Accumulate Dr. Lal PathLabs; target of Rs 1009: Prabhudas Lilladher

Prabhudas Lilladher’s research report on Dr. Lal PathLabs

Bundle offer, lower base drive growth; product mix, lower costs drive Margin: DLPL’s revenue, EBITDA and PAT grew 21%, 28% and 30% YoY in Q4FY18 and beat estimates in margin and earnings. Revenue growth was aided by a) lower base (YoY) due to demonetisation and b) product mix that drove higher contribution of bundle-test package. Its margin improved due to rationalisation on the number of clinical labs and re-routing many tests (at regional labs) to central lab in Delhi. Patient volumes increased by 21% QoQ and 15% YoY, driven by aggressive contribution from bundle-offer package. DLPL’s overall realisations however remained flat as moderate growth in high-end tests compensates the lower realisations of bundle-test business.

Outlook

DLPL remain confident of its brand power, service quality and KRL to drive volume growth and profitability in FY18-20E. We maintain “Accumulate” and retain TP at Rs1009.

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