CLSA retains buy on Dr Lal Path, volume growth to drive earnings

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26 Aug, 2025 12:21

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Moneycontrol Bureau

CLSA has maintained buy rating on Dr Lal PathLabs with a price target of Rs 1,140 per share as it believes company's strong positioning in North India and expansion in East should drive a 25 percent earnings CAGR over FY16-19. The stock gained more than 3 percent intraday Tuesday.

Given the current outbreak of dengue and chikungunya in Delhi, Q2FY17 volumes may spring a positive surprise, the brokerage house feels.

Dr Lal derives 70 percent of its revenue from North India. The key to Dr Lal's business model is its hub and spoke model approach along with a strong over 1,500 patient service centre (PSC) network largely operated by franchisees. Along with this, the company has some 5,000 pick-up points.Also read - Dr Lal Pathlabs expects good volumes in Q2

Walk-in patients (own labs + franchisee) account for 60 percent of revenue which has enabled Dr Lal to create a customer-centric brand, says the brokerage house which met company's CEO Om P Manchanda and CFO Dilip Bidani.

Dr Lal has a 85,000 square feet of reference lab in Delhi that conducts routine and specialised tests and handles samples from across India and overseas. The company is setting up another reference lab in Kolkata for Rs 35 crore that is due to be functional from September 2017.

New reference lab should be able to capture volumes from the East and North-East regions (13 percent of sales), says the brokerage house, adding Dr Lal believes the new reference lab will enable it to get closer to the patient and drive volume growth.

CLSA believes the company is well placed to capitalise on the shift away from standalone labs.

The Indian diagnostics services sector will witness a 17 percent revenue CAGR to USD 9 billion over FY15-18, according to CRISIL. The industry is fragmented with unorganised service providers having a 48 percent market share.

In the longer run, organised chains like Dr Lal's are poised to gain market share led by a) rising brand awareness and reliability, b) increased penetration of specialised tests and c) potential implementation of quality measures, CLSA says.According to the brokerage house, execution delays and inability to manage franchisee partners are key risks.

At 09:50 hours IST, the scrip of Dr Lal PathLabs was quoting at Rs 946.20, up Rs 23.75, or 2.57 percent on the BSE.Posted by Sunil Shankar Matkar