Dr. Lal PathLabs Ltd Q3 2025 Earnings Call Transcript

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

Question: Saion Mukherjee - Nomura Securities Co. - Analyst : Just some P&L numbers. I just wanted to get some color. So we have seen consistent improvement in gross margin despite no price increase. So if you can take us through the dynamics in terms of volumes, [soft] mix and you have raw material prices, currency, et cetera. So how should we think about gross margins going forward? And the second one was on employee expense. What I noticed it's been growing in mid-teens, higher than the revenue growth for the past few quarters. What's driving this? And how should this grow going forward in your view?

Question: Saion Mukherjee - Nomura Securities Co. - Analyst : Okay. And if I can ask one more. Just on depreciation and tax rate. I mean, we see depreciation, amortization numbers kind of quite flattish or even declining. So any reason there? And you are still on the old tax rate. Are there any plans to move into the new tax rate? And what should we expect in terms of effective tax rate in the years ahead?

Question: Saion Mukherjee - Nomura Securities Co. - Analyst : Okay. And any comment on depreciation, amortization number?

Question: Saion Mukherjee - Nomura Securities Co. - Analyst : But you were adding labs, right? I mean I understand your organic infrastructure you are adding. So I would have --

Question: Karthik Chellappa - Indus Capital Partners, LLC - Analyst : Two questions from my side. First, because if I look at Swasthfit, that contribution to overall revenue has remained at about 23% to 25% in the last four quarters. What is our medium-term aspiration in terms of, let's say, revenue composition? And what needs to happen for us to take it to a higher level? That's my first question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 11:30AM, DLPA.NS - Q3 2025 Dr. Lal PathLabs Ltd Earnings Call

Question: Karthik Chellappa - Indus Capital Partners, LLC - Analyst : Got it, which means that going into next year, this ratio at least on a year-on-year basis will continue to improve. Is that how I should interpret it?

Question: Karthik Chellappa - Indus Capital Partners, LLC - Analyst : Okay. Great. My second question, sir, if I look at suburban, this quarter, about 9.2%. That revenue is soft relative to both our overall revenue growth as well as suburban's nine-month revenue growth as well. So what would explain this relative weakness in suburban this quarter? And what is the plan or, let's say, aspiration for FY26?

Question: Karthik Chellappa - Indus Capital Partners, LLC - Analyst : Okay. Thank you very much for the detailed response, sir. Wish you and the team all the very best. That's all from me.

Question: Rishi Mody - Marcellus Investment Managers - Analyst : So your comment on the gross margin where you said that large part of the gross margin expansion is on some base with the COVID going away and the normal business having higher gross margins and the others -- the initiative taken at (inaudible). One thing I wanted to understand, right? Today, on new industry in the domestic reagents business, which is coming up, which (inaudible) lower pricing than the international players. So like are we not planning to increase that mix or like we're going to pass on the benefits that we get from those and hence, lower pricing -- adjust pricing? Or -- like I'm just trying to understand why wouldn't gross margin expansion take place if we incrementally keep using domestic players reagents?

Question: Rishi Mody - Marcellus Investment Managers - Analyst : Okay. All right. So (inaudible) in the near term due to pressure, sir. Second, I wanted to understand Swasthfit piece, right? So when I look at the

Question: Rishi Mody - Marcellus Investment Managers - Analyst : Right. Okay. And I think last time you mentioned like this can go much beyond the 25%, 30% mark. So is that still the case? Or are you still maintaining that, right?

Question: Rishi Mody - Marcellus Investment Managers - Analyst : Okay. Understood. Finally for with just a couple of numbers (inaudible). So suburban EBITDA margin for the quarter versus the same quarter last year, if you could help me with that. And the tax piece seem like a 28%, 29% tax rate for several quarters now. Just wanted to understand like what's the reason for this elevated tax rate maybe listed if you mentioned it in the past (inaudible).

Question: Rishi Mody - Marcellus Investment Managers - Analyst : Okay. So like this tax amount that we are showing in the P&L is actual amount that we are paying not the P&L amount?

Question: Rishi Mody - Marcellus Investment Managers - Analyst : Okay. And if you could help me with the EBITDA margins for suburban for the quarter versus same quarter last year.

Question: Rishi Mody - Marcellus Investment Managers - Analyst : Okay. So if I take H1, we would have done about 17%, 18% EBITDA margins. You're saying nine months it's at 15%, 16%. So this quarter, the EBITDA margin would be around 10%, 12%. Is that right?

Question: Rishi Mody - Marcellus Investment Managers - Analyst : And last, you're saying it's declined versus last year. So last year, we would have the 15% range at (inaudible). REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 11:30AM, DLPA.NS - Q3 2025 Dr. Lal PathLabs Ltd Earnings Call

Question: Rishi Mody - Marcellus Investment Managers - Analyst : Last year, the margin profile would be the same, last quarter?

Question: Rishi Mody - Marcellus Investment Managers - Analyst : Okay.

Question: Prakash Kapadia - Anived Portfolio Managers Pvt. - Analyst : Two questions from my end. Any comments on how are smaller players in the industry doing any specific trends in terms of consolidation or regional players' performance that would help? And secondly, any price increases on the annual because some of the larger players are contemplating price increases? So those are my questions.

Question: Prakash Kapadia - Anived Portfolio Managers Pvt. - Analyst : Okay. And lastly, doctor, in this context of what you just mentioned, is it possible directionally, we should grow faster than some of the other players, given that we are spreading geographically? We've been one of the earlier players in Tier 3, 4 cities. So when do some of these initiatives rectify to still higher sales growth for us?

Question: Karan Vora - Goldman Sachs Group, Inc. - Analyst : So my first question is with respect to the patient service center and lab ratio. Also when we mentioned that we are trying to improve productivities and efficiencies. What are the metrics we kind of look at? Do we look at revenue per lab or revenue per patient service center? Or patient service center per lab? Which are the right metrics? And what is the ideal metric you would like to have like over a medium term? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 11:30AM, DLPA.NS - Q3 2025 Dr. Lal PathLabs Ltd Earnings Call

Question: Karan Vora - Goldman Sachs Group, Inc. - Analyst : Got it. So right now, I think our patient service center to lab ratios around 20, 21 or time. So what is the ideal number you would look at? And is it different between a Tier 1 and -- or say, a Tier 2 or Tier 3 city?

Question: Karan Vora - Goldman Sachs Group, Inc. - Analyst : Helpful. So my second question is with respect to the competition in the Delhi and NCR region from hospitals. So are you seeing the competition

Question: Karan Vora - Goldman Sachs Group, Inc. - Analyst : Okay. So are there pricing like in line with what we are pricing? Or are they like more like price competitive to the price higher? How is the pricing?

Question: Karan Vora - Goldman Sachs Group, Inc. - Analyst : Got it. And my last question is with respect to other kind of region-wise growth. So I think we mentioned that West and -- or West and Delhi and NCR have actually grown faster. So which kind of maybe implies that on East and South have kind of grown below average. So what has happened there? And on a normalized, say, medium-term growth perspective, which regions do you think can be above corporate average and which regions would be below?

Question: Karan Vora - Goldman Sachs Group, Inc. - Analyst : Okay. So even from a medium-term standpoint, more or less, the -- like growth should be split equally, more or less in -- across regions?

Question: Karan Vora - Goldman Sachs Group, Inc. - Analyst : And when we look at the margins, like do you think the margins across regions are similar? Or like if there's a rank order of maybe Delhi or NCR would be the highest, but like what others would be higher than corporate average and what others would be lower? Like I'm not asking for this particular quarter, but in general, on a normalized basis. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 11:30AM, DLPA.NS - Q3 2025 Dr. Lal PathLabs Ltd Earnings Call

Question: Karan Vora - Goldman Sachs Group, Inc. - Analyst : Okay. And where would corporate average stands to corporate average would be above -- like better than rest of North? Or --

Question: Anshul Agrawal - Emkay Global Financial Services - Analyst : (inaudible) REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 11:30AM, DLPA.NS - Q3 2025 Dr. Lal PathLabs Ltd Earnings Call

Question: Anshul Agrawal - Emkay Global Financial Services - Analyst : Is this better?

Question: Anshul Agrawal - Emkay Global Financial Services - Analyst : Okay. Sir, if you could just help me with the number of labs you have already added in the nine months ended for the current year?

Question: Anshul Agrawal - Emkay Global Financial Services - Analyst : Okay. So I have a follow-up question on that. Has the Delhi region grown on the back of network expansion? Or is this -- would this be a sort of an SSG kind of growth that we have witnessed over the last two quarters?

Question: Punit Pujara - Helios Capital - Analyst : My first question is for Dr. Om. Sir, you mentioned that the new labs h stopped coming in, but has that resulted in, let's say, lower valuation in the existing labs? I'm asking this because you have INR1,500 crores of cash, and I think it makes sense to (inaudible) strategy. Yes. That will be my first question.

Question: Punit Pujara - Helios Capital - Analyst : I see. And the second is, clearly, you are focusing a lot on growth. So are there any adjacent areas that you're exploring to further accelerate the current rate of growth?

Question: Sumit Gupta - Centrum Broking Limited - Analyst : Am I audible?

Question: Sumit Gupta - Centrum Broking Limited - Analyst : So sir, as we plan to expand geographically across the action. So like what's the patient volume growth that you expect going forward over the next three to four years?

Question: Sumit Gupta - Centrum Broking Limited - Analyst : Okay. So -- and then those are also you plan to like expand to volume growth to suburban -- Swasthfit?

Question: Sumit Gupta - Centrum Broking Limited - Analyst : Understood, sir. And sir, like -- and you also (inaudible) revenue contributions from franchisee base collection center was 45%. Look, so overall, how has the trend been? And how do you expect it to go forward?

Question: Sumit Gupta - Centrum Broking Limited - Analyst : Okay. And sir, lastly, on the CapEx. So how much beta was there in nine months FY25? And what is your guidance for the next year?

Question: Abdulkader Puranwala - ICICI Securities Limited - Analyst : Just a follow-up on what the previous participant was talking about. So -- I mean, if I see your subset revenues, they are growing much faster. And I think that as a broader trend for the last couple of quarters. And we have been talking about network expansion into Tier 2, Tier 3 markets where that has worked quite well. But in terms of the overall growth around that, can (inaudible) to single digit. So I just also wanted to understand on the volume front, how was the volume growth in the (inaudible) versus the resident part of your portfolio? Is there any material differences compared to how your revenues are getting shaped?

Question: Abdulkader Puranwala - ICICI Securities Limited - Analyst : Yes, sir.

Question: Abdulkader Puranwala - ICICI Securities Limited - Analyst : Sir, second on the (inaudible) lines. So while historically, we have seen that one (inaudible) something which has always attracted a large competition, say, from online or from other channels. So any -- if you could share your thought process about carefully selecting this as one of your growth engines for the near future just like a threat of competition any day coming into it?

Question: Yogesh Soni - InCred Capital - Analyst : Just wanted to understand what has been the West region contribution in last year? And also wanted to understand your plans on expansion into in southern regions?

Question: Yogesh Soni - InCred Capital - Analyst : Okay. Got it. And sir, what endeavors are we making to expand into these two regions, West and South?

Question: Abdulkader Puranwala - ICICI Securities Limited - Analyst : Right. So currently, what would be a mix of specialized and semi-specialized, sir?

Question: Prashant Nair - AMBIT Capital Private Limited - Analyst : I just wanted to reconfirm the volume growth number for the nine months. You mentioned 4.5% or in that range?

Question: Prashant Nair - AMBIT Capital Private Limited - Analyst : Okay. And is there a test volume number that is (inaudible)?

Question: Prashant Nair - AMBIT Capital Private Limited - Analyst : 9.5%.

Question: Prashant Nair - AMBIT Capital Private Limited - Analyst : Right. Got it. So when you mentioned you want to take volume growth higher than the internal thought process. Where do you think you would want to settle? I mean is it like 100 basis points to 200 basis points higher? Or can you reach a higher number than that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 30, 2025 / 11:30AM, DLPA.NS - Q3 2025 Dr. Lal PathLabs Ltd Earnings Call

Question: Prashant Nair - AMBIT Capital Private Limited - Analyst : Okay. And just one follow-up question. I think while the volume growth in terms of patients has come down, I think your test per patient has probably gone up over this period. So do you think you will be able to retain that number at where it is now or maybe improved while you also set up on patient growth?

Question: Rahul Jeewani - IIFL Research - Analyst : Sir, now you are talking about lab expansion in metro and Tier 1 markets as well. And as you rightly pointed out that we see a lot of these bundled tests on Swasthfit primarily in larger metro markets. So with the expansion which we are targeting in metro markets, is there a potential that the sample volume growth, which has been around 9.5%, 10% for us, that can accelerate to low double-digit kind of number going forward?

Question: Rahul Jeewani - IIFL Research - Analyst : Sure, sir. So I wasn't talking about any headwind. Actually, I was talking about this tailwind that over, let's say, past two, three years, we have been expanding in Tier 2, Tier 3 markets in North and East. Now we are talking about expansion in metro markets as well. So with that expansion in metro markets, is there a potential that we actually start seeing an acceleration in volume growth, both on the patient volume as well as the sample volume growth?