Dr. Lal PathLabs Ltd
NSE:LALPATHLAB
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Dr. Lal PathLabs Ltd
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Ladies and gentlemen, good day, and welcome to Dr. Lal PathLabs Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nishid Solanki of CDR India. Thank you. And over to you, Mr. Solanki.
Thank you. Good evening, everyone, and welcome to Dr. Lal PathLabs Q3 FY '23 earnings conference call. Today, we are joined by senior members of the management team, including Dr. Om Prakash Manchanda, Managing Director; Mr. Bharath, CEO; Mr. Ved Prakash Goel, Group CFO; Mr. Shankha Banerjee, CEO of Suburban and other group companies; and Mr. Rajat Kalra, Company Secretary and Head of Investor Relations. Honorary Brigadier, Dr. Arvind Lal will not be able to join the call today due to some personal engagements.I would like to share our standard disclaimer here. Some of the statements made on today's call could be forward-looking in nature, and the actual results could vary from these forward-looking statements. A detailed disclaimer in this regard is available in the results presentation, which has been circulated to you and also available on stock exchange websites.I would now like to invite Dr. Om Prakash Manchanda to share his perspectives. Thank you. And over to you, sir.
Thank you, Nishid. Welcome, everyone, to Dr. Lal PathLabs Q3 FY '23 earnings call. I hope you and your loved ones are safe and healthy. I'll start by taking you through some industry landscape and key internal developments. First, the industry landscape. Industry at large is experiencing operating deleverage this financial year due to sharp decline in COVID and COVID-related revenue. So the decline in COVID business has been to the extent of 80% to 85% compared to last year in general.While it was not very clear last year, but deeper analysis also suggests that even non-COVID revenues were favorably as well as unfavorably impacted in some quarters due to COVID, thereby resulting in extremely uneven quarter numbers in FY '22. This brings me to a point that for a meaningful analysis on top line and bottom line, one needs to look at CAGR pattern of non-COVID sales over 3 years to 4 years on an annualized basis, that is comparison with pre-COVID times. Also, one needs to look at trajectory building on sequential pattern that is quarter-on-quarter trends over last 3 quarters to 4 quarters instead of year-on-year basis.The second is industry also experienced in these couple of years entry of many players coming from pharma, hospital, and even e-commerce as well. Most large players in the industry also haven't taken meaningful price increase in last 5 years to 6 years. On the contrary, one see that bundling of tests may have led to higher realization per patient but has resulted into effective decline in realization per test. So far this has been possible due to operating leverage, mainly driven by higher number of patients, higher number of tests per patient. Though, it will be very interesting to see how this pattern takes shape given very high inflation scenario in times to come.Now a few developments at our end. Some of you may be aware that we have launched state-of-the-art reference lab in Mumbai. This move is in line with our long-term strategy of driving best region as a long-term growth pillar. This is the first private lab in West India to have BSL3 bio-containment lab, inclusive of Mycobacteriology, Mycology, and Molecular Biology departments. The combined infra between LPL and Suburban put together now stands at 50 labs in the state of Maharashtra, and out of which, 20 labs are in Mumbai. Central Lab at the top of this pyramid gives us a huge competitive edge in West region.Number two, portfolio. Our portfolio mix comprising super specialty test and bundled test offering under the brand name, Swasthfit, is witnessing strong response as it offers a comprehensive solution to the patients. It reflects Dr. Lal PathLabs' understanding of the patient diagnostic needs, ability to cross-sell and upsell and the value sought by patients. Contribution from Swasthfit now stands close to 19% to 20% of our overall sales.Point number three, high-end test portfolio. As an organization, our vision is to be the most trusted health care partner, enabling healthier lives. To surpass this, we continue to strive in technologies and launch newer tests that continue to help early and accurate diagnosis. We have invested in second electron microscope at our National Reference Lab in Delhi. We are also creating specialty verticals to provide sharper focus on certain identified segments.In last couple of years, we have created 3 verticals: number one, Genevolve, that focuses on genomics, number two, L-CoRD, that focuses on reproductive diagnostics, number three, L-ACE, that focuses on autoimmune disorders. And there are many more such initiatives in the pipeline. Lastly, I want to talk about the tech piece. There have been a lot of conversations around changing patient needs and businesses becoming digital. Over last 3 years, we have significantly enhanced our digital capabilities. Our new consumer app today has a very good rating on Android and also custom built an integrated 1x view across all channels.With that, now I would like to invite CEO, Bharath, to continue the conversation forward. Thank you.
Thank you, Om. A very good evening to each one of you present here. I warmly welcome all of you to our Q3 FY '23 earnings call. I will take you through some of the operating and business highlights of our company. In Q3 FY '23, we served 6.5 million patients, registering a total revenue of INR489 crores. COVID and allied tests declined 80% and contributed to only INR11 crores, that is just 2% of the overall revenue in Q3 FY '23 versus 12% in last year same quarter. Our non-COVID revenue at INR478 crores registered a growth of 9.1% in Q3 FY '23 over the last year same quarter.Patient volumes registered a growth of 4% and RPP is up by 5%. Test per patient also moved up from 2.59 in Q3 FY '22 to 2.66 in Q3 FY '23. As you would have noticed versus past trends, this quarter has seen some noteworthy interplay between patient visits, test per patient and test mix. Q3 FY '22 base events impacting various KPIs on a Y-o-Y basis. Hence, it is better to analyze the numbers on a 3-year CAGR basis. For the organic business, we are seeing an improving trend in our 3-year CAGR on a sequential basis, which has moved up from 9.4% in H1 FY '23 to 10.8% in Q3 FY '23.Patient 3-year CAGR volume growth in Q3 FY '23 was at 8.3%. We continue to take measures to further accelerate the growth rates. We have also significantly scaled up our activation for L-CoRD, which is a Center [ for ] Excellence for Reproductive Diagnostics. During Q3, we organized 500-plus activities across India on a single day, which is an achievement in itself. We continue to see traction in L-ACE, our Autoimmunity Center of Excellence.Our bundled test program, Swasthfit, continues to do well and its contribution continues to be in the range of 19% to 20% of non-COVID business. We continue to invest in our digital initiatives to improve patient journey for our D2C business as well as for our B2B partners. We are seeing very encouraging trends and we'll build on this in the coming quarters as well. Overall, we remain steadfast in our commitment to the strategic agenda and execution focus.With that, I would like to invite Ved to take you all through the financial performance. Over to you, Ved.
Thank you, Bharath. Hello, everyone, and thank you for joining this call. I trust each of you and your families are safe and healthy.I will share some of the key financial highlights. Our non-COVID revenue for Q3 FY '23 is at INR478 crore, a growth of 9.1%. YTD non-COVID revenue grew by 15.9% to INR1,474 crore. Total revenue for Q3 is at INR489 crores against INR497 crores last year same quarter. This decline of 1.5% is due to fall in COVID business by 80% as compared to last year. If you remember, COVID contributed 12% in Q3 last year while it is merely 2% now.On YTD basis, COVID contribution has fallen sharper from 21% to just 3% now. YTD total revenue came at INR1,526 crores versus INR1,602 crores last year same period. Revenue realization per patient for Q3 FY '23 is INR754 as against INR747 last year same quarter. The better realization per patient is due to test mix and higher contribution of Swasthfit, which is 19% now. Normalized EBITDA after eliminating the impact of RSU and CSR for Q3 FY '23 is INR122 crores as compared to INR119 crores last year same quarter.Normalized EBITDA margin for this quarter is at 25%. Normalized PBT after eliminating the impact of notional depreciation on account of consolidation of Suburban for Q3 FY '23 is INR89 crores. Normalized PBT margin is 18%. Normalized PAT for Q3 FY '23 is INR66 crores and the normalized PAT margin is at 14%. Net cash and cash equivalent as on 31st December '22 is INR489 crores.To conclude, while we are focused on driving top line, our initiatives continue in the direction of cost optimization as well by using digital tools and technologies.With that, I request the moderator to open the forum for question-and-answer.
[Operator Instructions] The first question is from the line of Dheeresh Pathak from WhiteOak Capital.
Yes. Sir, Suburban, the patient count for the quarter, revenue and EBITDA if you can provide?
So, Suburban this quarter has revenue of INR37 crores, out of which, INR35 crores is non-COVID and rest is COVID and allied. And EBITDA for this quarter has -- is about 7%, which is low because we have launched this reference lab, which in this quarter there is an impact of -- so all the expenses related to lab is also factored in. Generally, Q3 is having all the lower margins overall as compared to other quarters.
Okay. And number of patients for Suburban?
Let me come back to you for Suburban patients.
So adjusted for Suburban, it seems the 3-year patient count CAGR is running at mid-single digit, sir. So -- you have said now that look at 3-year numbers and all. So is this the right metric to look at or no?
Yes. You're saying 3-year number for value and volume, both you're talking about or...
No, I'm just talking about volume right now. So the patient, if I use number of patients as a measure of volume, then for December quarter, the patient CAGR on an ex COVID, ex Suburban basis seems to be running at mid-single-digit.
Yes, 8.3%. Yes, you're right.
So it's even lower. It's not even 8.3% if I make some assumptions to Suburban.
Yes.
Yes.
And the volume...
The volume point, yes, that's the number we have.
Okay.
I hope that's [ 0.3 million ].
Sorry, your question was for our volume this quarter is [ 0.3 million ].
Yes. Yes.
Yes.
Yes.
[ 0.3 million ], right? Yes. So then, sir, how are you -- maybe I'll take this number separately, I'm getting a different number. But just anyways, just 8% -- 7%, 8% volume CAGR, how are you interpreting this that -- versus the baseline growth we used to have earlier, this is lower than that. So how should we as investors interpret this?
See, one thing is fairly clear that if you look at growth rates from, let's say, from FY '20 till now, this is definitely soft by a couple of percentages.
Yes.
That number is very clear. Now is it because of this disruption we have had due to COVID or is it because of higher competitive intensity?
COVID patients, non-COVID -- COVID patients and non-COVID volume.
That's fair. Okay. I think these are basically 2 factors I would say are very important. And my sense is maybe both are valid. As we mentioned earlier also that purchase frequency in this business is at least once in a year, that's an average we see in our business. So because of deep discounting by -- and aggressive promotion, we may have had a trial generation done by lot of patients. But eventually, repeat purchase would happen at least after 1 year. So we will actually know on a longer period of time as to how it is. But slowly, slowly, I think it's inching upward. It's a very small sort of a upward movement. Because our dependence on Delhi NCR is very high and Delhi NCR is slightly lower growth and overall, so I think that's where it's not showing up. But it's very clear that definitely these numbers are a couple of percentage points softer than what we used to have.
Okay. Is there some cohort analysis that you might have done or you can do that, let's say, pre-COVID, what percentage of patient volumes would be new to us, new to Dr. Lal, and what percentage would be our old patient cohorts who are coming after 1-year, 2-year, 3-year versus what is happening now? So, let's say, in FY '20, you'd get -- your certain percentage of volumes would come from old customer cohorts and as of now, what percentage is it? Is it meaningfully lower now versus what it used to be pre-COVID?
So I think that's a great question, and I think we spent a lot of time in getting deeper into this. Unfortunately, data is not that clean because we get revenues from all streams, one number is being used for multiple patients. So it becomes extremely challenging for us to do this analysis. However, we do it on a small sort of a data set. But again, it's very challenging to figure it out. I think what is coming out is very clearly that the frequency of visits to us from a patient is just what I think 1.3 or 1.4?
Yes. Yes.
So if I look at total number of patients that we have, number of times they come, average is just about 1.3, 1.4. So which essentially tells that now again, we'll have to then slice it further. People who are in a chronic disease, they obviously must be coming much more frequently than somebody who has just dengue, he went in once in 3 years, just comes once, so you don't have that frequency.So I think a lot of these cuts are being done. Unfortunately, I probably don't have anything, which I can make a confirmed sort of firm statement as of now. But we are improving as we go along as we mentioned that we have spent a lot of time and effort on our tech thing. We have now a data lake built in terms of all the data from various channels being put together in one place. So maybe I think 2 quarters, 3 quarters, 4 quarters down the line, we'll have much more cleaner database [Technical Difficulty].
Sorry to interrupt you, Dheeresh. I'll request you to come back in the question queue for a follow-up question. The next question is from the line of Rahul Agarwal from InCred Capital.
Sir, just 2 questions. Firstly, to Om. So related to what the earlier participant asked, your own understanding of what's really happened in the 9 months is obviously clear that matured markets are going lower. Overall, the non-COVID is softer. My channel checks also tell me that patients are actually doing a lot of self-medication, and hence, the visits are also lower because of post-COVID. I don't know how true is that. But to get back to anywhere between 10%, 12%, 13% of non-COVID patient walk-ins, is there anything we could do additionally where we can get to that number or we have to wait with the time and then further understand, do we actually grow at 15% or not? What's the answer to that?
So, answer, actually, there are 2, 3 answers there. Number one is clearly geographical expansion because if...
Sir, sorry to interpret you.
Hello? Can you hear me?
Sir, your voice was not coming very clear.
Is it clear now?
No, sir. I will reconnect your line. Please stay connected. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected.
Yes. Am I audible now?
Yes, sir.
Yes. Okay. I think that's a great question. Answer to this based on my sort of understanding is the -- one will have to widen the footprint because this is a very asset-light business, supply side is abundant, you will always have somebody just entering the business, whether it's a hospital side or a pharma or even smaller players. So technically, somebody having a very high market share in one market is probably a difficult thing to achieve. So you need to widen footprint, and that footprint will have to be done both organically and inorganically.I don't know, we'll have to wait for results for overall other companies and understand the industry trajectory, but my sense is industry is going to face similar pressure elsewhere. So you -- one may see a lot of inorganic opportunities coming up in next couple of years. So keeping that in mind, I think for us West and South are 2 big gaps, and West is fully, we've filled it up. We are very aggressive on this with the launch of reference lab. So answer number one to your question would be that we have to continuously keep on widening our geographical presence.Second thing that I think we will have to probably do it is that look at our business model slightly differently than what we have done in the past. It's very clear in our trends that patients are -- or consumers are looking for higher level of convenience. Those days are gone where people will come to a lab and stand in the queue and wait for 30 minutes, 35 minutes for their turn to come and give blood sample. So they are expecting collection to be done near them, which could be in the format of a collection center or a home collection, et cetera.So one will have to -- see, in the past, labs were used more as a -- both on -- not only from a supply side but also from a demand side of getting more walk-ins into the lab. That also added to the overheads structure. I think that model also will have to undergo a change. So where we -- we put more centralized labs and then put a lot of spokes in the format of collection centers. I think these are 2 things we'll have to do. And in terms of pricing, et cetera, that the market forces will decide because you can't command prices the way you want it. So we'll have to see how the competitive intensity settles down with time. But from a volume perspective, these 2 things will have to be done.And third is in terms of differentiation. I think clear differentiation is trust. In the last, at least 1 month, I have traveled the markets, met a lot of doctors. To my mind, quality remains -- trust remains #1 thing on their mind. And so this aggressive promotion in this business doesn't go down too well. My reading is that eventually a person who commands trust of medical fraternity will eventually last.
But all 3 factors, my sense is Dr. Lal has always been the leader in all 3. And you have been doing that, you've been widening footprint, your brand value, I think is the highest in the country, and in terms of convenience, I think you have the best, app ratings are good, you are anyway investing for last 3 years in digital, but incrementally what do we do? I think we're already doing this, right?
But if you see performance amongst all the published data, which I have compared for last 4 years, we have the best performance in any case. So I know the numbers may be a little soft but we are still the #1 in terms of performance.
Okay. Sure. And lastly, on Suburban in terms of integration and opening of centers, we obviously need to have higher throughputs there. Where have we reached, and what's the next 12-month plan? Could you just elaborate, please? Thank you.
I think the Suburban, one setback that we've had is that this was depend -- this business was highly dependent on COVID, 50% of their turnover last year came from COVID. All of us knew that it was going to go down, but probably, one didn't expect that will be a sharp fall of 85% -- to the extent of 85%. So that led to because business had added some cost to it to service their entire turnover, but as the COVID, just business slipped away and one got really struggling in terms of managing these costs.So that is one challenge we have faced. In terms of transition, your question, I think our team now is well in place. We have Shankha Banerjee, who is our CEO. So I think that transition more or less is stabilized. Second is, as I mentioned to you, we launched this Vidya Vihar Lab. To us, that's a big move. All our experiences of the past when we launched, Rohini Lab in 2010, when we launched Kolkata in [ 2017-2018 ], yes, and now, we also launched this in Bangalore and now it is Bombay, Mumbai, we feel that this infrastructure of Central Lab will definitely add to this.And I traveled Mumbai in the last 1 month twice or thrice, met many doctors. I think our overall visibility in the market, especially amongst medical fraternity has gone up, because Suburban was seen as outsourcing high-end test to other labs, now it is seen as people are going to outsource to this lab. I think that's very clearly communicated and we'll continue to do that. We have done a lot of activities. We are doing that same thing in Pune as well. So Vidya Vihar is a big initiative we feel for Suburban. And we have also seen that combined infrastructure of LPL and Suburban put together is very, very strong. I think 50 labs in the state of Maharashtra and 28...
In Mumbai.
In the city of Mumbai, including, of course, there are few HLMs that we have in Mumbai. I think our infrastructure is well in place. We just need to convert that into numbers. I'm pretty hopeful that we are well placed to take it on.
Perfect, sir.
Yes. And also, I think one must keep in mind that my experience, see, these numbers don't move quarterly that sharply, but over a period of 2 years to 3 years, we'll definitely see a difference in our positioning.
Next question is from the line of Prakash Kapadia from Anived Portfolio.
Yes. Couple of questions from my end. If I were to look at growth drivers for FY '24, is non-Delhi NCR market and Suburban the key metrics which we've to evaluate for top line growth?
So, Prakash, the way we are looking at the business for FY '24 is to say that we will grow back in Delhi NCR strongly, right?
Okay.
Strongly in the sense, what I mean is related to what its recent performance has been.
Right.
So we'll bring it back to the original pre-COVID level growth. We are seeing some initial early signs of all the activation we've done in Delhi NCR, right? And hopefully, touch-wood, in another 3 months', 4 months' time, we'll get far more confidence to say, yes, it is really coming back on track. So that firing up, combined with rest of India firing up back as usual is the geography play. So we're not saying we are discarding one geography or focusing only on one geography. But one key task we have taken is to see the revival of Delhi NCR and we are seeing some early signs on that.
Okay.
So...
So, Prakash, this is Om here. The way I would look at, there are 3 clear buckets that we have in our business, one is the maintenance markets, then there are growth markets, then there are emerging markets.
Right.
This entire belt of East, rest of North, which consists of UP, Punjab, Haryana, Himachal, Rajasthan, they are really a big growth markets for us. While we will revive Delhi NCR, but still my sense is NCR growth will not be in line with our overall company growth.
Yes, yes, of course.
Right.
We won't push this up, but I would put that market as a -- from a maintenance perspective, growth would be East, UP, Bihar, Rajasthan, Punjab, Haryana. And then there are emerging markets, I would put South and West in that.
Right.
West, of course, will take definitely a year time for us to really put them back into a growth market. But right now, we will invest more in infrastructure in select pockets like Maharashtra and a couple of other places.
Right, right. And in larger cities, given that competitive intensity still remains high, is strategy for specialized test menu and focusing on certain high-end test add to this growth?
Yes. Then there are 2 distinct segments. One segment is becoming direct-to-consumer, where this whole preventive lifestyle chronic illness, all that is falling in, because that is -- that's a segment which sometime depend -- does not depend on prescription or if at all, it depends on prescription, it is one prescription leading to multiple visits to lab. So -- and then other one is which is very institutional hospital pickup business, which is high-end business, I get a sense that, that is not going to be direct-to-consumer.It is -- I think one will have to work with the medical fraternity and also maybe companion diagnostics, work with pharma companies as well, to see how we look at high-end portfolio, which are very, very specialized, like I just mentioned electron microscopy or say, for example, cytogenetics or say, for example, gene sequences, et cetera. So I think those are the tests which will have to be promoted through high-end test that we talked about both. We have launched these things like Genevolve. We've launched L-CoRD. So we are building center of excellence around some of these tests. As you have in pharma company various verticals, same way, we are trying to build a category or center of excellence around this.
Okay. And lastly, you mentioned about the reference lab, and given that infrastructure is ready in Maharashtra and Mumbai, so for Suburban, what's going to drive this growth? Because if we look at existing customers, you obviously had a large COVID base in Suburban. So will it be existing customers? Will it be new customer addition? Will it be partially some of these high-end test which Suburban can do given that now the reference lab has come? So if you could give us some insights on Suburban plans, that would be helpful?
So it will be -- probably, maybe I can ask Shankha to address this, but maybe my -- let me put my thoughts. I clearly see 3 areas. One is widening footprint here. If I study Suburban business, it mainly comes from Andheri, Borivali side area, right? What is it called?
Western track.
Western track.
Western. Western, right.
Yes, Western. It does not have very strong presence in South Mumbai. Now we have -- LPL system has a lab in Dadar. So if we can actually do 1 lab and testing for multiple brands, in this case, 2 brands, you have easily widened your footprint. Similarly, I'm seeing that in other markets like Pune as well. So clearly, leveraging, bringing some synergies between the infrastructure of LPL and Suburban, that gives us both cost side synergy as well as revenue side because it gives you a widening sort of presence in the market. That's number one. Number two is, Suburban in earlier avatar was outsourcing a lot of high-end test to other large companies.Now the whole thing has flipped upside down that it -- now people start outsourcing it to Suburban. And Suburban is positioned as a lab -- Central Lab, which actually is doing the entire test menu. It is well supported by NRL in Delhi, but it is giving a report on Suburban letterhead. So that's the way it is. It is a CAP-accredited lab now, College of American Pathologists. So it has positioned as a ultimate lab, which is doing every test. We don't say no to any test anymore. That's the second part of our strategy.Third, I think is Suburban is very well positioned on the corporate health checkup, which is -- we are yet to evolve a strategy around this but I think that's a big strength Suburban as a brand has in the city of Mumbai that it is seen as a comprehensive health checkups. Let me elaborate this a little more. Health checkups, the way it's been promoted by all pathology companies, it is only path test, right?
Right.
But health checkup also has some element of imaging in-built into this, let's say, stress test, TMT, you want to do X-ray...
X-ray, right.
You want to do upper abdomen, lower abdomen ultrasound, then only it becomes a complete health checkup, by the way, which just by doing 30 tests and pathology is still not a very comprehensive health checkup. To my mind, a real health checkup would be the patient undergoes some imaging tests as well, like say, for example, as I mentioned to you, X-ray of chest, ultrasound and things like that. I think Suburban has that infrastructure in Mumbai, which we will figure out how do we leverage that. And that's a unique strength this company has. Shankha, if you want to add something?
No. I think just -- Om has kind of said it in the whole detail. I think the key here would be we'll do B2C, B2B both as well as existing geography and new geography. So if you think about it, it's basically a 2x2 matrix. We are going to now with the SDRL launch, with that in place, we are going to be on all 4. Actions will be there, but I think results in some of these quadrants, some will be faster, quicker, some would be slightly longer wavelength, but, yes, actions will be on all 4 to drive growth.
Right. So the customer segment, Shankha, will be slightly easier to, I think scale, I guess, because the higher-end or the comprehensive packages have pretty big hospitals also in Mumbai, which are offering some of these. So I would guess that's the right time line to think of scale for that business, right?
Yes. So like I said, B2C, B2B, as well as new and existing geography. So now, B2C, whether it's direct consumer as you're suggesting, so obviously that also plays into how we want to deploy our monies. So, yes, I mean, it's a -- it will be a mix of all, and you will see actions at various intensities in all the quadrants. But like I said, some of them will start delivering revenues immediately and some of it will after slight pause -- I mean, after some time.
Maybe I want to add one more point while we are on Suburban. Interestingly, we are also tweaking our business model a little bit here. Suburban in earlier avatar was very dependent on its own infrastructure. So it had its own PSCs, own collection centers, managed by this one. Now I'm seeing is that in the last 1 year, I think our team has done a tremendous job of building franchisee infrastructure.And which brings in a lot of entrepreneurial energy in the system, where some of these owners whom I met in the last 1 month, they are actually very active on just doing a very local marketing and doing some health checkups and camps, et cetera. This adds to the -- and that actually brings you to the point that the way Dr. Lal PathLabs is built on a franchisee infrastructure because that entrepreneurial energy really takes it up. So I'm seeing those early signs in Suburban as well. So I think that's another change we want to bring in there.
Sure. Sure. Understood. That's pretty clear.
[Operator Instructions] Next question is from the line of Prakash Agarwal from Axis Capital.
Yes. Question is on pricing. So you mentioned that pricing remained largely static, but competition has lower pricing. You mentioned growth drivers being widening footprint and doing more test services, et cetera. Is there thought on any pricing that we can play as well?
Yes. I think that's a great question. My sense is that at current level of growth in the industry, one may not have option to absorb these costs but pass it on to the market. So we are -- and I think I also foresee a rebalancing of pricing because in the past, a lot of high-end tests were actually -- I would -- if I may use the word, subsidized by routine test, some bit of that rationalization will take place.My personal view is that industry has reached that point either -- and especially for smaller players, it's going to be very tough, either they compromise the margins or they increase the prices. And that's why I mentioned that it will be very interesting to see how price value equation moves in next 2 years to 3 years. And there's a lot of...
[ If we were to ] take it forward in terms of pricing, I mean, what is our strategy?
Sorry. I think immediately, our strategy would be I think we just wait and watch how the growth trajectory happens, but we will be open to considering that as well as we go along.
Okay. Fair enough. And second question for Ved is on other expenses. There seems to be a lot of cost optimization, which has gone down Q-on-Q, Y-o-Y despite having so many activities, which was mentioned in the opening remarks. So is there a one-off here or these are the new levels of costs?
So, Prakash, last year if you remember, we had some one-off costs, which was there last year same quarter. So that is one. Having said that, there are much...
The transaction costs, right?
Yes. Transaction costs.
Okay.
Having said that, there are 2 things happening. While we are investing more in IT, digital, and marketing, but the same time, we are optimizing costs in some of these areas where we can leverage our existing infra. As Dr. Om was mentioning that more franchisee, less fixed overhead putting on our head by opening more and more labs. So there are other levers which we are taking to optimize cost and balancing, somewhere we are increasing, somewhere we are optimizing.
That would also be the answer for Q-on-Q decline because there were not extra transaction costs, know?
Yes. So but if you see the -- this is, again, the quarter is not representative, because again, there is some ups and downs at some...
In terms of margins.
Yes. Margins.
I think the margins, I would say that -- and we've spent a lot of time, just look at on a YTD basis, it's ranging between 25% to 26% before RSU and CSR. And if I go back year '19, year '18, and '17, I think our...
Pre-COVID, yes.
Pre-COVID times, I think there's Ind AS adjustments also to do all that. It used to range between 25%, 26%, we are somewhere there only this time. Last 2 years, FY '21, FY '22, because of that operating leverage, our margins just went up. So that's -- broadly, that's where we are. Now I think the key question which was asked earlier is that, can you sustain this going forward without the price increase, which to me, we'll have to probably wait and watch, but we will definitely be open to taking price increase if required.
Okay. Lastly, on South market, you mentioned in the past that it would be largely organic. In this call, I heard that you would look at both options, organic and inorganic. And would that be on the back of the cash of INR400-plus crores or what is the thought there?
No, no, no, no. Sorry, sorry. That was actually a general comment I was making in terms of growth opportunities. So because of fragmented nature of the market and global experience that we have, inorganic opportunities do come up, especially when the industry undergoes margin pressure. So that was the comment which I made. Since any opportunity that comes in South, inorganic, will definitely be welcome, but right now, our organic efforts are on. But obviously, we don't want to pay very high valuation to these places just because we are desperate to acquire. So that's why we are building up now organic platform ourselves. If something attractive comes on our way, we'll definitely be open to doing that, yes.
Got it, sir.
But this inorganic, organic is a general comment, which -- that opportunity will always be there. That's how these businesses globally are also built that way.
The next question is from the line of Cyndrella Carvalho from JM Financial.
Ved sir, is there any one-off or expenses related to the Vidya Vihar Lab that we have opened in the P&L? And if so, can you quantify it?
So there is no one-off as such, but it is not material. I mean I would say there is no material one-off in this on account of Suburban or this lab. Having said that, because this is a big reference lab, we have some expenses, which is going to come for some time on account of this lab.
So Suburban P&L, broadly speaking, is undergoing one mega change, which did not exist earlier, which is that our infrastructure is becoming more franchised, and since we have to do revenue share, that line item is growing. Is that correct, Shankha?
Yes.
So that line item in the short term will have adverse impact, but as the growth picks up with time, which we are very confident it will do, will definitely get normalized over a period of time. So I think that's one add-on cost. Suburban also in relative terms has a higher manpower cost compared to, let's say, LPL comparison when we do. Given the low volume, low turnover base, it's justifiable, but it has a infrastructure, which is slightly different from a PathLabs infrastructure.As I mentioned to you, it has the X-ray, ultrasound, and manning model, which is suited for a corporate health checkup. So we want to aggressively drive that part of the business as well, so that we are able to reduce as a percentage of turnover, our manpower costs. I think these are 2 major costs that exist on that P&L. Consumable-wise, I think it's very similar to what we have in LPL. Is that correct?
Yes. I mean...
Yes.
Yes. So I think these 2 costs, which is one is manpower, other is franchising revenue share are the 2 costs, which are actually comparatively higher than LPL P&L, but that -- those are required to actually drive growth. So 99.9% our efforts are on driving top line.
Rental as well. Rental is also high.
Rental is also high, which actually will come down now.
Yes. Yes.
So rental probably will come down because as we've started this Vidya Vihar Lab, some of the testing facilities will get consolidated.
That's helpful. And if you look at the overall inorganic opportunities coming to our way, can you help us understand the valuation parameters? Are they coming back to the pre-COVID level or still you see some valuation still being higher or the expectations of COVID still continuing on the inorganic side?
Expectation of COVID still continues. So we'll have to wait for at least 1 more year for -- or at least FY '23 to be out of the equation and then we will see what happens in FY '24.
Okay. And, sir, any clarity [ that can help us ] understand the cluster base model in the emerging markets and the growth markets...
Cyndrella, sorry to interrupt, your voice is breaking.
Okay. Is this any better?
No. No.
No, ma'am. It's still breaking. May I request you to rejoin the queue once again, please?
Sure.
Next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just the first one on the RPP. I heard a number of INR754. I'm just doing non-COVID revenue, [ INR480 crores ] divided by 6 non-COVID patients, it seems to be [ INR800 ]. So just some clarity around what that number is differently -- what is that INR754, if you can do it? Also question two is on, if you could get the total patients and total samples also will be helpful?
So, Shyam, non-COVID RPP is INR744.
If he is calculating for this, it should be INR800. Is it?
While INR754 is on total, including COVID since you are mentioning.
Okay. INR754 is including the -- I'm just trying to look for like what is the trend on non-COVID. It seems to be INR800, right? 478 by 6 is INR800, so what's happening there, just extension of the previous participant question on pricing in non-COVID revenues is what I was -- I think you've mentioned 5 percentage points up for INR754, but I wanted to see whether the trend is different for non-COVID revenue.
Yes. So if you see, 6.4 million patient for this quarter with a -- non-COVID patient with a RPP of INR744. And if we see volume growth is 3.6% on non-COVID basis, which is a difference of 5%-plus, which is due to mix and some channel. I mean test mix primarily because of Swasthfit, some high-end test has increased, and some bit of Suburban also, because Suburban is also having higher realization per patient.
No. I think, Shyam, first get the numbers, right. So you have a INR478 crores of non-COVID turnover this quarter, right?
Correct.
Okay. And then, you have a 6.4 million patients of non-COVID. If you divide that...
Sorry to interrupt you, Om, but the presentation said 6 million, so which is where I calculated the number, but on slide -- I'm saying Slide 6.
Okay. Just check that, I think the number that I have is 6.4 million. Is it right? Let's just check that, I think it's 6.4 million.
That's fine. Okay. Then it explains, so I just -- I was a little confused.
Okay. It is rounded off. Sorry.
I think that...
Yes. So if you go to slide which is having all the numbers, operating highlights, there it is mentioned on the number of patients and...
Slide number [Foreign Language]
Slide number is 11, but here it is...
[Foreign Language] I think there is a YTD number given there, anyways number is 6.4 million which is rounded off to 6 million. I think that's a one decimal point.
Yes.
Sorry. Let's just expand this question. So 478 divided by 6.4 gives us 744, but it is still a 5.3% revenue cooperation has gone up, which is slightly unusual. We have not seen this kind of jump in the past. So let's just try and understand this better. So the one factor is Suburban realization is higher than LPL realization. So when you combine, this has pushed this up. That's number one. Number two is Swasthfit which has been the reason consistently for last four, five quarters because the contribution from Swasthfit is going up. Third is...
Higher-end test and fourth is dengue.
Third is higher end test. To some extent, the contribution is also on the rise, which has a higher realization per patient. And finally, last year base has a very high dengue component, which is actually a very low realization number. Because a lot of people once you're a -- once somebody is a dengue patient, you follow it up with a lot of platelet test which are very, very low-value test. That is also one of the reason why you're seeing lower volume growth because last year has a very high volume due to dengue. So that explains a little bit of that. But going forward, we do believe as Swasthfit goes up, as high-end test component goes up, we will see a slightly firmness on this number as we go along.
Next question is from the line of Sameer Baisiwala from Morgan Stanley.
Om, can you talk about how do you distinguish, differentiate between your four big labs, national and regional? Just in terms of capacity, in terms of complexity of test, some thoughts would be great.
Okay. So there are many ways people look at reference lab. One way to look at is test menu, that how many you were doing before, how many you are doing now. So let's say, our ability to do number of test in Mumbai, we have seen going up from 700 to 2,800. So that's one way to look at it. Another way to look at it is that some uniqueness that you have in the lab, like I talked about this BSL3 facility which is a very unique thing, which is not there in the region. Electron microscope that we've added, it becomes a big news in the town that this sort of instrument has come, equipment has come. That's another way to look at it.But I think from a economics perspective, one best way to look at is the following. If I get, let's say, my hub is Lucknow. If I get 100 samples every day, how many actually remain within Lucknow and my dependence on NRL is let's say 10%. As I keep reducing that number of dependence on NRL which is Delhi, that means I'm creating an independent ecosystem, and it can be managed within that region itself. So our way of looking at it is that keep on reducing the dependence on big lab in Delhi and make every cluster a very independent thing, and then you are able to run it like a P&L for that region is what really we want to achieve.It has two, three advantages. One is medical fraternity likes it, because then they feel very close to the doctor sitting in the lab. And many times, they pick up the phone and talk to doctor as well and they -- that becomes little bit of a comfort factor for any especially high-end doctor that lab is within my reach.Second is turnaround time actually gets improved because the sample doesn't have to hop at two different locations. So it just hits Lucknow and gets tested and that gives me the ability to actually go deeper into Tier 3, Tier 4 towns. Let's say, for example, if you're familiar with the UP, you can think of towns like Shahjahanpur, Sultanpur, Mirzapur, which otherwise sitting in Delhi, you will not be able to think about those towns as you will be able to think once you're sitting in Lucknow.So that's the way we look at central lab or reference lab format. And I would actually call this is a hub lab more than even -- how do I make sure that all my samples get tested there? So we do some kind of analysis. I think there are some tests, which are very -- turnaround time runs in days as well. They are not -- reports or not given next day. Those departments are like cytogenetics, HLA typing, or...
Genomics.
Genomics or FISH testing and the general common people like you and me won't even understand some of these tests, but they are actually just 5% to 10% of the portfolio. It actually doesn't even make sense to do these tests in the region, because they are highly -- human component in these tests is very, very high. And at times, doctors want their report to be read by one particular doctor. So for them, the lab is not important as important as who is signing that report.
Okay. Yes, Om, very clear. The second question I have is, when you are talking about volume growth, three year, four year CAGR, I also just state quickly your channel growth over three year CAGR 6%, 20% and 14% for your labs, PSCs and PUPs. So looks like the volume growth is massively tracking behind the distribution channel that you are creating. So just your thoughts on that.
See, right now, I think we spent lot of time in analyzing this, why our volume growth is lower than value this time. I think analysis is throwing up. Last year had a very high level of dengue incidents. So -- and dengue actually brings lot of platelets and somehow this volume what we're talking about are not really patients, they are all patient visits. So one dengue patient comes within a span of at least 10, 12 days, some six, seven times.
No, Om, this is three year CAGR, so I thought I'll just let you know.
Three year CAGR...
2019 to 2022.
Yes. I think that's very clear. I think that somebody asked this first question that our, definitely, volume growth is couple of percentage points softer than what it used to be earlier.
No. Relative to the growth in your distribution channels, I'm trying to ask.
Let's say I think that is the addition of Suburban which has cost that sharp length.
I don't think I've understood. You're saying our channel growth rate is higher than the volume growth?
Number of infrastructure points, exactly.
Has grown faster, but our volume has not kept pace with that.
No. Way behind. Om, your PSCs have grown at 20% CAGR. I'm excluding Suburban. There's no Suburban in my number.
The volume is down.
The 20% CAGR of PSC growth versus some mid-single digit volume growth, and likewise for PUP.
Yes. So, Bharath, do you have any comments?
So, Sameer, I think as you go down the pop strata, we have been talking of going to Tier 2, Tier 3, Tier 4, the throughputs take lot of time to build through, I think, so we are putting the infrastructure in place and over a period of time, we'll see this even out. So on the PSC side, that is the story. On the lab side, on the organic business, if you remove Suburban extra addition, I think our lab growth has been broadly in line, if not lower than that of the volume growth.
Okay. That's fine. One final question from my side.
No. Sorry, Sameer, I -- maybe I just quickly thought -- one of the reason which we'll have to probably validate this, see, what we are seeing I think those numbers are not in public domain are contribution from collection centers has sharply moved up in the last couple of years and that primarily shift has happened from lab. So let's take one lab which is doing 100 samples per day now it's shifting to at least 10 PSCs. So the same let's take 100 is earlier was coming from one lab, now it actually comes from 10 PSCs. Do you understand what I mean?
Yes.
So you may have added more infra, but your number of patients have remained the same.
Right.
That's one little bit. I'm just thinking as we're talking, I'll have to probably go back and do this analysis, but that's one thought that comes to my mind maybe creating this issue.
And this thought is confirmed by the significant drop in the footfalls in the labs?
Yes. So I think COVID has actually done this very clearly and I'm seeing that in general, patients do not really want to come to overcrowded place anymore if they have option to go nearest collection center. The comfort is very high with Dr. Lal PathLabs because they know it's the same infra because this can only happen to a lab which you trust. So let's say I live on -- I stay in Gurgaon and I live on Sohna Road. Lab a say, 5 kilometer away. I would rather, say, instead of going into the lab, can I actually either call the person home or can I go to the nearest collection center. So that tendency is very clear in the consumer behavior now.
Okay. No. That's very clear, Om. And one final question, have you tested the pricing power in B2C channels?
I think honestly we've also been a little cautious ourselves given the competitive intensity. But as we go along, we'll have to really test it out because so far, we were able to maintain our margins within this range, 25%, 26%. We didn't want to push it up further. We also became cautious and also there was a period of this COVID time and very uncertain times. And the other problem with B2C is the following, like there are certain pockets. B2C is not uniformly spread business across the country. So you don't want to create lopsidedness in your system that you load one market because of higher B2C component and not do with other. But calibrated manner we are definitely open to now looking at price rationalization as we go along and that will include even not only B2C but also B2B as well.
Next question is from the line of Aashita Jain from Nuvama Group. Please go ahead.
Sir, could you please talk a bit about your current infrastructure in South India market and your expansion plans, maybe in terms of labs and collection centers?
Yes. So in South of India, we must look at infrastructure from a, let's say, three-year perspective. We currently have in South about -- we started with about 11-odd labs, 11, 12 labs. Now, we are running at 23 labs. And second is on collection centers, we hardly had any collection centers. We had lot of company centers and lot of pickup business.Today, we run about 250 plus collection centers and this network will obviously build up into the future. Even on the pickup side, lot of hospitals have been added. So that traction is going on. And -- but we still have a very less presence in South compared to what we have West or East, North is obviously way ahead. So we made significant progress but I think there is still miles and miles to go further.
Yes. We have now labs in place like Tirunelveli, Madurai, Pondicherry, right.
Yes.
So these are places we're very weak, and all this came up in the last -- we have labs now in Kakinada...
Kurnool.
Kurnool. Yes. So we have some of these towns which we -- I'm pretty familiar with these towns because I worked as ASM many years back, but we have now started having labs in these places.
But any expansions could be a standalone for the next three years?
Pardon.
Any expansions lined up?
Yes. So we put the central lab with a good amount of capacity, so the immediate task is to get the client base up and get the sample base up into these towns and we'll keep expanding labs. There is no particular number I want to give on this call but expansion is constantly being evaluated across the country.
So I think let me put it this way. Let's say, South region as a region will we look at that as a direct-to-consumer market or more as a high-end institutional business? I think clearly, the answer is we want to look at this as a high-end business market, which is more reaching out to hospitals, smaller labs. So which clearly brings us to the point that we may not build a very large front-end infrastructure because that may take away -- take -- put lot of overheads into the P&L without giving you a very -- because there are lot of local competition, local labs entrants for many, many years. So we don't want to be up against that.But I think where we stand good sort of thing is, and we, by the way, we enjoy a very great, good equity amongst medical fraternity. So for us, the model essentially would be not to proliferate as much front-end infrastructure as we invest behind high-end test. That could be more back-end central lab kind of infra is what I would think would work.
And secondly, on Swasthfit. When I look at some of the packages that these -- your competitors are offering, they've attractively priced it. So what, according to you, like in view, what will be your strategy to compete and grow this vertical, Swasthfit basically?
Sorry, I couldn't get your question. You said there are packages and they are priced aggressively by competitors. Did I hear that correct?
Yes. They're priced very attractively in the market.
Right.
And what will be your side if you compete and grow this vertical?
Right. So even before we began the Swasthfit journey, there were competitors who were selling packages cheaper than us, right? And even after the competitors, newer players have come in with cheaper packages, our Swasthfit contribution only moved up. So I think the issue is not about only price in this category. There are lot of other variables of access, trust, timely delivery, et cetera, which play into it. So pricing is a consideration, but not the only consideration. And so, we have a plan to grow the Swasthfit portfolio, the bundle test portfolio, and that continues. That is the reason why this quarter also we got a contribution of 19% or so on Swasthfit portfolio.
Okay. Sure.
Yes. So just to repeat, price is not the only lever. There are multiple other levers. So it's not a commoditized product the way one typically tends to imagine it to be.
The next question is from the line of Sayantan Maji from Credit Suisse.
Yes. Sir, am I audible?
Yes.
So, okay. So my first question is on the -- you mentioned that you have in the presentation that you were focused on venturing into Tier 2, Tier 3 towns. So is this a deliberate strategy that you're following? Is it because of slower growth into Tier 1 cities and what would be the contribution of from metros and Tier 1 cities for us today approximately?
You are saying, is there a growth rate difference between metro cities and lower-run cities, right?
Yes. I mean, so, for example, there are Tier 1 cities, say, like we talked about Bangalore, then Chennai, Hyderabad, so should we not focus on these larger markets in Tier 1 cities and then venture into Tier 2, Tier 3 towns, or is it because that you want to venture into those towns because of lower competition?
No. So there are two ways to look at it. One is that in the Northern, Eastern part of the country, right, if you say, go down the pop strata game. right? In the Southern market, we want to put reference lab and also go to key medical hubs, where there is volume and generate a equity base over there. So you must look at it slightly differently in a emerging market to a stronghold market to a dominant market. So that's where I would call it out.
Okay. Got it. And also my second question is on East India. So in East India, do we see our sales growth maturing -- our sales maturing or do we still see mid-teens kind of a growth in that geography?
So East India is definitely not matured market yet. There is still miles to go. All the markets of East India, be it Bihar, Jharkhand, Orissa, or Northeast, all offer immense potential. There is lot of work to be done within large cities. There is also work to be done in going down the pop strata with access. So I think the East India game is still not -- is still lot of way to go.
Okay. Got it. So just finally bookkeeping question. So what could be the Ind AS benefit for this quarter and what is the percentage of revenues from home sample collection in B2C segment for us?
Yes. Home sample number is about 9%-odd, 9%, 10%. Ved?
Yes. So India is, Sayantan, is even, because it's not new. It's also in the base. So there is no difference.
So would it be around 2% of sales, approximately?
Yes. Maybe more going out.
Next question is from the line of Tushar Manudhane from Motilal Oswal.
Just on with respect to Suburban reshuffling, Vidya Vihar Lab also coming up, so the EBITDA margin for Suburban, where do we think margin to be improving over like say, three, four quarters, that's the first question.
Sorry, you are not very clear.
Tushar, sorry, but your voice was coming a bit muffled.
Is this better?
Yes.
Yes. I was referring to the profitability of Suburban, currently which is at 7% and the kind of restructuring which we are doing, and in addition to that, we have Vidya Vihar Lab as well. So this -- how -- to what extent, this margin can improve say over next three to four quarters?
So, Tushar, as I said, this is not representative this quarter. So on a yearly basis, definitely, it is going to improve from here. But again, the focus right now to invest in the business and drive top line. So we are not cutting cost right now, but it will be improving from here.
So we want to achieve one thing which is that model which was driven by own infra, moving it to franchisee, is one sort of a headwind, which is going to come on the P&L because we have to do a revenue share, right? So and we believe that is important for us to drive growth. So I think that is some bit of a phased manner we'll have to see. I think FY '24 focus is just to see if we can stimulate the top line growth, which we are seeing some green shoots and I want to make sure that next 12, 15 months we just drive top line. In the process, given our experience because of operating leverage in this business, I think margins should improve directionally.
Understood. So currently, how much would be own and franchisee, just to clarify? And then, to what extent do you want to take it like as a part of strategy?
How much would be?
Own versus franchisee. So it would be currently maybe a 1:2 ratio, own versus franchisee that we've achieved as of now in terms of number of outlets infrastructure. Revenue, it could be even higher, own versus franchisee. I'm just talking about infra numbers. And going forward, that number could go as high as 1:4, 1:5.
Understood. And just lastly on the way of expanding to the Tier 2 cities and even on looking at this franchisee model. So broadly, the other expenses at what rate can be considered to be growing for next couple of years?
For overall business you're asking, Suburban?
Yes. Overall business.
Overall business. Overheads, how do you see growth growing over a period of time?
So, Tushar, I think overheads, obviously, there is a inflation which is happening everywhere. Especially, let's suppose new talent, higher...
I would rephrase this. I think our margins -- EBITDA margins is between the 25% to 26% range, right.
Yes.
And there is certain growth projection for next year. Our first attempt would be how do we remain within this range. Obviously, I think clearly, industry has reached a stage where you not only have to manage your top line but you have to manage the entire all three lines, middle line, bottom line, top line. So we'll have to really work very hard in managing the entire P&L shape.So, I think somebody asked earlier question, would you be looking at price increase? Probably, answer is yes if we are not able to absorb these costs. Would be looking at reorganizing our infra in terms of increasing productivity? Again, we have done that quite a bit in the past. We will continue to do that as well. So that's a way we look at our costs. A lot of automation has taken place in the last two years. Maybe there are certain process changes we'll have to do where manual component has to be pulled out. We'll have to look at automation. So this effort of just staying in this range will continue. We'll have to see how we move quarter-on-quarter basis.
Tushar, sorry to interrupt you. May I please request you to rejoin the queue for a follow-up question? The next question is from the line of Tanmay Gandhi from Investec.
So, sir, what -- so while talking about the competition, we said that our routine tests are actually subsidizing the high-end tests, right? And at that point of time, we said that we might see -- we are watching out the pricing situation and might take some price cuts, right? And while talking about the cost, we said that we can -- we will probably pass on the price, sorry, cost hike -- cost inflation, right? So how do we reconcile that?
No. I think the point that I was making is that there are -- a lot of these higher-end test have very high manual component in-built in that while routine tests are very machine-driven tests, let's say biochemistry tests, et cetera. There the productivity is very high but let's say, histopathology department, where we read these biopsies, manual component and it is also read by top-notch doctors, their cost is very high. So, traditionally what has been happening is that since this biopsy business or histopathology business was very small, one didn't bother too much about margins but more about -- it was like a real brand positioning because it really mattered from an image perspective.But now, these businesses are becoming very large and so one has to look at the entire price structure, keeping that in mind. And secondly, on the routine test, as you all know, competitive intensity is very high. We can't keep on just loading that part of the business to look at. So I think there's is a bit of rationalization effort, which will -- which is what we are trying to do.
So any sense how would our realizations be in that case, so those are expected to grow...
I think right now, I don't think if you're trying to build your model, there is a material change as of now you should worry about. I think as we go along, we'll probably share with you more. But I don't think you should your model saying that there is some big change that's going to happen. It's going to be very, very measured sort of way of rationalizing.
Got it. And, sir, our non-COVID RPP is INR744 and total RPP is INR754, but if I remember correctly, in last few quarters, we mentioned that COVID realizations are dilutive in nature. So is there any change in pricing or any other change?
So, Tanmay, it is because of mix which is high-end test and Swasthfit and Suburban also. So all put together is where the difference is higher.
No, sir. I'm actually comparing that total RPP at the company level and non-COVID RPP.
Yes.
So if there is any difference, that means that COVID is realization-accretive, right?
Tanmay, that's the test mix and the business mix, geography mix change.
No. I think he's right.
He's right. Yes.
COVID total RPP is INR754, non-COVID is INR744. So what has led to this higher INR10?
Because, sir, Allied component, Om, in that.
So it's actually COVID has two buckets, one is RT-PCR, other is allied testing. So RT-PCR is dilutive and the other one is taking it up, right. That's what is making difference, but INR10 is still higher.
No. Because now the RT-PCR component of the COVID has gone down.
Significantly down.
Significantly down, so there's more of the allied one.
So that is what has led to this, yes.
Yes. COVID allied testing mix.
Understood. And for the industry in general, right, so earlier, I think as per the industry reports, the general understanding was that diagnostics is a 12% plus kind of -- 12% plus growth industry, right? But given the competition, given the current competition scenario, and the quick scale up which these competitors have seen, and the way they are expanding their testing infrastructure, their revenue base, so do you think that the growth trajectory could change, structure...
I think definitely, no doubt. It's like you put five years back and now, comparative intensity amongst organized player has gone up sharply because today you have brands, which are being advertised heavily, which are reaching out there, they're building chain labs. And obviously, if they're in the market, they are obviously gaining shares, et cetera, on -- at cost of earlier players.Now, I think one interesting thing one has to see that a lot of deep discounting has taken place in last year, year and a half, and purchase frequency is not that high in this business. So one would have to actually see the stickiness of this customer base over a period of time. I think many of these players have been in the market for maybe two to three years. We'll have to see how they actually stabilize in the year coming which is FY '24. It will be very important to see that. We are also seeing gradual improvement in our business as well. It's not that we not seeing that, right.
So like we mentioned, Om, the -- for the organic business, H1 growth rate was 9.4% CAGR. It has moved to 10.8% in Q3.
In Q3, right, on a longer-term basis.
On a longer-term basis.
So there is a bit of recovery. I think the good news is that so much of action is just taking place, market is going to grow in terms of business. Tier 2, Tier 3 towns growth rate would be there. So we'll have to just see that while we are defending in one place, we are also making sure that we grow in other places. I think it's a combination of both.
But, sir, when we say that our lower growth is also attributable to competitive intensity, but even for us, the Swasthfit is growing very fast, right? Earlier, it used to be 15% and currently, it is tracking 20%.
But it's not all incremental, it's also cannibalize our individual routine tests, right? So a bit of -- a lot of shift is happening. While the contribution of Swasthfit may have gone up, it sounds like 20% extra growth has come. It's not come as incremental. It because lot of these individual tests are now being clubbed into and people are availing bundled packages, which is much greater value for money for patients.
Got it. So in -- within this 20% Swasthfit contribution, how much would be the wellness piece, any broader number?
No, there is no way we can differentiate that someone bought a Swasthfit with fever or had chronic diabetes, so -- or came in for annual health checkup. There is no way of determining that instance -- system capability currently. So I guess we are unable to differentiate and this is what we have said in the past as well.
Yes. It's very difficult to tag that this turnover is due to wellness or this turnover is due to -- because even chronic patients are also upgrading themselves to bundled packages.
The next question is from the line of Nitin Agarwal from DAM Capital Advisors.
So on your Swasthfit bundled packages, there are a few questions. One is the make -- this proportion of Swasthfit, is it kind of uniform across your various markets or this is maybe a little skewed -- this package is more skewed in certain markets?
That's a good question.
So -- yes. So the proportion varies but you must look at the proportion, not only the geography, a little bit of a channel level in the geography because each geography also has a different channel mix and Swasthfit sold only through our B2C channel or collection center channel. So if you look at from a within the channel, within the geography perspective numbers, yes, there are still wide variations across the country. And that is one insight we're using to get geographies to get to the same level as the national average or within well-performing geography centers, which are not doing as well, get those up.
And these geographies which are doing well would be what? Typically a traditional geographies of North or the newer geographies is where the proportions are higher?
So it's actually city-specific, so it's got lot of detailing around that. So I can make a broad brush statement but North is definitely a much stronger Swasthfit market for us given the distribution reach we have and the consumer awareness about it also.
And secondly, as a -- from a business perspective, are these bundled packages equivalent in from EBITDA profile perspective further form or are they are dilutive, more accretive?
See, RPP is significantly higher, right. So the net of servicing cost, it should be higher EBITDA accretive profile.
So, I mean just trying to think through now the comment because this is -- as a proportion, this has grown much faster for us over the last few quarters. And EBITDA margins have kind of stayed around there or maybe somewhat under pressure. So the non -- or maybe that the usual acute testing business, the profitability would have been under more pressure than -- or I mean higher pressure than the overall business, I mean is that a fair way to look at it?
So there has been lot of other cost inflation and that is one thing we have. We haven't taken a price increase because we will be able to manage higher realization, offset some other portions of the business through Swasthfit, and other portfolio management approach.
And secondly, in terms of -- looking at the volumes around that you've had this quarter and last couple of quarters, is this again broad-based across various geographical clusters or there particular geographies where the volume slowdown -- relative volume slowdown is more pronounced?
I think Delhi NCR is little more because in the base, we had very high incidents of dengue last year. So in relative terms, other geographies are better than Delhi NCR, and because of a very high base of dengue last year.
Thank you very much. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to the management for closing comments.
Thank you, everyone, for being with us on the call today. I hope we are able to address your queries. If you have any more questions, please feel free to reach out to our Investor Relation team, CDR India or me. We'll be happy to clarify your thoughts. Thank you once again. I would now request the moderator to close the call. Thank you.
Thank you very much. On behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.
Thank you.