Dr. Lal PathLabs Ltd Q3 2024 Earnings Call Transcript

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

Question: Prakash Kapadia - Anived Portfolio Managers Pvt. Ltd. - Analyst : Yeah. Thanks for the opportunity. A couple of questions from my end. So the diagnostic industry growth has definitely slowed down from earlier pre-COVID days. So what is our sense? Is it customer fatigue? Is it something else which is affecting volume growth for the sector? We've obviously grown at 10%, but this is on a 9% base of last year. So any sense you could give us for the industry? Secondly, if I were to envisage higher growth from year on for FY25 and beyond. So for us, what will drive that? Is it Suburban scale? Is increase was contribution? Is it newer geographies where we've been pretty aggressive in Tier 3, Tier 4 cities where we have an early mover advantage? Can specialized test increase? As you know, the price rise base is also now anniversaries happening in February. So what will drive growth from here on? And lastly, on Suburban, what's the game plan? Because now centers are added, labs have opened, reference lab is done. The integration of infrastructure is done. So can we expect much higher growth in Suburban from here on or not? Those are my questions.

Question: Prakash Kapadia - Anived Portfolio Managers Pvt. Ltd. - Analyst : Very low single digits, right?

Question: Prakash Kapadia - Anived Portfolio Managers Pvt. Ltd. - Analyst : Yeah. So in terms of the growth drivers, if any, I was just trying to understand, will Tier 3, Tier 4 be the biggest driver? Or will specialized test drive, this increase was contribution looks unlikely to majorly drive growth from here on? Or it's going to be Suburban scale, which will grow now at a much faster pace, so the overall revenues could be significantly higher or much better than what we are currently trending what was I'm trying to understand. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 01, 2024 / 11:30AM, DLPA.NS - Q3 2024 Dr. Lal PathLabs Ltd Earnings Call

Question: Prakash Kapadia - Anived Portfolio Managers Pvt. Ltd. - Analyst : Okay. So you're saying all of this should at least directionally looks like we should head for higher growth?

Question: Prakash Kapadia - Anived Portfolio Managers Pvt. Ltd. - Analyst : Yes, despite a low base.

Question: Prakash Kapadia - Anived Portfolio Managers Pvt. Ltd. - Analyst : I'm saying industry, obviously, doctor has slowed down. What I was referring to the low base was last year in the base of Q3, there was a 9% growth in non-COVID revenues. That is what I meant. From that perspective, despite being 9% non-COVID revenues, our overall revenues are up 10%. I'm just trying to figure out what is that missing link because everything seems to be there, but it's not translating one for the industry. Obviously, we are doing better than the industry, but it looks like there is a large potential and the scientific based or evidence-based testing. Because anywhere you talk, go, talk to friends, fraternity without a report, no doctor is willing to give a medicine. So from there, I was trying to understand what am I missing. Anyway, thank you all the best.

Question: Rahul Agarwal - InCred Equities - Analyst : Hi. Very good evening to everyone on the call. I have four questions. I'll try to be very quick. Firstly, on the Tier 3, Tier 4 cities, Dr. Om basically the management commentary around this has obviously increased as you also alluded that last three, four quarters, we've been highlighting this. I wanted to understand what does management really expect in terms of the change in business when we started tracking this. There are two things here. One is purely in terms of operations that does it. How does it change your daily routine in terms of the entire effort of capital allocation and sales force will be focused on Tier 3, Tier 4? And secondly, in terms of financials as analysts and shareholder, what should we focus on when this business actually sees higher growth in Tier 3, Tier 4? It could be revenue mix. It could be more B2B. It could be higher working capital, it could be higher -- lower -- higher margins, anything. And related question to that also, was that doctor influence in these cities according to [me] should be even tougher to breaking versus what we see in metros. So your thoughts, please.

Question: Rahul Agarwal - InCred Equities - Analyst : Anything on the doctor influence? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 01, 2024 / 11:30AM, DLPA.NS - Q3 2024 Dr. Lal PathLabs Ltd Earnings Call

Question: Rahul Agarwal - InCred Equities - Analyst : And one more thing was this 32% to 34% of total top line which is coming from these markets, I see that number pretty in a very narrow band over the last four years. I don't have a nine-month number. But when I look at '19 to '23, what you have disclosed, it's not really moved ahead. So anything different you're doing this time around that this number will actually track higher going forward?

Question: Rahul Agarwal - InCred Equities - Analyst : Yeah, and then secondly, I wanted to discuss one new topic with you and the team. Because your business run very largely dependent on franchisees, I don't know if the metric called revenue per franchisee really matters. And I'll give you the context. What I'm thinking is because the growth is really not picking up as what we all want to mid-teens. And my understanding that Dr. Lal has a very, very decentralized franchisee network, which basically means that each franchisee is running at max three centers, maybe nationally. Would it be a good idea to track revenue for franchisee? That is one question. And secondly, would it be a good idea to basically aggregate and have larger franchisee partners to keep them motivated, compete better, and commit more capital and effort to basically get the growth higher?

Question: Rahul Agarwal - InCred Equities - Analyst : Okay. So it doesn't really make any difference. And there is no thought internally that we should do this kind of things to basically get growth up. It doesn't really help, right?

Question: Rahul Agarwal - InCred Equities - Analyst : And the revenue per franchisee trend over the last post-COVID let's say, last three years, how has that behaved? According to me, it should have been declining, but your thoughts?

Question: Rahul Agarwal - InCred Equities - Analyst : Okay. And one last small question. Seasonally, your gross margin should have been weaker QoQ. Very surprising to see 80% number here in third quarter, never really happened in any of the past years. What was different?

Question: Rahul Agarwal - InCred Equities - Analyst : Seasonally, third quarter has never seen such high gross margins. I think when I look at past four, five years, history, generally, you see a drop in gross margin QoQ. What was different this time? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 01, 2024 / 11:30AM, DLPA.NS - Q3 2024 Dr. Lal PathLabs Ltd Earnings Call

Question: Rahul Agarwal - InCred Equities - Analyst : Yes, I was expecting a lower number, yes.

Question: Rahul Jeewani - IIFL - Analyst : Thanks for taking my questions. Sir, now if we look at our value growth for both third quarter and nine months, our value growth has been 10%. But if we disaggregate that between volumes and realization then the volume growth both for the third quarter and nine months is to be [2.5% to 3%] kind of number. And obviously the (technical difficulty) So the volume growth in our portfolio, both for the third quarter and the nine months has been (technical difficulty) only. So can you comment in terms of volume growth settling over the next three, four quarters? And are you planning to take another round of price increase (technical difficulty)

Question: Rahul Jeewani - IIFL - Analyst : Sure, sir. So if you are not planning to take a price increase this year and if we don't see much of an acceleration in volume growth next year, do you think that we can sustain this current (technical difficulty) going into next year?

Question: Rahul Jeewani - IIFL - Analyst : Sure, sir. And since you pointed out that you are trying to accelerate your growth by ramping up Suburban. So can you call out the growth for Suburban this quarter, both in terms of value and volume. I'm assuming that the value growth in Suburban would be higher than the 10% number, which we have delivered at an overall company level.

Question: Omkar Kamtekar - Bonanza Portfolio Ltd. - Analyst : So first question I wanted what is the free cash flow generation for the quarter and for the nine months? Free cash flow. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 01, 2024 / 11:30AM, DLPA.NS - Q3 2024 Dr. Lal PathLabs Ltd Earnings Call

Question: Omkar Kamtekar - Bonanza Portfolio Ltd. - Analyst : That's the free -- FCF generated for the quarter.

Question: Omkar Kamtekar - Bonanza Portfolio Ltd. - Analyst : Okay. I understand. Okay. And if you calculate the revenue per patient for the year, YTD, nine months is INR796, so let's round it up to INR800. Other than the change in the mix, what are the drivers to we can see that this revenue per patient can increase because it has been steady, very steadily increased. It's now close to INR800. What do you think will it take to reach maybe INR850 and a higher levels?

Question: Omkar Kamtekar - Bonanza Portfolio Ltd. - Analyst : Okay. Okay. So on that point, so answering in the previous question, you said that we are focusing more on the B2C segment and trying to get the customer more aware about our offering rents and so that they are --

Question: Omkar Kamtekar - Bonanza Portfolio Ltd. - Analyst : Understood. Understood. So it's like we are trying to build the position ourselves as the product leader -- service leader. Understood. So with that in mind, are we looking at so for example with respect to the other players that are there in the industry, what they are doing is they are entering into contracts or maybe MOUs, with these smaller town, Tier 2, Tier 3 hospitals, district hospitals, and et cetera. And they can get a captive audience right from day one. The volumes are there for them because the people are there right from day one, everybody is going to these specific hospitals in their regional -- in their regions. So is that something of a route that we may go down? Maybe you can even approach government hospitals for that matter. So that the volume that we have been missing could be brought on board? Is that something that could be taken out?

Question: Omkar Kamtekar - Bonanza Portfolio Ltd. - Analyst : Okay. Understood. And on the cash flow question, so we have approximately INR800 crores odd worth of cash in the bank -- cash in the books. Any color as to with respect to any acquisition in the pipeline or maybe something that related on the block? Not that I ask you to disclose it but are we looking for any specific acquisition or something so that we can utilize this cash?

Question: Omkar Kamtekar - Bonanza Portfolio Ltd. - Analyst : So have you touted any candidates or we're just --

Question: Punit Pujara - Helios Capital India - Analyst : Yeah, hi. Thanks for taking my questions. So if I look at margins on a nine-month basis, be it gross margins or EBITDA margins. So gross margins have expanded by 2 percentage points and EBITDA margins, 3 percentage points. And Dr. Lal, I remember -- Dr. Om, I remember in last call, you mentioned that having higher margins, you also attract more competition. So the question I'm coming to is, is there a room for you to reinvest these margins to accelerate volume growth, which I believe comes out from the call that's a key metric you want to (inaudible)

Question: Punit Pujara - Helios Capital India - Analyst : Is there a way to reinvest the extra margin?

Question: Punit Pujara - Helios Capital India - Analyst : Sure, sir. And Dr. Om, you also mentioned about driving the durable growth, which, in my opinion, is through number of patient increasing. But on a nine-month basis, patients have increased by 2.5%-odd, and your number of tests have grown by 8%, which implies that this bundling of test is working really well. But organic patient volume growth, in your mind, will that be a right metric for like durable growth that we just referred to?

Question: Punit Pujara - Helios Capital India - Analyst : Yeah.

Question: Punit Pujara - Helios Capital India - Analyst : Sure, sir. So I believe these tech investments that you all have made will enable you to track that --

Question: Punit Pujara - Helios Capital India - Analyst : Sure, sir. And for these tech investments that you referred to will enable you to track this unique patient visit in a better way, I believe.

Question: Prashant Nair - Ambit Capital Pvt. Ltd. - Analyst : Om, I think you partially addressed this, but if you could elaborate a bit more. When you talk about maybe increasing lab infra to target Tier 2, Tier 3 cities, is there any way you can quantify either number of labs? Or if you could even give qualitative color on -- will these labs be similar to what you currently run in the bigger cities or will they kind of have slightly more limited test menu? Will the number of spokes they can support, a number of selection centers they can support the higher, lower than what we have currently? I mean is the nature of the network likely to change or is it just adding the way you have been adding Suburban?

Question: Prashant Nair - Ambit Capital Pvt. Ltd. - Analyst : Okay. And is there any target in terms of increasing -- setting up X number of labs? Or is it not worthy for you to talk about that?