Buy Dr Lal Pathlabs Ltd for the Target Rs 2,000 by Emkay Global Financial Services Ltd
DLPL posted stellar 1QFY27 results, with revenue growing 19% yoy on the back of sample volume and realization growth (+11%/8% yoy). Management indicated growth remains broad-based, with the core Delhi NCR and Swasthfit portfolio growing in line with the company's overall revenue trend. We expect industry tailwinds (improving awareness and higher disposable income) along with DLPL's execution prowess (enhanced specialty test menu, focus on customer experience, and improving network density) to further aid growth acceleration over the remainder of FY27. Factoring in the 1Q beat, we increase FY27/FY28 revenue estimates by 2%/3%, respectively. DLPL's investments in radiology and international business, albeit small currently, are likely to create additional growth vectors over the medium-to-long term. Strong net-cash balance sheet, industry-leading margin, and stable return ratios provide comfort on valuations. We maintain BUY on DLPL and revise up Jun-27E TP by ~5% to Rs2,000 from Rs1,900 (based on DCF method), implying FY28E PER of 46x (in line with LTA).
Strong start to FY27; operating leverage drives margin
For 1QFY27, DLPL reported revenue growth of 19% YoY (+5% vs our/street estimates), with increase in both volumes (+11% yoy) and realizations (+8% yoy), due to the improving case and geo mix along with implementation of CGHS/ECHS rate revisions. Gross margin expanded moderately (+23bps) to 81.0%, while EBITDA margin expanded by 232bps yoy to 31.0% driven by operating leverage (employee costs grew 7% yoy). Contribution from the Swasthfit portfolio was stable at 27% in 1QFY27, implying ~20% yoy growth in Swasthfit revenue. D&A expenses grew 28% yoy, while interest expenses grew 34% yoy. PAT grew 28% yoy to Rs1.7bn. DLPL has announced an interim dividend of Rs5/share. Net cash as of Jun-26 stood at Rs17bn (Mar-26: Rs15bn).
Outlook and risks
The management plans to continue investing in network expansion and digital initiatives as well as provide innovation-led offerings to differentiate among organized players. Management’s confidence in surpassing its original FY27 guidance is backed by focus on scientific leadership (launch of new tests, hiring specialist clinicians) and enhancing patient experience (by way of lower TAT). Management expects EBITDA margin to remain in the 27–28% range, as incremental profitability will be reinvested in lab expansion (12– 15% in FY27), precision diagnostics, international foray, and a few radiology centers. In our view, a stable pricing environment is set to aid DLPL's growth trajectory further as consumers gravitate toward quality-focused, branded organized operators. A strong balance sheet (net cash position of Rs17bn providing ample headroom for both organic investment and inorganic opportunities), industry-leading margin, and stable return ratios provide comfort on valuations. Key risks: Irrational pricing environment, inflationary pressures owing to ME crisis, and disruption in the raw-material supply chain.
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