Reduce Dr Lal Pathlabs Ltd For Target Rs. 1,800 - Yes Securities
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Weak volume outlook
Result Synopsis
Dr Lal reported a weak revenue quarter as growth declined 1.5% YoY and on a like to like basis excluding Suburban (since it was consolidated for only 45 days in Q3 FY22), reckon decline is more like ~5% YoY. Patient volume declined ~5% YoY and again due lack of full Suburban benefit in base quarter, core DLPL volume would have had a larger fall YoY. Margin came in at 23% on better cost control as also transaction related costs in the base quarter
Dr Lal management conveyed what has been largely evident about volume CAGR being 2-3% lower than pre covid baseline. More importantly, there has been a lack of volume revival in recent quarters with an increasing likelihood that FY24 too would be a work in progress year for initiatives to bear fruit. We lower volume growth to mid-single digit next fiscal from our earlier forecast of 10-11% which basically postpones recovery by a year. Accordingly, we lower estimate for FY24 by 20% while FY23 is largely unchanged. We also trim target PE to 50x as volume growth catch up to earlier base line is greatly diminished; retain Reduce based on 50x FY24 EPS with a revised TP Rs1,800 (earlier Rs2,500) as remain negative on volume rebound outlook.
Result Highlights
Dr Lal reported 1.5% YoY decline in revenues vs expectation of +7% YoY
Since Q3 FY22 included ~45 days of Suburban (merged wef Nov 12, 2021), reckon underlying core Dr Lal revenues are down ~5.5% YoY vs reported -1.5% YoY
Non Covid patient growth of 4% and sample growth of 6% underwhelming as it would have included full quarter of Suburban vs the base quarter Margin at 23% is up 100bps YoY with improvement in gross
margin despite impact of full quarter merger of (lower margin) Suburban business vs only partial impact last year
PAT down 9% YoY on increased deprecation despite better OPM
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