Buy Dr Lal Pathlabs Ltd for the Target Rs.2,100 by Emkay Global Financial Services Ltd
DLPL has announced the acquisition of SN Genelab—a B2B diagnostics operator focused on advanced genomics and molecular pathology testing—for Rs1.68bn (70% stake), thus valuing the company at ~16x FY26 EV/EBITDA. We expect the company to cross-sell SN Genelab’s test offerings on its wider platform (both B2B and B2C channels) and expect revenue synergies to accrue in the next 2-3 years. Per management, this acquisition allows for deepening DLPL’s specialized testing portfolio as well as enabling geographical diversification of the revenue base (West region contributed 14% to FY26 revenue). DLPL’s leadership position and execution prowess position it to benefit from the current industry tailwinds (stable pricing environment, shift toward quality organized operators, and increasing adoption of preventive testing). We expect revenue/EBITDA CAGR of 15%/16% over FY26-29 (ex-acquisition) and retain BUY. We raise our Sep-27E TP by 5% to Rs2,100 from Rs2,000 (based on DCF method), implying FY28E PER of 48x (in line with LTA).
Acquisition of SN Genelab – Deepening specialized portfolio offerings
DLPL has approved 70% stake purchase of SN Genelab for a cash consideration of Rs1.68bn plus certain performance-linked payouts capped at Rs0.3bn. The company was incorporated in Dec-16 and provides a wide range of tests from cancer and gynecological cytogenetics to molecular diagnosis of cancer, infectious diseases, and rare genetic mutations. The company was founded by Dr Salil Vaniawala (MSc, PhD – Human Genetics) in Surat, Gujarat. Its revenue/EBITDA expanded at an impressive CAGR of 24%/31%, respectively, over FY21-26, suggesting the successful adoption of its highend test menu. With performance-linked payouts in place, we expect the ramp-up to continue in FY27. The transaction is expected to be completed by Nov-26.
Reasonable valuation for a profitable advanced genomics B2B operator
We find the valuation for this acquisition reasonable (16x FY26 EV/EBITDA), given the strong financials and profitable growth demonstrated by SN Genelab. Additionally, the benefits of cross-selling the specialized test offerings on DLPL’s wider platform and geographical diversification of the revenue base (West contributes 14% of FY26 revenues) further support the attractiveness of this asset, in our view. The company’s investments in advanced genomics (Illumina’s NovaSeq X Series) in addition to this acquisition are likely to aid differentiation among organized players and further aid its growth trajectory as consumers gravitate toward quality-focused, branded organized operators. A strong balance sheet (net cash position of Rs17bn), industry-leading margin, and stable return ratios provide comfort on valuations. We expect revenue/EBITDA CAGR of 15%/16% over FY26-29 (ex-acquisition) and retain BUY. Key risks: Irrational pricing environment, inflationary pressures owing to ME crisis, and disruption in the raw-material supply chain.
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