Dr Lal PathLabs Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Dr Lal PathLabs Ltd (LALPATHLAB) Q2 FY24 Earnings Concall

• Financial Performance
  • Revenue for Q2 FY24 was INR601 crores, up 12.6% vs last year.
  • EBITDA for Q2 was INR178 crores, margin of 29.6% vs 26.9% last year.
  • Profit after tax was INR111 crores, margin of 18.4% vs 13.6% last year.
  • EPS for Q2 was INR13.2, up 53% vs last year.
  • Gross margins at 79.6% in Q2, highest historically, driven by price increases and operational efficiencies.
  • Expect gross margins to be about 75% sustainably.
  • Strong growth led by price increases, test mix, Swasthfit portfolio.
• Business Growth Drivers
  • Market activation across geographies including Suburban Diagnostics.
  • Investments in 35 hub labs enabling better TAT and market share gains.
  • Expansion in tier 3/4 towns showing good results, accelerating with 20 plus new labs.
  • Focus on product portfolio like Swasthfit and ProSelf driving growth.
• Operational Efficiency
  • Optimization across cost line items and reimagining value chain.
  • New logistics app implemented, enhancing capabilities.
  • Inventory holding reduced to 31 days.
  • Debtor days at 28 days of credit sales.
  • ROCE at 25.3% and CapEx of INR27 crores in H1 FY24 on new infra and technology.
• Testing Volumes
  • 5 million patients served in Q2, up 5.2% vs last year.
  • 2 million samples tested, up 11%.
  • Covid contribution now only 22% of revenues.
  • COVID testing now only 2% of revenues vs 38% last year.
  • Non-COVID base business remains robust at 98% of revenues.
  • Volumes recovering well on non-COVID tests.
• Growth Strategy
  • Leveraging strong brand in North/East India.
  • Expanding in South/West India through Suburban Diagnostics.
  • Targeting underpenetrated tier 3/4 towns and collection centers.
  • Growing portfolio of specialized tests.
  • Investing in technology and automation.
• Business in Tier 3/4 Markets
  • Company follows government classification for tier 3/4 towns.
  • Planning to open 20+ new labs in tier 3/4 towns.
  • Will expand collection center network alongside new labs.
  • Margins should not be materially impacted as cost structure is competitive.
  • This expansion is part of the normal business model.
• Revenue Growth Outlook
  • Seeing steady improvement in volume and value growth recently.
  • Growth rebounding to early teens levels after dip during pandemic.
  • Volume growth recovering well excluding COVID testing.
  • Value growth aided by pricing and mix, but underlying volume picking up.
  • Expect to sustain volume/value growth in early teens.
• Suburban Diagnostics Traction and Outlook
  • Seeing first signs of growth after stabilization over past 1.5 years.
  • Shifted to more franchisee-driven model vs own assets earlier.
  • Addressed high employee turnover issues.
  • Focus remains on Mumbai, Pune and Goa within Maharashtra.
  • Suburban strategically important for LPL to expand in Western region.
  • Aims to build suburban into a significant part of overall business.
• Markets Update
  • Suburban had presence in Indore, Jabalpur and Rewa earlier.
  • Decision taken to exit MP as LPL already has strong presence there.
  • Will maintain minimal presence in MP but no major investments.
  • Building up suburban for Western region and South later.
• Omni-Channel Strategy
  • Presence across B2B and B2C channels.
  • Offerings tailored based on healthcare ecosystem in each geography.
  • Right mix of B2B and B2C for tier 3 expansion.
  • Not overly dependent on any one channel.
• Expansion Costs
  • Franchisee collection centers fund expansion, up to 45-46% of revenues.
  • Revenue share to centers increasing due to mix, not rates.
  • New labs in Tier 3 breakeven at INR2.5 cr revenue with 30% share.
  • May see short term dilution but sustainable long term model.
• Margin Outlook
  • Current high margins not sustainable long term.
  • Will see impact from new lab investments.