Dr Lal Pathlabs will sustain pre-COVID margins, says brokerage firm JM Financial

Dr Lal Pathlabs is aligned with the ongoing industry trend of network and product expansion. (Representative image)

Brokerage firm JM  Financial has a positive outlook for Dr Lal Pathlabs and expects the diagnostic company to sustain its pre-Covid margins in the coming fiscal year despite its subdued margin performance in the December quarter.

The broking firm's optimism over a turnaround stems from Dr Lal Pathlabs' operating leverage, cost rationalisation and volume traction from the non-NCR region even amid competitive intensity.

"We like the company's well-calibrated strategy of accelerated growth in emerging markets such as West and South and growth markets like Bihar, Rajasthan, UP etc.," the brokerage firm wrote in a report.

Meanwhile, JM Financial also expects Delhi NCR, the primary market for Dr Lal Pathlabs, to deliver higher year-on-year growth in the coming financial year.

Dr Lal Pathlabs is also aligned with the ongoing industry trend of network and product expansion in a bid to garner higher market share. On that account, JM Financial foresees acquisitions coming in FY24 as the company has net cash of Rs 490 crore which gives it sufficient room to look for inorganic growth opportunities.

Also Read: Is network expansion the booster dose diagnostic firms need?

The management's objective is to establish local reference laboratories in the North and East regions that will serve a group of collection centres in the vicinity. As time passes, the reliance on the NCR Lab will decrease and the local labs will function as autonomous units, leading to cost savings and quicker turnaround times.

The management has also highlighted their plan for organic expansion in the southern region, where Dr Lal Pathlabs operates 23 labs and over 250 collection centres.

Factoring all the major triggers JM Financial retained its "Buy" recommendation for the stock but slashed its target price by 4.2 percent to Rs 2,620 on the back of expensive valuations.