Prabhudas Lilladher is bearish on Dr. Lal PathLabs has recommended sell rating on the stock with a target price of Rs 895 in its research report dated May 19, 2020.
Prabhudas Lilladher's research report on Dr. Lal PathLabs
We believe COVID could structurally change the industry dynamics and spending patterns of consumers. Low-middle income groups could change their preference towards low cost and unorganized players while High-cost diagnostic players would battle out to gain market share at the expense of steep price discounts which would lower their realization. With rising COVID cases in India, the inflow of patients to diagnostic centers to remain muted and Q1FY21E to be a complete washout. We believe DLPL can generate only 28-30% of revenue compared to last year in Q1FY21E and gradual recovery from Q2FY21E. As per the management, 60-65% of DLPL's total operating cost is fixed in nature and the new additional expense (cost of safety for employee and home collection of samples) related to COVID can keep EBITDA margin below 20%.
We reduce revenue/EBITDA/EPS by 22.5%/51.1%/59.5% for FY21E and 26%/26%/23% FY22E on the above concerns and change our rating to 'SELL' (earlier REDUCE) with new TP Rs895 (earlier Rs1,310) on PE 40x (earlier 45x) of FY22E.
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