Key highlights from Dr Lal PathLabs Ltd (LALPATHLAB) Q3 FY22 Earnings Concall
Management Update:
- The company is enhancing access of its services by strengthening omni-channel approach in cities and pursuing hub lab infrastructure in Tier 2 and Tier 3 towns.
- During 3Q22, the company successfully integrated AI in prostate cancer reporting, leveraging FDA approved technology.
Q&A Highlights:
- Shaleen Kumar from UBS asked about the margin compression that was largely due to employee cost and not due to gross margin. Ved Prakash, Group CFO said that this compression was largely on account of Suburban, for which this year the personnel cost is also added to this.
- Pooja Bhatia from Morgan Stanley asked that on the digital health front, there has been user acceleration during COVID and how much can be retained given that mobility restrictions are getting normalized. Bharath Uppiliappan CEO answered that whenever the wave goes back, the digital property adoption continues to be at the higher level than the past. It might take a temporary drop but continues to remain at high level compared to past trends.
- Pooja Bhatia from Morgan Stanley also asked about and updated on the new labs in Bangalore and Mumbai. Bharath Uppiliappan CEO said that in Bangalore the company is very pleased with the progress it is making. The lab is fully settled in; the test menu is significantly expanded and has doubled the number of tests. And Mumbai is on track and with Suburban coming, the company is relooking at the whole strategy for the city.
- Shyam Srinivasan of Goldman Sachs enquired about the disaggregation of 6.6 million patients that did RTPCR test into COVID and non-COVID. Ved Prakash Goel, Group CFO said the company has done 5.6 lakhs RTPCR tests on a standalone basis and rest are non-COVID patients. However, there are overlaps where there is mix along with non-COVID patients but that is separate.
- Nikhil Chowdhary with Kriis PMS asked that of the INR438 crore of non-COVID revenues how much is through Suburban. Arvind Lal, Executive Chairman answered that non-COVID from Suburban is 24.7%.
- Nikhil Chowdhary with Kriis PMS also asked about the advertising strategy, as the company doesn’t do much of television, newspaper advertising. Bharath Uppiliappan CEO said the company does advertise digitally, in Facebook etc. depending on the city selection. Bharat added that the company is a significant advertiser on the digital platform, inclusive of doing below the line activities.
- Nikhil Chowdhary with Kriis PMS asked about Suburban integration and why the company is waiting for 1-2 years to show Suburban part of Dr Lal. Arvind Lal, Executive Chairman said that it’s a debatable point, whether it’s infra that helps one to grow or the brand pull that helps to grow. The company believes, Suburban is much stronger name in Mumbai city and has a stronger pull. Suburban will continue to operate the way it’s operating.
- Nitin Agarwal from DAM Capital queried about competitive pressure and pricing, and outlook of it. Arvind Lal, Executive Chairman commented that the competitive intensity will put pressure in pricing and that’s why the company has built its business more through volume driven growth rather than pricing driven. On the outlook, the company said the whole euphoria is due to COVID and as it settles down, it will get cleaned up in the next 10-12 months.
- Vinayak Mohta with Stallion Asset asked about the company’s Suburban strategy for the next 2-3 years. Arvind Lal, Executive Chairman said that as of now Suburban as an asset is sitting on a very high turnover of COVID. In all probability, going forward, it’s going to sharply decline. As it declines, there is possibility of this company margins to go back to where it came from, which is much lower than Lal’s LTL margins. So the first strategy would be to drive growth of suburban in next 2-3 years to see if there is operating leverage without adding additional cost and improve the margins.