Dr. Lal PathLabs Ltd Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Amey Chalke - JM Financial Ltd - Analyst : Congrats to the management and a good set of numbers. The first question I have is on the suburban. The improvement in the operational performance for quarter-on-quarter. Is it possible for the (inaudible) to clarify like the margins have improved to 30%. Last quarter, it was around 40%. So what were the drivers during this quarter is the operating leverage will have played out or something that which we should?

Question: Amey Chalke - JM Financial Ltd - Analyst : Sure. So going ahead, how should we think the trend for the following quarters for (inaudible) because the (inaudible) again that will be a weaker quarter. So -- like how should we think about for the full year?

Question: Amey Chalke - JM Financial Ltd - Analyst : And the second question I have, is it possible for the management to give a growth (inaudible) for the quarter? Or if at least how much the growth was in North and (inaudible)?

Question: Tausif Shaikh - BNP Paribas Exane Research - Analyst : Congrats on good set of numbers. So I have 2 questions, mainly on your expansion plan in Tier 2 and Tier 3 (inaudible). Can you throw some light how the realization in these cities and how the volume ramp-up? Are they lower compared to the metro cities that you opened (inaudible)? . Unidentified Company Representative Yes. So Tier 3 and Tier 4 city expansion is predominantly in our core geographies of North and East. And in these geographies, we are going deeper. So that realization is our pricing in these geographies is quite similar. We don't operate any in the contiguous market. It's not -- the pricing is not lower. So realizations are similar in terms of the contiguous geographies that we are going into. And in terms of ramp-up, it takes a normal usual time that one would take to ramp up. But the throughput of these labs is managed in a way that it gets slightly bigger radius to ensure that the volume throughput or lab is taken care of.

Question: Karthik Chellappa - Indus Capital Advisors, Hong Kong Limited - Analyst : My first question is, if we were to look at our volume growth, at least on samples, for the last 4 quarters, it has been somewhere in the range of about 8% to 9%, and it is backed by very healthy margin expansion. So I'm just curious to see whether there is scope for us to reinvest some of these margins to drive a higher volume growth? And in your opinion, what needs to happen for volume to kind of move up to a more sustainable double digit here? That's my first question, sir. Unidentified Company Representative I think -- so firstly, let me try and answer the question that the sample growth is driven by also improved contribution which is coming through (inaudible) and we are seeing even in the nonperfect portfolio, the test per patient is slightly up compared to what we were seeing maybe a year before. So that is what is driving sample per patient and therefore, our overall sample growth. Now I think investing back into growth is something that we are continuously doing. Like I mentioned in my opening remarks, this year, we are planning to open a higher number of lags between 15 to 20. We will be adding this financial year. Also, we are doing investment in terms of communication in cities very strategically wherever we feel that, that adds value to our brand and our position. We are also strengthening our market connect and our sales teams and those kind of investments are continuously being made. So it is not as if -- whatever is the investments to be done, that resin held back because if you see our A&P spend, our A&P spends are actually inching up every quarter when we compare with the same period last quarter. So those are definitely there. And whether it will be a double-digit patent volume growth or not, I think that's something which we'll have to come back to. I think that's an aspiration, but not really in the near future because there is a mix of two things. One is the existing patient volume getting impacted because of more first fit and also on the balancing factor, the outreach we are doing to newer geographies and newer Tier 3, Tier 4 towns and the activities we are doing there, which is adding new patients. So it's still under churn. When it real double digit is something which we'll come back to that a bit later. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 12:00PM, DLPA.NS - Q2 2025 Dr. Lal PathLabs Ltd Earnings Call

Question: Karthik Chellappa - Indus Capital Advisors, Hong Kong Limited - Analyst : Got it. My last question, sir, is as far as the management succession is concerned, once Dr. Om steps down in March '25, how is the succession going to be planned? Will it be someone internally or are we going to look for somebody externally? Or could you give us some color or thought on that?

Question: Prakash Kapadia - Spark PMS - Analyst : A couple of questions from my end. If you could give us some sense how much of this is a doctor recommended how much directly? And is there a scope to increase this contribution in Tier 3, Tier 4 cities also? That's my first question. Given the work we have done over the last two years now in Suburban. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 12:00PM, DLPA.NS - Q2 2025 Dr. Lal PathLabs Ltd Earnings Call So is it fair to assume now suburban will continue to grow higher than the company average from year on? And lastly, from a higher revenue growth perspective, if I were to just get the drivers in the medium term? Will it be market share gains from smaller players? Would it be a higher number of patients or will it be more revenue from patients? Or you see Tier 3, Tier 4 contribution increasing? So what could be the pecking order in terms of (inaudible) just trying to assess the potential revenue or the (inaudible) those are my questions. Unidentified Company Representative Thanks for the questions, Prakash. Let me try and answer them to the best possible degree. I think, firstly, on the first fit contribution from direct patient versus a doctor prescriptions, so we don't have accurate data on that, but one would assume that quite a bulk of it is in terms upgrading prescriptions. They may not directly be a subset prescription, but some prescriptions get upgraded. So (inaudible). It kind of through that. We may not have exact numbers, but that is one bit. Secondly, on whether we are taking into Tier 3 and Tier 4, I think that's something which I mentioned in my opening comments as well that we are actively taking (inaudible) into our Tier 3, Tier 4 market, and we are also seeing some traction build up in those markets on profit, which is giving us the confidence that the growth trajectory we are seeing on prospects still has legs to run on. So you're back from your first fit. I think on suburban, yes, a lot of work has been done in the last two years, and I think we have now started seeing results on that. So independently, we definitely feel that -- or we believe that suburban growth rates are going to be sustained or better as we keep moving forward. Will it be always better than the company. Actually, my expectation would be even the other part of the company should grow faster. So to me, those 2 remain independent. But yes, suburban growth, we should be able to now sustain double-digit and grow maybe even faster than that. Your last question in terms of how will the future growth come and what are the drivers? Yes, we continue to look at newer geographies, which is the Tier 3, Tier 4 expansion. I talked about new labs. We are opening more sales headquarters, reaching more directly to more clients across more of geographies that gives wider average and in (inaudible), we continue to focus on our core cities and core clusters and building our brand and writing on whatever we have built in the past getting higher throughput in our existing infrastructure. So those will be the key drivers and also the bundled test portfolio growth continuing.

Question: Prakash Kapadia - Spark PMS - Analyst : Right, right. Understood. And lastly, Shankha mentioned about the growth drivers for a higher kind of revenue growth. So historically, we had seen post-COVID lot of these new labs had sprung up. So any sense on the unorganized or these players getting marginalized because I guess were the 2 long term that also would -- growth and now it should translate or show into higher growth. Is that happening on the ground, not happening. Give us some sense, that would be helpful. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 12:00PM, DLPA.NS - Q2 2025 Dr. Lal PathLabs Ltd Earnings Call Unidentified Company Representative It's a bit of a mixed feedback there. COVID period actually created a bit of a cushion for a lot of the single operating labs because a lot of them made quite a bit of money said, therefore, some people have tried to expand or they are sustaining their businesses and still continuing to run their operations. And so that is a -- one in another and we also see people who may want to be exiting or wanting to close their businesses. So -- but yes, it is a bit different than what we were seeing pre-COVID. There is still some a bit of aggression that we see in the local lab networks. But we have our risen years open. I think the situation should improve in terms of consolidation as we move forward. Thank you.

Question: Saion Mukherjee - Nomura Services India Pvt Ltd - Analyst : This strategy of not taking price increase unlike your competitor, right? I think historically, (inaudible) to take low single-digit price increases. I'm just wondering, is this a strategy for a year? Or you think you should sustain this on a slightly longer-term perspective. And generally, we see inflation across everywhere. So there's really 2%, 3% price increase is something where the volume in the thing is very high. How do you assess the strategy of keeping or not taking any prices, please?

Question: Saion Mukherjee - Nomura Services India Pvt Ltd - Analyst : Understood. The second question I have on the employee expense in the quarter. It seems to have gone up almost 18% year-on-year, much higher than the revenue growth. If you can throw some light on the dynamics there?

Question: Saion Mukherjee - Nomura Services India Pvt Ltd - Analyst : Okay. And finally, if I can ask one more question. Now you have guided for more than 10.5% growth this year. Now as you look forward with the lab expansion, Suburban picking up growth and possibly some price increase. Are you expecting an (inaudible) as we go forward? Or do you think low double digit is the level that we should sustain on a slightly (inaudible) perspective? Unidentified Company Representative So we've been saying equal to or better than last year's growth, which is 10.4%. And first half, now we have delivered 10.5%. So therefore, our guidance still remains the same from that point of view. I think the point about suburban growth coming through and price increase, like price increase isn't something this financial year, definitely, we may not be taking price increases like even Dr. Om mentioned, it's -- we continue to evaluate. If we feel that we need to take a price increase, we will take a price increase. We're definitely not to drive revenue growth, that is not going to be a reason to take price increases because we like to be as broad based as possible. So as of now, we are -- we'll stay with the revenue guidance that we have given in the past few quarters.

Question: Prashant Nair - AMBIT Capital - Analyst : Just one question related to how you flag your network as we go into the future. In the past, the five, six years back, you had a certain bespoke model with a certain ratio of collection centers that which has served you very so far. Now are you going to Tier 3 markets increasingly or into newer markets? Would that change in any manner? So I'm talking more about number of collection centers in relation to number of labs, would you be able to do with more collection centers related to labs? Or would you need to set up more labs? How do you think about the network as you go say, to your next pad of development? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 12:00PM, DLPA.NS - Q2 2025 Dr. Lal PathLabs Ltd Earnings Call Unidentified Company Representative So over the last few years, we've been steadily increasing the number of collection centers per retail lab that we have and we've reached a reasonably a good number of almost 28, 29 labs in last financial year, we reported, I think, close to about 29 collection centers for retail lab. I think that kind of a ratio we should be able to sustain even with our expansion into Tier 3 and Tier 4 models. So the broad hub-and-spoke model remains in place. It is just that we are now going into a closer to the consumer as possible even in the interline. But the overall model is not really changing.

Question: Sumit Gupta - Centrum Broking Ltd - Analyst : (Inaudible) just want to understand on the margin guidance that you however, let's say, for second half, then it comes out to be around (inaudible). Just want to understand where we'll hold the investments we largely since 50% of the lab addition has been done. So I just want to understand on the investment and what kind of returns that you (inaudible).

Question: Sumit Gupta - Centrum Broking Ltd - Analyst : So I understand, sir, just want to understand the majority of the breakup of the CapEx that you would be investing apart from the last side?

Question: Sumit Gupta - Centrum Broking Ltd - Analyst : Understood. And sir, what kind of margin state target for suburban let over the next one year or so?

Question: Sumit Gupta - Centrum Broking Ltd - Analyst : Understood. Understood. And just lastly, on the geographical side, would (inaudible) was around 30%, 32%? Unidentified Company Representative Yes, the MCR contribution is still at 31% for quarter 2.

Question: Shyam Srinivasan - Goldman Sachs & Co LLC - Analyst : Just the first one is on the suburban acquisition we announced 3 years back. And now I think in this quarter, you started giving us more granularity. So just some of the learnings is what I was looking, not just generally from a suburban perspective but also just from an M&A perspective, what are some of the key learnings, maybe even some color around the Mumbai market? That is my first question, yes. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 23, 2024 / 12:00PM, DLPA.NS - Q2 2025 Dr. Lal PathLabs Ltd Earnings Call

Question: Shyam Srinivasan - Goldman Sachs & Co LLC - Analyst : Got it. Very helpful. And the second question is just a data keeping on the 11.6% growth. How is that split by the volume and price for suburban again?