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DLPL reported a steady Q4, with EBITDA beating street/our estimates by 6% and adj PAT improving 34% on YoY basis. Strong performance in core markets (Delhi NCR), buoyed by network expansion, offset the persistent muted performance of Suburban (mid-single digit revenue growth). Step up in network expansion and focus on bundled testing for illness should support volume growth in coming years; we expect revenue CAGR at 12% over FY25-28E. Margins are likely to contract by ~100bps in FY26 as investments in network and digital initiatives would be partially offset by improving contribution from Swasthfit and operating leverage. A strong net cash balance sheet, industry leading margins, and improving return ratios provide comfort on valuations. We retain BUY on DLPL with unchanged TP of Rs3,100 for Mar-26E, based on DCF methodology and implying 2-year forward PER of 44x (vs LTA of 48x).

Textbook quarter; margin performance continues to be robust

For Q4FY25, DLPL reported revenue growth of 10.5% YoY on the back of sample volumes increasing 9.5% YoY and flat realizations. Gross margin expanded by 42bps, which can be attributed to the continued uptick in contribution of the Swasthfit portfolio (26%). EBITDA margin expanded strongly by 150bps YoY to 28% on account of gross margin expansion and operating leverage. Reported PAT came in at Rs1.5bn (+81% YoY) on account of a one-time tax credit (in relation to liquidation of Suburban Diagnostics); adjusted for this, PAT grew 34% YoY. The company has announced a final dividend of Rs6/sh for the quarter (total dividend declared for FY25: Rs24). Net cash on books as of Mar-25 stood at Rs12.3bn, and capex outflow for the year was Rs539mn.

Outlook and risks

Step up in lab additions (18 during FY25) should not only aid the volume trajectory but also fortify DLPL’s dominant position in the northern and eastern geographies, especially in the wake of aggressive competition from hospital-backed labs and organized players. While Suburban’s (and that in the West) performance has been muted, we remain hopeful of a turnaround as the subsidiary is now fully integrated (IT infrastructure, backend support) with the parent entity. Improving lab utilizations (taking PSC/lab as a proxy) and operating leverage should help keep margins stable despite ongoing network investments (employee additions and SG&A expenses) over the next 2-3 years. Our estimates are largely unchanged (for the FY26/27 period) as we expect sales/PAT CAGR at 12% over FY25-28E. A strong balance sheet (net cash of Rs12.3bn), improving return ratios (ROE/ROCE at 24%/25%, respectively, in FY28), and robust cash generation (OCF as a % of EBITDA at 82% in FY25) lend comfort on valuations. Key risks: Increased competition in the organized market from growing hospital chains, predatory pricing from any market participants, and adverse regulatory ruling around pricing cap for healthcare services.

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