Brokerages maintain cautious stance on Dr. Lal PathLabs post Q2 recovery

The company's cash balance was 86 percent higher in this quarter at Rs 780 crore, compared with Q2 of FY 23.

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

live

• bselive
• nselive

Volume

Todays L/H

More

×

Diagnostics services provider Dr. Lal PathLabs, despite an impressive 52% surge in net profit in the second quarter of FY 23, continues to face caution from brokerages. Notably, Kotak Institutional Equities and Citi have issued sell recommendations, while Nuvama opts for a hold recommendation after assessing the company's Q2 results.

Shares of the company shot up over 6 percent on early November 3. Shares were trading 6.25 percent higher at Rs 2,617 on NSE at 11.14 am.

The diagnostics player reported a 52.4 percent year-on-year rise in consolidated net profit at Rs 109.3 crore for the July-September quarter of the current financial year, up from a profit of Rs 72.4 crore in the same period last year.

The EBITDA margin was at 29.6 percent against 26.9 percent in the year-ago period. In a discussion with CNBC TV 18, the company's Managing Director, Om Manchanda, attributed the margin expansion to price increases and a favorable product mix. He indicated that the margins are expected to stabilize at around 26 percent for the company.

Also read: Dr Lal PathLabs Q2 results: Net Profit up 52.4% to Rs 109.3 crore

Manchanda also mentioned the reduction in steep discounting and a decrease in competitive intensity. He clarified that there are no ongoing M&A plans but expressed interest in pursuing such opportunities in South India in the future. The company's cash balance for the quarter increased to Rs 780 crore, marking an 86 percent year-on-year growth. Nuvama pointed out that this strong financial position positions the company well for organic investments and exploration of opportunities in South India. Manchanda emphasized the company's current focus on achieving volume growth. He expressed a desire to return to volume growth of 8% CAGRs.

Nuvama highlighted the encouraging results of Dr. Lal PathLabs' expansion into Tier 3+ cities, presenting an 18 percent+ revenue CAGR from FY19 to FY23, contributing to 34 percent of the overall top line. They also noted that challenges related to high employee turnover have been addressed, and the company's marketing efforts are yielding positive responses, indicating better growth prospects.

Citi observed that patient volume growth, excluding Covid-related factors, remains subdued at 7.7 percent year-on-year.

Kotak's view is that while the worst of the pricing-led competition in the diagnostics sector may be behind, new organized players continue to impact the volume growth of established companies. They stressed that a favorable pricing environment is yet to be realized and attributed the underperformance to saturation in larger cities, with hopes of growth recovery through expansion into Tier 3+ markets.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.