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.