancement / cost rationalization measures.
Key positives: QoQ improvement in realizations
Key positives: Lower volumes
Impact on financials: Broadly maintain earnings estimates
Valuations & view
The fragmented but steadily consolidating Indian diagnostics industry is estimated to post 14-16% CAGR over FY18-20E implying significant opportunities for stronger organised players like DLPL. DLPL’s strong brand franchise, focus on service & quality and a broad basket of test offerings have enabled the company to create a leading position in North India. The company seeks to replicate this success in East and Central India (commissioning of Kolkata reference lab) and make gradual inroads in the South and West. Focus on volume growth, backed by competitive pricing strategies and steady network expansion underpin our estimate of 16% revenue CAGR and steady ~26% margin over FY18-21E. DLPL has the ability to leverage ~Rs9.6bn cash on books (FY21E) to generate value accretive inorganic growth opportunities. We maintain an Outperformer rating with a target price of Rs1,083 (33x FY21E EPS). Change in government regulations, mainly price caps, remains a key risk to the business
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.
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