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Result Synopsis

Metropolis exhibited a marginal miss on revenues and margin as Q3 sales declined 2.5% YoY and OPM fell ~100bps. Albeit, the internals were better than the headline print as B2C (~60% of core Metropolis sales) revenues grew 15% excluding Covid and allied tests; ex-Hitech and PPP contracts, sales up 13% - driven by healthy 9% volume growth and 3% price contribution. Margin were lower as network expansion (~12 labs and
~400 centers in 9m FY23) led to ~120bps impact. Metropolis management appeared optimistic on volume growth which appears tad better than Dr Lal though we would be mindful of base effect as Hitech got integrated in Q3 last year. Company alluded to increased competition in the semi-specialized tests and, we reckon, this would renew focus on test menu above and below the segment. Addition of lab and collection infra in the focus cities should support volume growth leading to 12-13% topline growth over next 1-2 years. Believe Metropolis has had a better handle on volume growth compared to peers like Dr Lal and hence our confidence on presuming higher volume growth over next 2 years. Albeit, we have cut FY23 and FY24 estimates by 5-12% on flat realization assumption (vs 3% growth earlier) and also introduce FY25 estimates. Our TP gets rolled over to FY25 and we cut target multiple to 35x (prevailing pre-Covid) from 45x and retain BUY with revised TP Rs1,720 (earlier Rs1,900).

Result Highlights

Revenue growth of 13% excluding Covid, PPP contracts and Hitech 9% volume growth and ~3% price mix drove YoY growth Margin at ~25% maintained despite sector wide apprehension of falling prices; some impact of adverse forex on reagent costs and opex hit due to ongoing network expansion 

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