Dr Lal Pathlabs drops 4% as valuation concerns outweigh Q1FY25 positives

everal brokerages like Centrum Broking, ICICI Securities and JM Financial chose to downgrade Dr Lal PathLabs.

Shares of Dr Lal PathLabs fell nearly 4 percent on August 8 as concerns over valuations outweighed the company's positive quarterly earnings.

At 11.50 pm, shares of Dr Lal PathLabs were trading at Rs 3,224 on the NSE.

Given that stock has risen over 40 percent in just three months, brokerages like Centrum Broking, ICICI Securities and JM Financial chose to downgrade Dr Lal PathLabs, and cited limited upside potential due to lofty valuations.

ICICI Securities downgraded the stock to a 'Hold' but raised price target to Rs 3,240. Centrum Broking too increased the target for Dr Lal PathLabs by 27 percent to Rs 3,550, but downgraded the stock to an 'Add' rating. JM Financial downgraded the stock to 'Sell', assigning a price target of Rs 3,425.

Despite downgrades, most brokerages remain optimistic about Dr Lal PathLabs' growth prospects, largely due to easing competitive landscape in the industry and a shift from unorganised to organised players in tier 2 and tier 3 cities.

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Dr Lal PathLabs is setting up 20 labs in North and East India to strengthen its presence in core geographies. The management is focusing on testing for non-communicable diseases and genetic testing in tier 3-4 cities, prioritising volume expansion. Nuvama Institutional Equities believes successfully scaling up suburban’s direct-to-consumer presence and Dr Lal PathLabs' execution outside core markets remains key.

The management also anticipates double-digit revenue growth driven mainly by volumes in FY25, with gross margins between 78-80 percent and EBITDA margins of 27 percent. The company may refrain from taking price hikes over next 3-4 quarters.

JM Financial also highlighted that a large part of the company's future growth will be driven by tier 3+ towns, the rest of North India and East geographies.

On top of that, the company's balance sheet, sitting on a net cash of Rs 1,000 crore, may help explore mergers and acquisitions to improve presence in South India and other fast-growing cities, brokerage firm ICICI Securities said.

The diagnostic chain reported a 29 percent on year rise in its consolidated net profit to Rs 108 crore for the April-June quarter of FY25, up from Rs 84 crore in the year ago period. Its revenue also rose to Rs 602 crore in Q1 as against Rs 541 crore in the same quarter previous fiscal.

The company's growth in the June quarter of FY25 was driven by a better uptick in Swasthfit and an improvement in overall sample volumes. These factors also aided an expansion in the diagnostic company's EBITDA margin, which expanded to 25.9 percent in Q1, up from 23.2 percent in the year ago period.

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