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Subdued volume outlook

Result Synopsis

Dr Lal guided to better FY25 growth than FY24 less the contribution from price hike (~3.5%). Implied volume growth appears to be around 6-7% based on guidance coupled with mix change that would drive hitherto unchanged early double digit growth expectation – only difference being we have cut FY25/26 volume estimate by 4-5% given the weak prognosis and bumped up realization/patient to capture the upside from mix change. Company to reinvest incremental EBIDTA from operating leverage on expansion of labs which would preclude a significant improvement in margin. Continue to stick to our thesis of lack of volume growth being a major impediment to rerating of multiples which any way is elevated at ~46x/38x FY25E/26E basis. Believe rebound in volumes to above double digit would be a key rerating trigger and till such point we retain our negative view on the stock. Cut our target multiple to 40x (from 50x) earlier – bring it inline with that of Vijaya and persistent lack of volume visibility though roll over to FY26 largely negates the impact; our revised TP Rs2,450 (earlier Rs2,550) is based on 40x FY26 EPS and acceleration in volumes would be key upside risk to our view.

Result Highlights

Revenue growth of 11% ahead of estimate of 7% and driven by ~3% volume and rest from realization growth (+7.7% YoY) Gross margin rose 160bps YoY to 80% on account of price hike last year Strong control over other expenses yet again lead to better margin outcome at 26.5% vs estimate of 25% PAT up 49% YoY on 11% topline growth and operating leverage + gross margin benefits coupled with lower interest cost YoY

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