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Worst of volume weakness over; lack of recovery keeps us away

Result Synopsis

Volume growth remained subdued at 4% YoY on reported basis and ~8% YoY net of RT PCR tests. Price hikes and cost control led to a strong margin beat; albeit reckon management focus is firmly on driving topline growth from volumes rather than being fixated on margin. Gradual expansion in Tier 3 & 4 towns and acknowledgment of mature base in metros may lead to a transition period. At the same time, competitive intensity may have peaked translating into better pricing environment and less scattered volumes. Management guided to higher investments in H2 which would preclude margin hitting ~28-29% as seen in H1 though FY24 might still margin above management guidance on back of strong H1 performance. We raise FY24 and FY25 EPS by ~9-8% driven by primarily better realization and margin YTD. However, lack of confidence on full fledged volume recovery continues to keep us away from the stock as retain Reduce with revised TP Rs2,500 (earlier Rs2,300).

Result Highlights

Revenues up ~13% YoY, ahead of our estimate of +8% YoY

Volume growth as measured by patient footfall still in single digit at +4% YoY; price increase contributed to rest of the growth

Margin surprises on upside at 29.6%, up 260bps YoY vs our expectation of ~26%

Company launched marketing campaign and invested in IT infra but impact not seen in P&L as other expenses up just ~2% YoY

Strong control over other expenses which remain in a range since Suburban integration between Rs1.07-1.1bn per quarter

Healthy topline, operating leverage and lower interest cost drive PAT beat at +52% YoY

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