Hold Dr Lal Pathlabs; target of Rs 3,240: ICICI Securities

ICICI Securities recommended hold rating on Dr Lal Pathlabs with a target price of Rs 3,240 in its research report dated August 08, 2024.

Broker Research

August 09, 2024 / 15:09 IST

Hold

26 Aug, 2025 12:21

Volume

Todays L/H

ICICI Securitie's research report on Dr Lal Pathlabs

Sample volume grew 9.3% YoY (+10.5% QoQ) to 21.1mn. Patient volume rose 4.3% YoY (+10.8% QoQ) to 7.2mn. Realisation/patient was up 5.6% YoY (flat QoQ) at INR 833, while realisation/sample was up 1.8% YoY (-0.1% QoQ) at INR 285. Swasthfit accounted for 25% of revenue as against 24% in Q4FY24 and 22% in Q1FY24. Suburban reported revenue growth of 8% YoY in Q1 with EBITDA margin of 14%. Dr Lal is in the process of setting up 20 labs mainly in North and East India to deepen its existing presence in its core geographies. Management is focusing on testing for non-communicable disease and genetic testing in tier 3-4 cities. Volume expansion remains a priority while growth will be driven by shift from unorganised to organised. It may refrain from taking price hikes in near future. Management expects double digit revenue growth, mainly driven by volumes in FY25 with gross margin between 78-80% and EBITDA margins of 27%.

Outlook

Dr Lal PathLabs’ (Dr Lal) Q1FY25 result was in line with our expectations. Growth was driven by better uptick in Swasthfit (up 26.4% YoY). Overall sample volume rose 9.3% YoY and the company has refrained from taking a price hike in the last couple of months. Suburban Diagnostics’ revenue grew 8% YoY to INR 400mn though margin dipped 400bps QoQ to 14% due to staff increments. Consolidated margin at 28.2% was better than anticipated; management has maintained its guidance of 27% margin for FY25 (flat YoY). To improve test volumes, Dr Lal will open 20 hub labs every year that will further deepen its presence in North India. Cash of INR 10bn may be utilised for M&A to improvise presence in South India and other fast-growing cities. The stock has given a return of 41% in last 3 months and trades at 51x FY26E EPS and 31x FY26E EV/EBITDA. Downgrade to HOLD but raise TP to INR 3,240.

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