May 17, 2022

RESULT REPORT Q4 FY22 | Sector: Pharmaceutical

Dr Lal Pathlabs Reco : ADD

CMP : Rs 2185

Margin woes may not be structural Target Price : Rs 2900

Potential Return : 33%
Result Synopsis
Dr Lal 4Q revenues were up 13%, slightly higher than our estimates. This was the first Stock data (as on May 17, 2022)
quarter having full impact of Suburban acquisition. Also, company saw some impact on Nifty 16,259
non-covid revenues in the month of January due to the impact of Omicron. Company 52 Week h/l (Rs) 4246 / 2151
Market cap (Rs/USD mn) 182075 / 2347
hopes to maintain March month double digit growth but intense competitive intensity to
Outstanding Shares (mn) 83
impact overall growth. Margins expected to come back to pre-Covid levels as high 6m Avg t/o (Rs mn): 771
operating leverage of Covid business will fade out FY23 onwards. Div yield (%): 0.5
Bloomberg code: DLPL IN
Dr Lal faces a tough FY23 as Covid ebbs away from revenues even as base quarters had NSE code: LALPATHLAB
a significant proportion of Covid sales. We cut volume growth estimate in FY23 on back
of increased competitive intensity and DLPL management choice of not going after a Stock performance
LALPATHLAB Nifty
cash burn model driven competition. Suburban revenues also expected to share a similar 170

cut with revenues lower than last non Covid full year sales. Expect volume growth to
revive on a weak base of FY23 which would help margins in next fiscal. Hence while we
cut FY23/24 estimates in a meaningful manner, our positive bias still stays on expectation 70
May-21 Sep-21 Jan-22 May-22
of margin recovery beyond current fiscal. FY24 would also see the benefit of a more
intense focus on Suburban core markets of Mumbai, Pune and utilization of upcoming 1M 3M 1Y
Absolute return -18.9% -19.5% -20.3%
reference lab in Mumbai. Management alluded to focus on hub labs with a wider test
menu rather than satellite labs with large overheads along with increased reliance on
Shareholding pattern (As of Mar’22 end)
franchise model which would help defray operating costs. Cut FY23/24 EPS estimates by
Promoter 55.2%
~14-15% on lower revenue/margin assumption but retain ADD based on 55x (earlier FII+DII 30.3%
60x – lower multiple as competition remains elevated) FY24 EPS for a revised TP Rs2,900 Others 21.9%
(earlier Rs3,850). While margin woes would spoil the show in H1 FY23, reckon sharp
correction in stock factors such near term pressure. Key risk to our view would be lack of ∆ in stance
(1-Yr) New Old
rebound in volumes in H2 FY23 & FY24 coupled with major deterioration in realizations.
Rating BUY BUY
Target Price 2,900 3,850
Result Highlights
∆ in earnings estimates
▪ Revenue up 12.6% YoY to Rs 4,091mn, higher than our estimate of 11% growth FY23e FY24e
YoY. EPS (New) 43.2 53.3
EPS (Old) 50.2 62.5
▪ Non-covid business displayed growth of 12% on low base of last year but fell 3% % change -14.0 -14.7
sequentially.
Financial Summary
▪ Covid and allied business contributed 13.6% to overall revenues. (Rs mn) FY22 FY23E FY24E
Revenue 20,874 22,600 25,850
▪ Operating margins came in at ~25%, down 336bps YoY but up 297bps QoQ YoY Growth 32.0 8.3 14.4
EBIDTA 5,607 5,877 7,042
Actual vs estimates YoY Growth 28.5 4.8 19.8
PAT 3,503 3,598 4,441
Estimates % Variation YoY Growth 18.1 2.7 23.4
Rs Mn Actual
Yes Sec Consensus YES Sec Consensus Remarks ROE 25.4 22.1 23.2
EPS 42.0 43.2 53.3
Sales 4,855 4,784 5,423 1.5 (10.5)
Miss on P/E 52.0 50.6 41.0
EBITDA 1,211 1,308 1,419 (7.4) (14.7) both growth BV 180.9 210.0 249.1
and margin EV/EBITDA 31.8 29.8 24.3
OPM (%) 24.9 27.3 26.2 (240bps) (122bps)
fronts
Adjusted PAT 621 744 823 (16.5) (24.5)
Source: Company, YES Sec BHAVESH GANDHI
Lead Analyst
[email protected]
+91 22 6885 0521

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 1
 Dr Lal Pathlabs

Exhibit 1: Quarterly snapshot

Rs mn Q4 FY21 Q1 FY22 Q2 FY22 Q3 FY22 Q4 FY22 y/y (%) q/q (%) FY22 FY21 y/y (%)
Revenue 4,310 6,066 4,984 4,969 4,855 12.6 (2.3) 20,874 15,813 32.0
Expenditure 3,090 4,176 3,569 3,877 3,644 17.9 (6.0) 15,267 11,450 33.3
- RM 1,618 2,372 1,943 1,832 1,139 (29.6) (37.8) 5,023 6,016 (16.5)
- Staff Cost 761 864 836 973 975 28.1 0.2 3,649 2,737 33.3
- Other Costs 711 940 790 1,072 1,530 115.2 42.7 6,595 2,697 144.5
Operating Profit 1,220 1,890 1,415 1,092 1,211 (0.7) 10.9 5,607 4,363 28.5
OPM(%) 28.3 31.2 28.4 22.0 24.9 -336 bps 297 bps 26.9 27.6 -73 bps
Other Income 135 141 143 121 120 (11) (1) 525 513 2.3
Depreciation 203 192 205 307 377 86 23 1,081 772 40.0
Interest 44 46 47 91 119 170 31 302 160 88.8
PBT 1,108 1,793 1,306 815 835 (24.6) 2.5 4,749 3,944 20.4
Tax 257 456 343 233 214 (16.7) (8.2) 1,246 979 27.3
PAT 851 1,337 963 582 621 (27.0) 6.7 3,503 2,965 18.1
Source: Company, YES Sec

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 2
 Dr Lal Pathlabs

KEY CON-CALL HIGHLIGHTS

Suburban Acquisition
▪ First full quarter post acquisition of Suburban.

▪ No further payouts to Suburban as it wasn’t able to achieve the required targets in FY22.

▪ Revenue recognition will be from gross to net after consolidation.

▪ Margins are diluted to due to acquisition and also some effect of omicron.

▪ Revenue per patient slightly down due to suburban acquisition as more covid business.

▪ Planning to drive strong growth much faster what it has been doing over the last 3 years.

▪ Covid business fall led to erosion of 50% of revenues. Plan to grow non-covid now and bring
revenues back to last year levels in next 2-3 years. Will help us double the margins from 10%
which they had pre-covid.

▪ Couple of months from now the reference lab should be up and running. Test menu for
Mumbai lab is 70-75% of what it is in Mumbai lab.

Covid
▪ Some spurt in covid testing in first few weeks of Jan some remained short term.

▪ Sharp decline in covid and covid allied tests since end of January. Continues in Q1FY23.

▪ Recent changes due to covid - Significant shift towards home collection and franchise owned
infra. Bundle packages on rise. Non-covid business coming in line to pre-covid

▪ 19% of overall revenue for FY22 was from covid and covid-allied tests.

▪ Higher operating leverage as more centralised test.

▪ In early part of the year, margins were higher than overall business but by end of it, lower
covid test prices led to lower margins.

▪ 3.35mn covid tests done for FY22. This might also include numbers from Suburban.

Non-Covid
▪ Month of January saw self imposed lockdowns and affected non-covid revenues.

▪ March was very good for non-covid revenues.

▪ March growth is in double digits but it can be looked as a backlog of January and February
sales.

Competitive Intensity
▪ Has remained high. Facing from not only unorganized but also organized players now.

▪ Will partner with e-pharmacy players to increase reach. Don’t plan to open own e-pharmacy.

▪ In the healthcare space, average frequency of purchase is less than once a year and people
usually trust a brand and visit places despite price bands. Cheap pricing may affect the brand.

▪ Cash burn model by some players may hammer the bigger brands but it is not sustainable
for long.

▪ Some of the competitive intensity will help to expand the underpenetrated market.

Outlook

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 3
 Dr Lal Pathlabs

▪ Soon be launching reference lab in Mumbai.

▪ Opening up new labs in South and Bangalore reference labs is seeing good growth.

▪ Tier 2 and 3 towns expected to grow faster. Building hub labs in small cities to offer value
proposition and reduce TAT.

▪ 2-3 years of time frame should be strong in West but South might take time.

▪ Continue to invest in omnichannel.

▪ Should be able to deliver mid-teens range of growth in revenues.

▪ Margins may mimic to pre-covid levels. No scope of improving margins from here.

▪ Mumbai and Pune are geographies that remain under laser sharp focus in FY23.

▪ No specific target for bundled products. It will continue to grow and will contribute higher
in coming years to the overall revenue of the business.

▪ Home collection is 12% of revenues in Q4 excluding Suburban. Swasthfit is 18% of revenues

for Q4.

Balance Sheet
▪ Borrowings much cheaper than FDs. Should discharge borrowings over the next year.

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 4
 Dr Lal Pathlabs

FINANCIALS
Exhibit 2: Balance Sheet
Y/e 31 Mar (Rs m) FY20 FY21 FY22 FY23E FY24E
Equity capital 833 833 833 833 833
Reserves 9,495 11,617 14,247 16,665 19,926
Net worth 10,328 12,450 15,080 17,498 20,759
Debt 930 1,103 3,057 3,057 3,057
Minority interest 212 310 355 355 355
Def.tax lia 0 7 40 40 40
Total liabilities 11,470 13,870 18,532 20,950 24,211

Goodwill 772 854 5,499 5,499 5,499

Fixed assets 3,472 3,716 8,404 7,584 6,708
Investments 344 312 508 508 508
Net working capital 6,653 8,707 3,751 6,990 11,126
Inventories 570 426 524 567 649
Sundry debtors 514 667 854 925 1,058
Cash 7,334 9,852 6,831 9,769 13,978
Other current assets 509 505 542 1,130 1,293
Sundry creditors (1,177) (1,441) (1,474) (1,596) (1,825)
Other current liabilities (1,096) (1,302) (3,526) (3,805) (4,026)
Def tax assets 229 280 370 370 370
Total assets 11,470 13,870 18,532 20,950 24,211
Source: Company, YES Sec

Exhibit 3: Income statement

Y/e 31 Mar (Rs m) FY20 FY21 FY22 FY23E FY24E
Revenue 13,304 15,813 20,874 22,600 25,850
Operating profit 3,436 4,363 5,607 5,877 7,042
Depreciation (728) (772) (1,081) (1,320) (1,375)
Interest expense (153) (160) (302) (306) (306)
Other income 550 513 525 536 546
Profit before tax 3,105 3,944 4,749 4,786 5,907
Taxes (829) (979) (1,246) (1,188) (1,466)
Adj. profit 2,276 2,965 3,503 3,598 4,441
Exceptional item - - - - -
Net profit 2,276 2,965 3,503 3,598 4,441
Source: Company, YES Sec

Exhibit 4: Growth and Ratio matrix

Y/e 31 Mar FY20 FY21 FY22 FY23E FY24E
Growth matrix (%)
Revenue growth 10.5 18.9 32.0 8.3 14.4
Op profit growth 17.0 27.0 28.5 4.8 19.8
EBIT growth 8.1 26.0 23.1 0.8 22.0

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 5
 Dr Lal Pathlabs

Net profit growth 13.5 30.3 18.1 2.7 23.4

Profitability ratios (%)

OPM 25.8 27.6 26.9 26.0 27.2
EBIT margin 24.5 26.0 24.2 22.5 24.0
Net profit margin 17.1 18.8 16.8 15.9 17.2
RoCE 31.0 32.4 31.2 25.8 27.5
RoNW 23.0 26.0 25.4 22.1 23.2
RoA 19.7 21.0 21.1 18.9 19.9

Per share ratios

EPS 27.3 35.6 42.0 43.2 53.3
Dividend per share 12.0 20.0 12.0 12.0 12.0
Cash EPS 36.0 44.8 55.0 59.0 69.8
Book value per share 123.9 149.4 180.9 210.0 249.1

Valuation ratios (x)

P/E 80.0 61.4 52.0 50.6 41.0
P/BV 17.6 14.6 12.1 10.4 8.8
M Cap/Sales 13.7 11.5 8.7 8.1 7.0
EV/EBIDTA 51.1 39.7 31.8 29.8 24.3

Payout (%)
Tax payout 26.7 24.8 26.2 24.8 24.8
Dividend payout 51.9 66.3 33.7 32.8 26.6

Liquidity ratios
Debtor days 14 15 15 15 15
Inventory days 16 10 9 9 9
Creditor days 32 33 26 26 26

Leverage ratios
Interest coverage 13.3 16.1 20.1 13.6 29.5
Net debt / equity (0.3) (0.0) (0.1) (0.1) (0.2)
Net debt / op. profit (0.9) (0.2) (0.3) (0.2) (0.8)
Source: Company, YES Sec

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 6
 Dr Lal Pathlabs

Recommendation Tracker

LALPATHLAB Reco Nifty (RHS)

4,600 21,000
Add
4,100
3,514 19,000
3,600 Add
2,831 17,000
3,100

2,600 15,000

2,100 13,000
1,600
11,000
1,100
9,000
600

100 7,000
May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 7
 Dr Lal Pathlabs
DISCLAIMER DISCLOSURE OF INTEREST

Investments in securities market are subject to market risks, read all the Name of the Research Analyst : Bhavesh Gandhi
related documents carefully before investing.
The analyst hereby certifies that opinion expressed in this research report
The information and opinions in this report have been prepared by YSL and accurately reflect his or her personal opinion about the subject securities and
are subject to change without any notice. The report and information no part of his or her compensation was, is or will be directly or indirectly
contained herein are strictly confidential and meant solely for the intended related to the specific recommendation and opinion expressed in this research
recipient and may not be altered in any way, transmitted to, copied or report.
redistributed, in part or in whole, to any other person or to the media or
reproduced in any form, without prior written consent of YSL. Sr.
Particulars Yes/No
No.
The information and opinions contained in the research report have been Research Analyst or his/her relative’s or YSL’s financial
1 No
compiled or arrived at from sources believed to be reliable and have not interest in the subject company(ies)
been independently verified and no guarantee, representation of warranty, Research Analyst or his/her relative or YSL’s
express or implied, is made as to their accuracy, completeness, authenticity actual/beneficial ownership of 1% or more securities of the
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invitation to make an offer, to buy or sell any securities or any derivative preceding the date of publication of the Research Report
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YES Securities (India) Limited (YSL) distributes research and engages in other Associates of YSL may have actual/beneficial ownership of 1% or more and/or
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through SEC 15a-6 rules and regulations under an exclusive chaperone
arrangement with Brasil Plural Securities LLC. The views and sentiments
expressed in this research report and any findings thereof accurately reflect
YSIL analyst’s truthful views about the subject securities and or issuers
discussed herein. YSIL is not registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and is BHAVESH Digitally signed by
BHAVESH
not a member of the Securities Investor Protection Corporation ("SIPC"). INDRAVADAN INDRAVADAN GANDHI
Brasil Plural Securities LLC is registered as a broker-dealer under the Date: 2022.05.18
GANDHI 06:51:19 +05'30'
Exchange Act and is a member of SIPC. For questions or additional
information, please contact Gil Aikins ([email protected]) or call
+1 212 388 5600.

YES Securities (India) Limited Registration Nos.: CIN: U74992MH2013PLC240971 | SEBI Single
Registration No.: NSE, BSE, MCX & NCDEX: INZ000185632 | Member Code:
BSE – 6538, NSE – 14914, MCX – 56355 & NCDEX - 1289 | MERCHANT
BANKER: INM000012227 | RESEARCH ANALYST: INH000002376 |
INVESTMENT ADVISER: INA000007331 | Sponsor and Investment Manager

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 8
 Dr Lal Pathlabs
Registered Address: 2nd Floor, North Side, YES BANK House, to YSL Alternates Alpha Plus Fund (Cat III AIF) SEBI Registration No.:
Off Western Express Highway, Santacruz East, IN/AIF3/20-21/0818 | AMFI ARN Code – 94338.
Mumbai - 400 055, Maharashtra, India.
Details of Compliance Officer: Name: Vaibhav Purohit,
Correspondence Address: 4th Floor, AFL House, Email id: [email protected], Contact No: +91-22-6885 0278
Lok Bharti Complex, Marol Maroshi Road, Andheri East,
Mumbai - 400059, Maharashtra, India.

 +91 22 68850521 |  [email protected]

Website: www.yesinvest.in

For important information about YES Securities (India) Ltd. and other disclosures, refer to the end of this material. 9