Shares of Dr Lal PathLabs Ltd March quarter missed analysts' estimates amid lower-than-expected volume growth. The stock reacted and fell over 3 percent on May 11.
On Friday, at 9.30 am, the stock was trading at Rs 1901 on BSE, down 0.3 percent from its previous close while India's benchmark Sensex fell 0.3 percent to 186.37 points.
Dr Lal PathLabs Ltd reported an 8.2 percent year-on-year decline in net profit for the March quarter to Rs 57 crore from Rs 62 crore. Revenue rose just 1.1 percent to Rs 491 crore from a year ago.
According to a 13 analysts poll by Bloomberg, the net profit was expected at Rs 62.93 crore while revenue was expected at Rs 515.70 crore.
EBITDA fell 4.4 percent to Rs 116 crore while EBITDA margins stood at 23.6 percent, down 130 basis points from 24.9 percent last year. On a low base, non-Covid sales grew 14 percent yoy, lower than our estimate of 20 percent yoy. Furthermore, traction in Suburban stays lower than expected.
"Non-covid sales grew weaker. Furthermore, traction in Suburban stays lower than expectations. In our view, increasing sanity in diagnostics pricing is well-captured in the recovery built in our estimates for Dr Lal Path (14%/15% sales/adjusted EBITDA CAGR over FY2023-25E). At 52X FY2024E EPS, valuations remain elevated", Kotak Institutional Equities said in its recent note. The brokerage house has retained its sell rating and cut its target price to Rs 1,525 from the current market price.
Suburban's EBITDA margins remained modest at 11.2 percent in the fourth quarter of FY23, as the impact of the Covid situation diminished and losses were incurred from the new Vidyavihar laboratory. However, Dr Lal Path has devised a strategic plan to enhance Suburban's sales performance.
This plan involves expanding the test menu to offer a wider range of options, establishing new franchise partnerships, strengthening connections with doctors, and leveraging the company's strong position in the corporate segment. Furthermore, the addition of the new laboratory will play a crucial role in scaling up Suburban's test offerings in specialty areas, reducing its current heavy reliance on routine tests.
"We build in 14 percent sales CAGR for DLPL over FY2023-25E, baking in a sharper ramp-up for Suburban owing to the above factors", Kotak report added.
For fiscal 2023, net profit slumped over 31 percent to Rs 344 crore while revenue lost 3.4 percent to Rs 2017 crore. EBITDA declined 13 percent to Rs 490 crore from Rs 561 crore a year ago.
" Given its brand equity, improving geographical spread and digital investments, DLPL is well placed to benefit from structural tailwinds. That said, competition remains high both from regional chains and new-age players", said Nuvama in its recent note. The brokerage house maintained a Hold rating and kept a target price of Rs 2,100 from the current market price.
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