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Significant rise in COVID testing

Dr. Lal PathLabs Limited (DLPL) provides diagnostic and related healthcare tests and services in India and internationally. The company has 231 clinical laboratories, 3,705 patient service centers (PSC) and 9,247 pick-up points (PUP) as of march 2021.

* Revenue surged 128.0% YoY to Rs. 607cr (+40.7% QoQ), and was above expectation. Total COVID and COVID-allied contribution was at 36% in Q1FY22 (vs. 23% in Q1FY21).

* Patient volumes rose 101.4% YoY backed by significant increase in COVID testing and 87.0% YoY increase in non-COVID business.

* Normalized EBITDA (after eliminating the impact of stock-based compensation & CSR) grew 268.7% YoY to Rs. 199cr. As a result, PAT rose to Rs. 131cr (+362.0% YoY; 57.3% QoQ).

* With persistent focus of service parameters and timely turnarounds, DLPL was able to achieve robust growth in volume during the pandemic. Leveraging its dedicated network driven infrastructure and techenabled processes, we expect the company to be able to perform well in the expected third wave situation. Hence, we upgrade our rating on the stock to ACCUMULATE with a revised target price of Rs. 4,280 based on 68x FY23E adj. EPS.

Solid performance across business segments

DLPL’s Q1FY22 revenue rose 128.0% YoY to Rs. 607cr, largely led by higher volumes of patients (+101.4% YoY to 7.1mn) and number of samples tested (+119.3% YoY to 17.4mn) due to resurgent second wave of COVID. Momentum in non-COVID business continued with growth of 87.0% YoY to Rs. 386cr, wherein ‘Swasthfit’ portfolio contributed 10.0% of total revenue (16.0% to non-COVID revenue). Revenue from COVID and allied tests reported at Rs. 220cr (+214.3% YoY; +285.9% QoQ). However, the momentum with these tests started decreasing month wise as follow; In April’21- Rs. 93cr; May’21 – Rs. 100cr and June’21 – Rs. 27cr.

Margin expansion supports bottom-line

EBITDA margin improved by 290bps QoQ to 31.2% (+1.3pps YoY) with EBITDA growing 54.9% QoQ to Rs. 189cr (+291.3% YoY) mainly due to increase in top-line and optimized operations at DLPL. However, this is partially offset by increase in G&A and other expenses in Q1FY22 on higher sample collections at home.

Key concall highlights

* Company approved an interim dividend of Rs. 6 per equity share.

* With consistent investments in capex, DLPL strengthened its existing operations, expansion in terms of offerings and geographical presence.

* DLPL enhanced the customer experience in home collection by providing ECG at home service launched in select cities

Valuation

We estimate PAT to grow at 33.6% FY21-23E CAGR and EBITDA margin to improve to 30.1% by FY23E. Leveraging its dedicated network driven infrastructure and techenabled processes, we expect the company to be able to perform well in the expected third wave situation. With increase in geographical penetration and introduction of next-gen testing, we upgrade our rating on the stock to ACCUMULATE with a revised target price of Rs. 4,280 based in 68x P/E on FY23E adj. EPS.

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