Sell Dr. Lal PathLabs; target of Rs 1006: Prabhudas Lilladher

Prabhudas Lilladher's research report on Dr. Lal PathLabs

1QFY21 earnings were higher than our estimate as 1) All collection centers and labs resumed operations much earlier than expected 2) higher revenue contribution from other regions than Delhi-NCR and 3) Bundled test not impacted during the lockdown. However, 1QFY21 witnessed lower level of realization with Revenue/Patient (ex-COVID test) to Rs636 v/s Rs685 YoY and Test/Patient to 2.27 v/s 2.42. DLPL highlighted increase in patient’s preference for sample collection from homes led to higher payout of incentives to collection centers.

Outlook

Assuming 1QFY21 as base case to stress tests its revenues and headline margins, we revised our earnings estimates for FY21E-23E. With assumptions 15% CAGR in earnings (derived on EPS growth in FY18-20) and normalized 1-yr forward PE of 35x, the current valuation of DLPL reflects forward earnings of FY25E. With challenging valuation of 12.5x EV/sales(FY21E), we maintain ‘SELL’ recommendation and revised TP to Rs1,006 (from Rs895) on PE 40x of FY22E.