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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.
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