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Focus on volume revival

Our view

Metropolis has highlighted strong expansion plans till FY24 with addition of 90 labs and 1,800 centers across focus and non-focus regions to drive growth. Hitech acquisition would take time to pick up traction in terms of margin as first two years might be low on synergy benefits. We expect growth to rebound strongly in FY22 on a dampened base of last year and double-digit growth to continue in FY23 and FY24. Consolidated margins may remain slightly subdued for FY22 and FY23 but should pick up strongly thereafter towards ~30-32% as network expansion & synergy benefits start to play out. We tweak estimates to account for Rs160mn of exceptional income in H1 FY22 (which drives all of 14% EPS) and retain ADD based on 55x FY24 EPS for revised TP Rs3,360.

Result Highlights

* Revenue was up 5% YoY, above our estimate of 1% YoY.

* Covid revenue contribution expectedly declined and now contributes 14% of the total; non Covid revenues increased by 38% YoY.

* Key metrics – patient footfalls up 25% YoY to 3.3mn (DLPL reported +29% YoY), No of tests up 29% YoY to 6.2mn. Non Covid home revenues up 17% to Rs260mn.

* Gross margin increased by 290bps YoY as non-covid revenue mix increased. EBITDA margins were lower by 168bps as staff costs and other expenses expanded, especially staff on a low base.

Valuations

Consolidated margins may remain slightly subdued for FY22 and FY23 but should pick up strongly thereafter towards ~30-32% as network expansion & synergy benefits start to play out. We marginally tweak estimates and retain ADD based on 55x FY24 EPS for revised TP Rs3,360.

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