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Volumes key to sustainable growth

Result Synopsis

Metropolis clocked an inline quarter with core volume growth of 10% ex-Hitech and excluding government business (which has been lumpy and down YoY). Volume growth appears to be better than that of Dr Lal though uncertainty still looms large in the trajectory of footfall recovery over the next few quarters. Wellness share of revenues continues to inch up to 12% from 8% a year ago even as mix shifted somewhat towards routine tests in 2Q. Margin at 26% hovered around pre-Covid ballpark though reckon we could be looking at seasonal peak for OPM given that 2Q is typically one of the strongest quarters.

Metropolis management appeared confident of volume recovery of ~10% in the exHitech and excluding government business on a sustainable basis though given the aggressive expansion plans and. Importantly no market share saturation, an early double digit growth at least should have been more palatable. We have moderated our volume growth assumption for current fiscal and expect 12% patient growth on a lower FY23 base next year. Metropolis would be less susceptible to ongoing fear of disruption (interestingly, Tarsons, a plastic labware supply company talked of disruption in diagnostics as a reason for reduced offtake in that segment), even as it looks like volume growth expectation may have to be tempered unlike earlier fears of outright price erosion. We lower FY23/24 EPS by 23/12% but given the niche B2C focused business with higher share of specialized tests, our comfort is higher compared to DLPL, especially backed by a lower starting valuation. Retain BUY with revised TP Rs1,900, on an unchanged 45x FY24 EPS

Result Highlights

* Ex-Covid, ex-Hitech and excluding government contracts, revenues up 12% driven by 10% volume growth and vs reported 16% sales growth

* Margin approach pre Covid range on an improved revenue performance

* PAT up 20% QoQ on better margin and higher other income

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