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DLPL delivered a beat on margins at 28.2% (our est: 27%). However, Revenue was inline while EBITDA/PAT delivered a slight beat by 4%/5% respectively. Overall revenue increased 11% YoY to Rs6bn with sample/patients volume growing 9%/4% YoY. The revenue per sample stood at Rs287 (+2.4% YoY). This is primarily driven change in test mix as DLPL has not taken price hike. Swasthfit revenue contribution increased to 25% in 1QFY25 (vs 22%/24% in 1QFY24/4QFY24). EBITDA increased 16% YoY/17% QoQ to Rs1.7b. Interestingly, EBITDA margin expanded 120bp YoY/170bp QoQ to 28.2%. EBITDA per sample was Rs81 (+6% YoY/6% QoQ). Adj. PAT was Rs1bn (+29% YoY/26% QoQ). Management expects growth to be volume-led complemented by change in test mix. Also, it continues to not take price-hike over the next 3-4 quarters. Moreover, it guided for EBITDA margins to be 26-27% over the next 2-3 years. We have reduced our earnings estimates for FY25E by 5% and increased for FY26E by 2% on the back of a) penetration into Tier-3/4 towns to drive volumes, b) Suburban becoming a dominant player in Mumbai market, c) Increasing contribution from Swasthfit offset by d) higher opex. We value DLPL at 1Y-forward PE multiple of 48x to arrive at our TP of Rs3550. However, due to limited upside potential, we downgrade the stock to ADD.

Volume growth to be driven by penetration into tier-3/4 towns

DLPL continues to focus on expanding in Tier 3 & 4 towns in north India in addition to deeper penetration in Tier 1/2 cities in west and south India. Over FY20-24, DLPL’s revenue in tier-3+ towns has witnessed 17% CAGR as compared to overall revenues witnessing 14% CAGR over the same period. Moreover, with the suburban brand, DLPL is focusing on volume expansion by making a strategic investment in both marketing and process efficiencies to fortify the brand. This will likely help Suburban becoming a dominant player in Mumbai. Additionally, it also plans to expand into Goa and Pune markets. In the North, DLPL expects higher growth in UP and other markets. Accordingly, we expect samples volume to exhibit 13% CAGR over FY24-26.

Swasthfit revenue contribution continues to inch upwards

In 1QFY25, Swasthfit revenue contribution increased 300bps YoY/100bps QoQ to 25% led by continued healthy traction. Swasthfit is being driven by growth in preventive wellness market, channel expansion and clinicians prescribing packages. Going forward, DLPL plans to continue to increase Swasthfit contribution as it expands its reach. Moreover, investments in technology and digital infrastructure are yielding tangible results, enhancing DLPL’s brand visibility and patient interactions.

Downgrade to ADD

We have reduced our earnings estimates for FY25E by 5% and increased for FY26E by 2% on the back of a) penetration into Tier-3/4 towns to drive volumes, b) Suburban becoming a dominant player in Mumbai market, c) Increasing contribution from Swasthfit offset by d) higher opex. Over FY2-26E, we expect revenue/EBITDA/PAT to deliver 18%/18%/26% CAGR with EBITDA margin being stable at 27%. We value DLPL at 1Y-forward PE multiple of 48x to arrive at our TP of Rs3,550. However, due to limited upside potential, we downgrade the stock to ADD.

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