Dr. Lal PathLabs Ltd
NSE:LALPATHLAB
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Dr. Lal PathLabs Ltd
Earnings Call Analysis
Q1-2025 Analysis
Dr. Lal PathLabs Ltd
Dr. Lal PathLabs began Q1 FY '25 with impressive financials, achieving a revenue of INR 602 crores, marking an 11.3% increase from INR 541 crores in Q1 FY '24. This growth is attributed largely to an uptick in patient volumes, with a total of 7.2 million patients serviced and 21.1 million samples tested during the quarter.
The increase in revenue was driven by a 5.5% rise in patient volume and a 9.6% rise in the number of samples compared to the previous year. Revenue per patient remained stable at INR 833, the same as the previous quarter. The company's efforts to enhance its operational efficiency and increase testing volumes through strategic investments are underscored as key drivers for future growth.
Management highlighted a focus on strengthening digital infrastructure and capabilities, including advanced data analytics. These improvements aim to address testing demand more effectively, which aligns with the company's goal of enhancing patient service outcomes. The integration of Dr. Lal PathLabs and Suburban diagnostics is also on track, which is expected to bolster patient volumes considerably.
The EBITDA for the quarter was INR 170 crores, up 16.2% year-on-year, resulting in an EBITDA margin of 28.2%. Profit Before Tax (PBT) saw a notable growth of 27.6%, reaching INR 150 crores with a PBT margin of 24.9%. The PAT for the quarter was INR 108 crores, a growth of 29.1%, yielding a PAT margin of 17.9%. Earnings per Share (EPS) also increased from INR 9.9 to INR 12.8.
Looking ahead, management projects continued revenue growth driven by patient volume increases and a favorable mix of tests. The anticipated increase in revenue is expected from ongoing expansion into Tier 3 and 4 cities, with plans to establish 20 new labs in these strategic locations throughout the fiscal year. Management reiterated that FY '25 revenues are likely to exceed the 10.4% growth from the previous year.
The competitive environment appears to be stabilizing after intense competition led to price wars in the diagnostics sector. While many companies have scaled back aggressive promotions, some competitors remain active. Management believes that healthy competition can elevate the overall industry standards, leading to better service quality and expanded market growth.
With a robust net cash position of INR 1,044 crores, the board has declared an interim dividend of INR 6 per share for FY '25. This financial stability positions the company well for future expansion initiatives and potential strategic acquisitions in higher growth markets.
Investments in specialized tests and research and development are anticipated to yield competitive advantages for Dr. Lal PathLabs. Management views increased prescriptions for specialized tests and wellness packages as critical to enhancing overall revenue streams in the long term.
Dr. Lal PathLabs is poised for sustained growth, supported by strategic investments in infrastructure, digital capabilities, and market expansion. With strong historical performance and an adjusted focus towards Tier 3 and 4 markets, the company anticipates a favorable trajectory in its financials moving forward.
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Ladies and gentlemen, good day, and welcome to Dr. Lal PathLabs Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar of CDR India. Thank you, and over to you.
Good evening, everyone, and welcome to Dr. Lal PathLabs Quarter 1 FY '25 Earnings Conference Call. Today we have joined by senior members of the management, including Honorary Brigadier, Dr. Arvind Lal, who is the Executive Chairman; Dr. Om Prakash Manchanda, Managing Director; Mr. Shankha Banerjee, Chief Executive Officer; and Mr. Ved Prakash Goel, the Chief Financial Officer.
I would like to share that some of the statements made on today's call could be forward-looking in nature, and actual results could vary from these forward-looking statements. A detailed statement in this regard is also available in the results presentation that is available on the stock exchange website and has been separately circulated to all of you.
I would now like to invite Dr. Arvind Lal to share his perspective. Thank you, and over to you, Dr. Lal.
Thank you, Siddharth, and good afternoon, and a warm welcome to all participants on this call. We are here to discuss the quarter 1 FY '25 earnings performance of Dr. Lal PathLabs. I would like to comment by sharing my insights into the changing market dynamics and the advancements we have achieved.
This year also marks our 75th anniversary, where Dr. Lal PathLabs continues to be a trusted healthcare partner renowned for his commitment to quality, accuracy, accessibility and affordability.
The diagnostics market in India is expected to grow as people live longer, more tests get [indiscernible] prescribed as a shift from unorganized to organized sectors build momentum. Our unyielding attention to excellence in diagnostics has earned us with trust of both patients and physicians over the years. Utilizing our digitally enabled network infrastructure, we remain agile to service growing demand for testing. Our custom-bid logistics solutions further enhances our capability to serve our patients more efficiently.
The integration between Dr. Lal PathLabs and suburban diagnostics is progressing as per our expectations. With the suburban brand, we are making volume expansion a priority. We are making a strategic investments in both marketing and process efficiencies to fortify the brand while enhancing the patient experience. We are creating opportunities to grow sample volumes with the help of hub labs in important clusters around the rest of the country.
Our synergistic approach enables us to provide patients with a comprehensive area of tests across multiple categories with speed and precision. Looking ahead, our growth trajectory will be driven by the ongoing transition from unorganized to organized sectors. Heightened awareness of accurate diagnosis and emphasis on wellness among others.
We remain dedicated to expanding our network and enhancing our service standards through operational excellence and innovative technological advancements. I'm confident that the capabilities that we have created to achieve sustained growth and further consolidate our market share. Thank you. And I would now like to hand over to Dr. Om Manchanda. Over to you, Om.
Thank you Dr. Lal. Welcome to our call today. I shall walk you through the evolving industry scenario and progress on our strategy. I'm pleased to report that we have achieved 11.3% growth rate on a year-on-year basis. This is a result of consistent execution of strategy of expanding presence in identified towns and cities where our brand enjoys salience. Particularly in rest of North, Central, East and across the rest of the country. The contribution from suburban diagnostics to the top line is scaling up in line with the initiatives that we are driving on franchising and brand communication.
We continue to prioritize broadening and deepening the brand's geographical presence in order to derive sustainable volume and value growth. Our focus, therefore, is on scaling the next year, expanding into Tier 3 and Tier 4 towns with lab infrastructure. We are establishing 20 new labs to broaden our reach with plans to add more labs as the year progresses. DLPL is present in most prominent cities where we continue to densify our PSC network. Suburban is a fulcrum for the thrust into Mumbai, parts of Western India, including Goa and Pune.
We are actively exploring opportunities to expand our footprint there, focusing on assets that align with our core values and strategic goals. Our SwasthFit brand, a steady revenue contributor has delivered around 25% of the total revenue and continues to expand. The medical centers of excellence, which we have established, are scaling effectively enhancing patient engagement and outcomes.
Driven by strategic emphasis on sustainable volume growth, these efforts aim to draw patients from unorganized labs, promoting adoption of quality and accuracy backed approach to testing. Our investment in technology and digital infrastructure are delivering complete outcomes, strengthening brand visibility and facilitating smoother interactions with patients.
Patients today except our services across channels and our infrastructure naturally has kept pace with these requirements. As this metric evolve brands like ours are in a strong position to excess growth. We remain attentive to market dynamics, adapting our approach to ensure sustainability of outcomes.
Moving forward, maintaining a solid financial foundation is crucial. To focus efforts, we aim to maintain our robust operating metrics and drive a strong cost structure that will form the basis of the growth initiatives.
I now hand over to Shankha to delve deeper into our strategic initiatives and operational highlights. Over to you, Shankha.
Thank you. I welcome all participants joining this call today. I will proceed to share the business and operating highlights with you. We are pleased to announce a strong start to the year, achieving robust performance in both revenue growth and profitability.
In Q1 FY '25, we achieved a revenue of INR 602 crores, representing 11.3% growth over Q1 last year. This growth in revenue is driven by patient volumes, which is at 7.2 million and 21.1 million samples. Patient volume growth for Q1 FY '25 is 5.5% and sample volume growth is 9.6% over Q1 FY '24. Notably, we saw a 10.4% increase in patient numbers in Q1 FY '25 as compared to Q4 FY '24.
Our Q1 FY '25 revenue per patient stands at INR 833, which is same as Q4 FY '24.
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We are strengthening our digital infrastructure and capabilities, encompassing cutting-edge data analytics in order to enhance testing and service outcomes for patients. This is going to be a focus area for us. Dr. Lal PathLabs and Suburban are driving the omnichannel experience forward with the help of technology.
In the period to come, we expect a combination of volume gains and realization mix to drive the revenue growth. This shall include favorable test and geographic mix attraction and bundle testing and buildup in volumes in specialized tests shall also contribute to this.
In conclusion, I would like to emphasize that we are progressing as per plan on our growth objectives. Our future performance will be guided by expanding our footprint in identified clusters, enhancing our digital capabilities and enhancing patient service outcomes.
Thank you for your ongoing support and trust in our journey. This concludes my opening thoughts. I would now request Ved to take you all through the financial performance. Over to you, Ved.
Thank you Shankha. Good afternoon, everyone, and warm welcome. I'm sharing some of the key financial highlights for Q1 FY '25. Revenue for Q1 FY '25 came in INR 602 crores against INR 541 crores last year same quarter, a growth of 11.3%. Revenue per patient for Q1 FY '25 is INR 833 versus INR 789 in Q1 FY '24. Sample for patients for Q1 FY '25 is 2.92 with a growth of 3.9%. EBITDA for Q1 FY '25 came in at INR 170 crores versus INR 146 crores in Q1 FY '24, registered a growth of 16.2% with our EBITDA margin of 28.2%.
PBT for Q1 FY '25 came in at INR 150 crores, registered a growth of 27.6% with PBT margin of 24.9%. PAT for Q1 FY '25 came in at INR 108 crore versus INR 84 crores last year same quarter. Registered a growth of 29.1%, with PAT margin of 17.9%.
EPS in Q1 FY '25 is INR 12.8 versus INR 9.9 in Q1 FY '24. Net cash and equivalents as on June 30, 2024, is INR 1,044 crores. We are pleased to announce that the Board of Directors has approved an interim dividend of INR 6 per share for FY '25. With this, I conclude my opening remarks and I would now request the moderator to open the forum for Q&A.
[Operator Instructions] We'll take our first question from the line of Rahul Agarwal from Ikigai Asset Management.
I have three questions. Firstly, on the PM3 Tier 4 markets. As you're expanding infra, I just wanted to know any learning from patient behavior here, like how are these patients different from metro and Tier 1? What are they seeking for from a brand like yours?
I'll ask Shankha to respond to this question, Rahul.
So in terms of expansion into Tier 3, Tier 4, primarily the -- it's a lot about looking at local unorganized players, when we are kind of compete with them. And our offering there is quite similar to what we offer in Tier 2 and Tier 1 cities as well. So its -- we lead with quality and service. And obviously, we are finding quite a lot of patients and clinicians who are embracing us in these cities. So the offer is really not significantly different from what we are doing in our other cities.
Is the pricing very different? Or even that remains the same?
So Rahul, I'll probably slightly give you a higher level perspective. What we've seen is that most of these smaller towns, their behavior is influenced by prescription -- nature of the prescription by doctors. What we are seeing is that the healthcare is now traveling to Tier 3, Tier 4. And I think it's a bit of a qualitative comment. I think overall quality of medical manpower is also going up.
As more qualified doctors settle down in smaller towns, they tend to prescribe tests, which are also higher order. So I think this is a more of market evolution where we will see level of testing going up with time. And directionally, it's quite visible in our numbers as well. So I think that's where we -- I would want to make a comment.
Got it. Secondly, on the medical center of excellence, I just wanted to know, could you elaborate what is this exactly? Are we putting up a different infrastructure here? Or is this the current lab is getting transformed into something.
I think it's a good question. I'll explain to you. I think you guys cover a lot of pharma businesses. So what sense -- if you look at the journey of this entire pathology, most of the differentiation in the past has been surveys, branding, brand awareness top of this stuff and all that, right? But as we have progressed in the last 20 years, the market has grown, more competition has come. So everybody is offering the same thing now. The only way you differentiate is that you start looking at different segments. Like in pharma, you have a gastro division, you have an onco division, you have that and this. So right now it's...
Ladies and gentlemen, we've lost the management connection. Request you to stay connected, please.
We have the management team back on call.
I'm sorry, we are having some technology issues this time. So anyway, I don't know where -- maybe I'll repeat the whole thing. So Rahul, the answer to this question is we are trying to segment the market and look at broad segments and especially on high end, the segmentation is done based on disease state. And that's how we have identified certain segments like Onco, autoimmunity, reproductive diagnostics, and trying to get more focus from the corporate side.
So that whether it's introduction of newer tests, whether it's introduction of new communication with the medical fraternity, organizing seminars, or creating patient cohorts. So a lot of those activities in a focused manner, we are trying to create these categories, and that's the whole idea.
Operationally, though we have some people on ground, but it's not really -- we are not trying to create different teams for these segments.
All right. So these are like adjusting people, working at different labs, which are identified as where you want to increase communication and you want to focus on specific specialty, is that correct?
Yes, it's higher -- I would say higher focus on marketing efforts. Everything else remains same that's it.
And lastly, on this SwasthFit specialized portfolio. Just wanted to know -- I know that it's small right now, but what kind of scale or total mix into overall SwasthFit, do you visualize over the next 3 years?
For SwasthFit?
Yes. SwasthFit specialized portfolio.
So the SwasthFit specialized portfolio is primarily aimed towards clinicians, and we are still kind of working on it. It's not something which is -- which has reached the level of scale for us to differentiate and start reporting those numbers separately.
Shankha, I understand what I'm asking was it more like a 3-year view? Would you visualize like what kind of a specialized mix would you have within SwasthFit, would you have that?
So right now.
This is Dr. Lal here, Rahul. And the people around India, especially in these Tier 3 and Tier 4 towns, they have not realized the importance of these so-called noncommunicable diseases and lifestyle diseases, which we are trying to make an awareness.
Ladies and gentlemen, please stay connected.
We have the management team connected now. Sir, please go ahead.
Yes. So this is Dr. Lal. Rahul, I was trying to tell you that the importance is of the nondominicable or lifestyle diseases, which we are trying to awaken these Tier 3, Tier 4 towns. And that is also a part of why this SwasthFit is doing well.
We have our next question from the line of Karthik Chellappa from Indus Capital Advisors, Hong Kong Limited.
Sir, I have three sets of questions. The first one is if we were to look at our volume growth, let's say, of about 9 percentage or so. Could you give us some sort of perspective on geography wise how that is faring? I mean which are like the geographies driving double digit and which are the ones which are still lagging?
So Karthik, I think we are not giving geography-wise split quarterly, but once in a year we are giving. Having said that, the geographies like which is rest of North and East, which obviously are performing well, and they are doing better than our company average. Where we are going much deeper, which is, let suppose, rest of North and especially UP, where we are going Tier 3 and plus. That is obviously the higher growth as compared to company growth.
Okay. Got it. My second question, sir, is what would be the like-for-like price increase that we have taken on a year-on-year basis across this?
We have -- we took last price increase that was in February of 2023. And we completed one full year of cycle of that in February '24, and we have not taken any price increase and neither we have intent to take as of now.
Got it, which means, if I were to look at, let's say, the realization per test, which is probably up 2% year-on-year. That's probably driven more by mix, right? Rather than anything else on a like-for-like basis.
Absolutely, you are right. It's a mix that is driving this revenue.
Sorry, sir, I just missed the last part.
No, you're right. This is the mix which is driving this revenue per patient up.
Okay. Got it. And last question, sir, would you be able to share the revenue and EBITDA margin for suburban this quarter?
So suburban growth this quarter is about 8%, and EBITDA is about 14%.
Okay 8% revenue growth and 14% EBITDA margin. Okay. Got it. Thank you sir and wish you all the very best for the remaining quarters.
Thank you.
We'll take our next question from the line of Binay from Morgan Stanley.
The 8% growth in suburban you commented is Y-o-Y growth. So basically, you would have done around INR 40 crores or so of revenue. Is that Y-o-Y number that you gave?
Yes. It's a Y-o-Y. Same quarter last year.
Even for suburban growth to be lower than your overall growth because -- or is it -- any comments on that?
So actually, I know this is a question which is on everyone's mind. So we are -- I think the number doesn't show but we are not unduly worried about this. I think the fundamental thing what has happened in suburban is a very, very strong strategic shift that has taken place in that company. This company used to be more driven through doctors network in the past, own infrastructure in the past.
We are strictly going by franchising, so [indiscernible] direct-to-consumer. There was a lot of the business of CRO also, which actually was not a business which was very B2B, not a sustainable thing. So we are trying to build this company more direct-to-consumer, make sure that health checkups and things like that.
So I think, overall, directionally, 8.3% is definitely an improvement from what we have experienced in the past. So directionally, I think we are getting more confidence about suburban. So I'm not really too much worried about this number. I think, sorry, what is that?
Growth and EBITDA, it seems...
Ved is telling you core business growth is 13%. So I don't want to get into this. To me, one number is where we stick to. We don't really slice this into core and non-core. I stay very confident on suburban. That's the way I would say. This business is -- see, it's actually not run quarter-on-quarter. It's a need-based business you just keep doing your work slowly, slowly, you will -- one gets the results.
So I'm very, very sure about this, that look at margins now 14.1%. There was a time this company never actually before COVID, even before our transition also, pre-COVID had single-digit margins. So there is an improvement, which is visible. There are green shoot sales.
Right. And sir, secondly, on your own margins, could you talk a little bit about -- because in the past, we've always seen that quarter 2 is usually the strongest quarter for the company. And given revenue leverage that falls in, so margins also tend to be the highest in quarter 2. Would you sort of expect a similar trajectory into this year also.
Quarter 2 is always higher. You're right. So quarter 2, actually yet to -- obviously, most of the spike actually happens around September. So -- but there is no reason why it should not happen because the season, the rains, et cetera, all that happens every year. But as the revenue tends to be in absolute terms, also higher in Q2, everything just flows into the margin. So I presume that Q2 will always remain higher margin compared to any other quarter.
Right. So in the sense, our margins are -- could at least hold up or inch-up on an annualized basis from these levels as you are getting leverage gain like it's visible in your Tier 3.
It's knocked down in Q3. So I just don't look at quarter-wise. My always, eyes are on the annualized margin is what where we should really focus.
And sir, lastly, just on competition, like after many calls, you've not made much comment on competition in this time around in the call. Is that because you see it easing or there was not much to add. That's why it was not there in the opening remarks?
So I think there are two directions, one can talk about competition. One is the intensity of competition, which, to my mind, will continue to remain, it was always there. I think competition became visible because a lot of private equity money, and I think they have a different format of cash burn, et cetera. They were spending a lot of money on promotions. This to me has eased off. That's why they are not that visible now.
So competitive intensity from a visibility perspective has come down, but it's not that they are out of the business. They are still there. Those companies that one used to talk about, they continue to operate. But I think that the spend to acquire customers, spend to actually just be visible anywhere and everywhere. That has come down.
I think the other intensity in terms of price, predatory pricing, this kind of promotion, this INR 199, INR 99 tests and all that actually also has gone away. But in terms of number of players, I think that intensity still continues. And I think as overall market is growing and healthy sort of margin profile in the industry will always attract competition.
And I've always maintained. Competition is good for the industry because it overall brings up the table in terms of quality, level playing field, and at the end of the day, organized market still has to grow because it has to grow from unorganized and which is a very large segment. So there is a space for everyone to be there as long as there is a healthy competition. I think to my mind that extreme unhealthy competition has now become healthy competition, but competition is still there.
We'll take a next question from the line of Prakash Kapadia from Spark CMS.
Yes. Thanks for the opportunity. Could you give us some sense of specialized test as percentage of overall revenues maybe last year and do we see that as a differentiator going forward because we seem to be investing in R&D. We seem to be doing a lot of work on newer tests. So where are we in our journey? That is my first question.
And secondly, on suburban, what will it take to get that inflection point? Because it's almost now three years and we've been investing in process, we've built the infra, we've transitioned from being a doctor advocacy to a consumer brand. And I think we are still #3 in Bombay. So what will it take for us to grow suburban at faster than company average. Those are my two questions.
Prakash. This is Shankha here. I think on the first question regarding specialized. So the specialized portfolio is, again, the way we define it, the way we define it. Because specialized portfolio definition can vary from organization to organization. The way we define it, it currently contributes about 23% of our revenue. And versus, let's say, a similar period last year, contribution would have grown by about 1.5 percentage points.
So yes, it is -- that contribution is slowly increasing. Is it a differentiator? It is differentiated in terms of our ability to really get into larger institutional businesses and also get key opinion leaders to kind of endorse the brand.
Is it a huge volume builder. As of now, like I said, the contribution is more or less stable, maybe 1% up over a similar period last year.
Coming to the question on suburban, I think the way to look at suburban is that there is a core geography focus that we talk about and that geography is slowly and steadily responding for us. But yes, as one number, look at what is happening to suburban? There is quite a lot of non-core business, which is still a drag on the overall number.
And one would imagine that it still would take maybe a few more quarters for us to start seeing the overall suburban number growth rates to maybe move to a double-digit and early teen levels. And after we reach there, we'll see how we can get it going faster than LPL.
Okay, okay. And that would be Shankha from Bombay only or this Pune or Goa initiative will get us there.
No. So we have defined Bombay, Pune and Goa, as the 3 core. I think that those are the three geographies that we are spending all our efforts on right now. And those markets are responding quite positively as of now.
We have our next question from the line of Kunal Randeria from Axis Capital.
I'm sorry, we've lost his connection. We'll take the next question from the line of Sumit Gupta from Centrum.
Yes. So some questions on SwasthFit. So I just want to understand what is driving SwasthFit overall. So if you see like overall contribution has been increasing sequential basis also. And can you explain how much is coming from rural and urban?
Okay. So let me first try and hand [indiscernible] to Shankha here. Let me try and first -- take the first part of the question. As you know, what are -- what is driving SwasthFit. So there are three streams that we see. First and foremost, there is this whole awareness amongst the public regarding doing preventive testing. So the whole area of -- in the metro cities as well as our formulation -- our kind of approach that we have put on online, et cetera. So there is a slice of that preventive wellness market that we see is helping SwasthFit growth.
Secondly, there is also something which we see as with channel expansion. We also noticed that there is some upselling, which happens in the channel. And lastly, we are also seeing in certain markets that clinicians are moving toward starting to prescribe packages.
So those are really drivers. And as we expand our reach further, metro as well as Tier 2, Tier 3 kind of towns, we see that the SwasthFit growth is likely to continue, so that really may be the first part of the question.
In terms of split between urban and rural. Now, that's a very. I think we haven't got those numbers ready. We will -- yes, so for us, it is primarily from Tier 1, Tier 2, Tier 3 towns. We'll have to see what is the exact split and maybe we can maybe share that number subsequently some time.
Okay, sir. So sir, over like to take a broader view over the next 3 to 4 years, what is the peak contribution that you -- like you expect this SwasthFit to contribute to overall revenue.
That's quite find the sky kind of question, at least one thing we can definitely foresee is that if you see next 3 to 4 years, -- it will -- it should be higher than where we are today. But how much higher and where is the limit? I think that's something which we are still trying to work out.
We did the math and we found out that the last 5 years, directionally, every year, we are increasing by 1.6% [indiscernible]. Now obviously, that was on a much smaller base. So let's hope that continues for sometime for the next 2 to 3 years.
Okay. Sir, okay. And just one more question on the margins. So how do you see the margins inching at, paving well due to be it SwasthFit or overall business?
See, Sumit, as Dr. Om mentioned, we don't see margins quarter-on-quarter. But annualized margins are...
So overall, like over the next 3 to 4 years.
So we said -- in a longer term, we said in last call, 26%, 27%, around 27% kind of margins. because we also are doing a lot of investment. We are going deeper. We are spending more and a lot of new investments are required, which will give, obviously, top line but in a longer period. But you -- in the longer term, I think it is -- you don't think these kind of margins much sustainably is around 27% kind of that.
Okay, sir. Sir, just one last question. What was the revenue contribution from North and West? The overall geography mix for this quarter?
This quarter, I think it's -- again, quarter-wise, it will not be representative, but I am saying we have like Delhi NCR which is 31%, 32% kind of contribution we have from Delhi NCR and rest of India is [indiscernible].
We'll take our next question from the line of Adrit Chaturvedi from Nomura Financial Advisory and Securities India. Please go ahead.
I would just like to follow up on the awareness campaign bit that you had mentioned earlier. So in these awareness campaigns, are there also any discounts that you're offering to drive up a lot of these bundled testing volumes?
So I think these are two different things in itself. I think bundled testing by definition is discounted. So that there is -- there are awareness campaigns which are built on promoting the bundled tests. Like I said, if you look at a package, the package is inherently itself discounted. So that's one part of it. But I think some of the maybe visible campaigns that you observe, those have more to do with building awareness for the brand and the service, which is slightly independent from specific package promotion.
Okay. So would you have the number handy at you, if you could give us like at MRP, if there are any kind of increases in these bundled testing? Because right now, they're discounted. So there's no true sense of volume that we could gauge. So is there something like a GMV number on that?
So I didn't get your question. So what are you expecting? What discounting?
No. So generally I mean these packages are discounted at a 20% to 30% kind of discount on MRP and depending on the packages. So its a bit of range which is ranging 20% to 30% kind of discount.
Okay. Okay. And also, I think a lot of these bundled testings are also driving up your test for patients, right? So right now, it's at 2.9. As the share of this increases, do you have like a sense of how up it could go? Like would it go cross 3 or like a 3.1? Like is there a vision there that you would like to have more tests per patient or an average number that you track?
So we don't have any operational target on saying that I want to drive test per patient. I think our operational targets are more around increasing our reach and also making these bundled tests available and promoting them. So naturally, we see by doing all of this, test per patient grows as well as revenue per patient grows.
Now we don't really work on a target saying that I want to grow so much basis there. Because it's also a lot of other factors which drive including geography mix, specialized test portfolio and also the channels through which we sell. So we really don't work on a specific target on that. But as the contribution increases of Swasth, the test per patient are likely to go up.
Okay. Got it. And just finally for me. So the specialized portfolio now, now that it's like 23%. What kind of gross margins are you seeing on that? And I presume that there will be a bit like lower -- on the lower end of the overall portfolio.
So gross margin is different on this specialized versus routine. But net-net, on an EBITDA level, I don't think there is much difference because servicing cost is, these high end, mostly we are getting outsourced from hospitals or some third parties, where we just spend on logistics, but on B2C, I mean there is an infra-cost, servicing cost, which is much higher. So gross margin is different. But on EBITDA level, there is no much difference.
Like could you qualitatively or like tell me how different could they be? Like an average specialized versus a routine, like what kind of gross margin differentials are you observing?
So those are very difficult to measure, but we are measuring on bottom line, which is net-net on EBITDA levels which is.
Okay. And do you have like a mix of the institutional business through SwasthFit that you're doing versus your retail.
SwasthFit is predominantly a retailed product. It isn't so much into institutional part.
We'll take our next question from the line of Kunal Randeria from Axis Capital.
Sorry, I got disconnect earlier. So apologies if my question has been asked. Sir, you are also expanding aggressively in this Tier 3, Tier 4 cities. So is the SwasthFit contribution from there also [indiscernible].
Sorry. Can you repeat the question?
From Tier 3 and Tier 4. So a company will have an average for it is around 25%. So even from Tier 3 or Tier 4, is it similar or would it be substantially lower?
So right now, I think there was -- this question was asked earlier, urban, rural, split, et cetera. I don't think we have the numbers handy. So I think once we have those numbers, we'll look at it and see whether it's different or not. However, that may not be the right metric, because the competitive set and growth strategies in these markets could be slightly different, our Tier 3, Tier 4 versus a metro or a Tier 2 town.
Okay. And second question is actually for Ved. Ved you mentioned the 27% is the kind of EBITDA margin you are comfortable guiding with. You're already at 27%. And I'm assuming that the suburban should improve [indiscernible], which means the core margin, the core ex-suburban margin should trend down in the coming year. Is that because you will be making higher investments. If you can just run us through your thoughts.
Yes, Kunal, it will compensate through higher investment in newer markets and spending on awareness, some bit of digital and automation, all these things.
We'll take our next question from the line of Shaleen Kumar from UBS.
First of all I'm not sure if you have already answered this question in [indiscernible] like I popped up for like two [indiscernible] in between, but I still ask here.
Sorry sir, can you use your handset mode. Your voice is not coming clear.
Is it better?
A little better. Yes, please go ahead.
Yes. So sir, 2 parts of the question. First, we can see that our margins are improving and they've consistently growing. And I believe that we've been investing in the growth as well. So can you talk a little bit about how we are investing for future growth in terms of maybe more of stuff you're thinking of more accelerating our patient service centers or entering into new segments.
First part is that and second part, when will we see the impact of that coming in? I mean, [indiscernible] when you think like no, it could be any positive momentum on the growth, may be 3 months, 6 months down the line, you see because of the investments you have to make. So that's largely the question.
Right. Okay, Shaleen, let me try and answer that. So in terms of where we are investing. It is in quite a few dimensions. I think Om mentioned about these 20 labs that we are in the process of setting up. So first and foremost, it's in infrastructure. So new lab infrastructure and accompanying that, obviously, you have other overhead costs that get built into the system.
Over and above that we are also improving our spending, whether it's on the digital channel as well as in offline to build awareness and also see how can we drive more patient acquisition activities. And as we expand more into non-core geographies in West and South, obviously, the spending needs are substantially higher than in brand strong markets.
So primarily, those would be where these spends are going to keep going. And lastly, it could also -- some of it will also go into our frontline manpower expansion in sales and marketing kind of areas.
Now, your second question was where can we see the impact. Now actually, this is an ongoing activity. It isn't as if that we started this action a few quarters back. This is an action we continue to do over a period of time. So what we see benefits today are a result of actions which have been taken maybe a few quarters or a year back.
So it's a rolling action. So in case you are expecting a certain spike jump because of these investments we are making. It may not be so, but yes, steady growth and also ability for us to do better in the newer geographies that we are entering, is what we see as the likely outcome.
So is it right to assume that at least the intensity of our efforts have gone up because of our healthy profitability at a strong position in terms of the [indiscernible]. So the intensity [indiscernible] quarter versus where we are right now, it should be better, right? Because of where we are. And hence, I'm not expecting a step jump, but a gradual improvement should be followed if the intensity is high or intensity is increasing.
So in intensity, I would say, is because of two reasons one can look at. In our core geographies, this whole expansion into Tier 3, Tier 4 is happening, which needs quite a bit of investment from our side. And also in the non -- or let say some of our brand -- weak brand markets in West and South, there is investment required and the new channel that we have started spending on, which is in digital. So these are where the whole promotional spend is going. And yes, the outcome expected is a gradual improvement in our growth rates.
Any new segment you are trying to tap in your evolution [indiscernible] you did mention about [indiscernible]. So any kind of -- these kind of segment which you see a lot of kind of getting excited about?
Sorry, what was the example you mentioned.
Any new segment...
So I think in terms of segmenting the market, Om mentioned that there are various categories that we are trying to create and work on. Obviously, the exciting area is around noncommunicable disease. Now that's the whole area where SwasthFit and some of our other approaches are really focusing on, various things around that. And also, some of the specialized areas in and around genetics and testing in that area.
We have a next question from the line of Deven from Marcellus Investment Managers.
So far this quarter, effective tax rate is around 28%. It seems to be on the higher side. So just wanted to understand why is that?
So there is a deferred tax and suburban depreciation, which is obviously has impacted. There is some adjustment on account of deferred tax, but on an average, this tax rate is not changing. If you will see annualized basis, I don't think there is a change in tax rate. So I don't see this quarter as a representative quarter for tax rate.
Okay. Okay. Got it. And secondly, currently, what's the net cash position as on 31st June.
INR 1,044 crores.
We have a next question from the line of Abdulkader Puranwala from ICICI Securities.
Sir, in the past, you have highlighted some bit of competition coming directly from hospitals where they are trying to power integrate -- so I mean, any thoughts on how we can tackle this or any measures we have already taken in that -- in those areas that you could highlight.
So our experience in hospital competition is very limited to where the brand salience is there, and that's mainly in some catchment area of 4, 5 kilometers. Building a large network for hospital business is very, very challenging. So we are not unduly worried about that as I keep mentioning that it's better that good name, good quality name come into the market, so the overall table will go up.
But there have been 4 or 5 such players will come in, but they have done well only in those markets where their possible brand is strong. And most of them are also mixed player. I don't think there's any mixed player who is trying to do this. So it's okay. There's a lot of space in the market for competition to be absorbed.
Sure, sir. Understood. Sir, my next question is with regards to the underlying growth in Q1. So if I exclude the 8% growth, what you mentioned about suburban and SwasthFit, the balance business also seems to have grown at 7%, 8%. So any thoughts over there? I mean, is there some bit of a lumpiness and a few tests due to which the growth was in single digit?
So excluding -- looking at growth excluding SwasthFit may not be appropriate because like I said in terms of the SwasthFit business is coming, there are places where upselling is happening. Also now some doctors' prescriptions are moving towards SwasthFit. So something which was a non SwasthFit earlier, may also be turning into SwasthFit.
So I think we need to look at the totality of the business, you can look at maybe suburban separate and LPL if you want to look at organic, maybe that will be a more appropriate way to look at it.
Got it. And one final one if I may. So in terms of the margins for suburban, so I mean, I understand we have put considerable efforts to improve the margins here. But on a sequential basis, also, we did, I think, close to 17% last quarter and now it's close to 14%.
I mean so just wanted to understand, is there any lumpiness into this business? And on an annualized basis, what is the kind of a sustainable margin we should look forward for next 2 to 3 years perspective?
I really won't go by a few percentage here and there because the base is too small. 40, 50 lakhs can change that margin. So I -- our focus clearly in suburban is to see higher volume -- higher top line growth. So I won't be worried about -- too much about the margin fluctuations. For next 2 years, we just want to make sure that we get our growth, set everything right and then everything else will fall in place if you have good top line growth.
And just if you see quarter-on-quarter, it's improving. It's -- last year, same quarter, it was much lower. So from that sense because there is a quarterly impact.
There is increment.
Yes. Increment also. So there are -- so annualized basis, I don't think we are very confident that we should be improving.
Our next question is from the line of Pranav Chawla from Pranav Chawla from Antique Broking.
Just one question, majorly on your Delhi NCR market. Have we seen the growth rate of NPL slowing down over the past years, when compared to the past year's performance?
So I think the good news is that we aren't really seeing a slowdown in the growth rate rather we see it being sustained. And that has been sustained at a level which is slightly higher than what we had maybe Pre-COVID.
So if we are seeing NCR, that is our biggest geography that is -- that continues to maintain its growth momentum. So which would be the market that we are seeing a slowdown as of now? Because NCR is among the biggest markets that we have.
Yes. So I would -- this is Om here. My sense is that Delhi NCR market has gone through 2, 3 phases where there was a phase of a heightened competition. I presume some bit of a shift may have happen to them in the last sort of couple years. Couple of years, many of our old customers whom we lost may have come back to us. So in between, we had a slightly slower growth in Delhi NCR. But as Shankha mentioned that we are inching towards slightly higher number.
Can it go up further? I still doubt because we -- in our business planning, we still don't want to project higher Delhi NCR growth because the base is too high and the market size is still 3 crores, 4 corers, 5 crores of this cluster.
While all other clusters like UP, Bihar and Uttarakhand they are firing for us, where the market size is really about 20 crores, 25 crore population. And so that's the way I would put it. Basically, our -- we are very strong in Delhi NCR. Some of our customers who may have gone back -- gone to the competition, they have come back in the last 8 to 12 months. This is what we are seeing. And I think SwasthFit contribution also has pushed up the revenue growth. But I will still stay conservative on Delhi NCR and push other markets.
Correct. And sir, have you seen any change in patient behavior regarding -- because our patient volumes have been pretty weak for the past couple of quarters. So have we seen any improvement on this front.
There is an interplay that we are seeing between as a contribution for SwasthFit goes up. The number of patient visits are slightly muted. That may be impacted this growth because what we are reporting as a patient volume growth is technically, they are not unique patients. They are patient visits. But in SwasthFit per visit, we will end up doing a lot of tests in one go. The number of visits may actually get reduced.
So I think we are seeing some kind of interplay as the contribution of SwasthFit is going up. And I have a sense that patient visits may be inversely related to that. I think that may be some impact that we are seeing. But I think overall, one should see the sample growth, which is nearly about 9.6%, which is a combination of number of tests per patient into patient footfall.
That was actually very helpful. Can you give us some color on FY '25-'26 growth that you are internally projecting?
FY '25-'26 or '24-'25.
For FY '25 as well as FY '26, any internal estimate that you would like to...
I think FY '25, I told you last time, we'll try and beat the FY '24 number. So this quarter is a 11.3% is better than 10.4%. So I have a feeling, we'll continue to do better and then definitely beat 10.4% of last year. As I mentioned that September is a crucial month for the entire industry, not only for us. So let's hope -- I don't know how it turns out to be, but I think I can confidently say that we'll beat the last year number. FY '26 is, Shankha, you want to say.
And I think just to add to Om, kind of adding to that, so beat last year growth number without, I will take a price increase. I think that is what we are trying to [indiscernible]. And once we see 2 or 3 quarters of this year, maybe we'll be in a position to then start looking at what the next year outlook.
I think October might be just good month to talk about FY '26.
Sir, and one last from my end. What is the strategy of cash utilization given that we have cash building up on our balance sheet. Attributed M&A is something that we're looking at.
See time and again, we have said our priority #1 is to look for strategic assets in organic, which are in South and West region. West, we have done suburban. If you look at contribution wise, region-wise, obviously, South is still very weak. We would want to fill that gap. There's no doubt about that. But we also need to have a quality asset at the right price, much higher governance, et cetera.
So that's given. In absence of that happening, because you don't know that doesn't happen every month, every quarter. It may happen, may not happen. But in the meantime, we have increased our dividend payout, so which is also -- we are in balance between the 2 and also investment in our new labs and technology.
So I think a combination of all these 3 is where we want to utilize cash. Cash on the balance sheet is also good because our ability to do certain transactions can actually go up and well. So #1 priority is to see deploy this money for growth, primarily in acquisition because it's a global experience that in new markets, it's very challenging to establish organically. So one has to look at that.
We take our next question from the line of Ashutosh Parashar from Mirabilis Investment Trust.
Just a couple of questions. So on the 20 labs that you have planned to open this year, can you give us some color on the geographic spread of the labs. Are these largely to come up in the markets of Bihar and UP. And how many of these are planned for suburban.
So the primary focus is going to be like we have been doing in Tier 3, Tier 4 geographies of North and East, that's where the primary focus is going to be. Suburban, there isn't really a plan to add too many labs. There are 1 or 2 maybe gaps which we will fill. We are still evaluating that. But this is more in our core geographies of North and East.
Got it, sir. So on the suburban front, so it's been some time since we have integrated the acquisition. So are there still some gaps on like testing mix and all that we have to address or we have largely addressed that?
So there are various layers of integration that are currently working. So from a test perspective, now the whole test menu, which Dr. Lal PathLabs operates is today available through suburban as well. But having said that, there are certain background integration, IT integration work, which is still happening to make it even more seamless. That work is going to take some more time. But as of now, clients in the geography in which suburban is operating, have access to all test menu for from Dr. Lal PathLabs.
Got it, sir. And just lastly, on the SwasthFit front. So what would be your average realization for SwasthFit tests?
Sorry, can you repeat the question?
Its realization for SwasthFit.
Yes, I think this is one notification we not make it publication. We denied to share in the public.
But definitely, it is higher than the...
My reading is you can do a reverse math to dedicate, right, 25% contribution, portfolio revenue per patient earlier and now I think we can figure that out. But exact figure, we have not really shared so far.
Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for closing comments. Over to you, sir.
Thank you, everyone, for being with us on this call today. We express our gratitude for your continuous trust and support. I hope we are able to answer all your queries satisfactorily. Please feel free to reach out to us in case you have any further questions. Thank you once again.
Thank you, members of the management team. On behalf of Dr. Lal PathLabs that conclude this conference. Thank you for joining us and you may now disconnect your lines.