IGI Logo

Business Overview

Dr Lal PathLabs (DLPL) is the largest diagnostics player in India. Its dominance in the NCR acts as a base for consistent cash flows and provides expansion support. Patient CAGR over five years has been 11%. DLPL has largely expanded organically; meanwhile, the share of non-North region has grown from 28% in FY16 to 34% to FY21. DLPL’s acquisition spree has been gradual; its expansion with new labs at Mumbai and Bangalore should aid growth and deepen presence in other markets.

Investment thesis

Industry-leading growth driven by core market and expansion in South and West. DLPL’s strong fort in the NCR is a unique example of how a single player could garner leadership in a particular segment. This established network can use the same abilities to create similar length and breadth of operations across India in several cluster cities

Recent acquisition of Suburban would drive stronger growth in western region with expansion in market-share

Several catalysts like conversion from unorganized to organized in urban markets, expansion and utilization of testing infrastructure of the larger established clusters would be focused for rural geographies.

Valuations and Profitability Outlook

DLPL has been the leader in the industry. Its dominant brand and expansion across India coupled with low capital intensity enable higher return ratios. Its established network allows significant cost efficiencies and economies of scale.

We believe DLPL’s ability to sustain margins and high return ratios with greater growth visibility in a post-pandemic environment will allow its higher multiples to sustain

We initiate coverage with a DCF based valuation of Rs4,999 (86x of Avg FY23E & FY24E EPS) – 29% upside.

At the CMP of Rs 2,692 DLPL trades at 49.6x FY23E EPS of Rs54.3 and 43.2x FY24E EPS of Rs62.3.

Valuation

Considering the under penetration of the diagnostic sector and healthcare in India the growth visibility for the sector for the long term remain to be mid to high double digit with covid the industry in limelight

The leadership position in Indian Diagnostic market, a very strong presence in NCR region which has fueled expansion, the recent acquisition on Suburban affirms our confidence in DLPL and its growth story. The low penetration of diagnostic, the growing wellness opportunity would further boost sustainable visibility of growth in the sector.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer