Add Dr. Lal Pathlabs, target price Rs 2,900: Yes Securities

Yes Securities has add call on Dr. Lal Pathlabs with a target price of Rs 2,900. The current market price of Dr. Lal Pathlabs is Rs 2045.2. Time period given by analyst is year when Dr. Lal Pathlabs price can reach defined target.

Dr. Lal Pathlabs, incorporated in the year 1995, is a Mid Cap company (having a market cap of Rs 16935.68 crore) operating in Hospitals & Allied Services sector.

Dr. Lal Pathlabs key Products/Revenue Segments include Hospital Services and Other Operating Revenue for the year ending 31-Mar-2021.


Financials
For the quarter ended 31-03-2022, the company has reported a Consolidated Total Income of Rs 497.50 crore, down -2.26 % from last quarter Total Income of Rs 509.00 crore and up 11.92 % from last year same quarter Total Income of Rs 444.50 crore. Company has reported net profit after tax of Rs 62.10 crore in latest quarter.

Investment Rationale
Dr Lal faces a tough FY23 as Covid ebbs away from revenues even as base quarters had a significant proportion of Covid sales. The brokerage cut volume growth estimate in FY23 on back of increased competitive intensity and DLPL management choice of not going after a cash burn model driven competition. Suburban revenues also expected to share a similar cut with revenues lower than last non Covid full year sales. Expect volume growth to revive on a weak base of FY23 which would help margins in next fiscal.

Hence, while YES Securities cut FY23/24 estimates in a meaningful manner, its positive bias still stays on expectation of margin recovery beyond current fiscal. FY24 would also see the benefit of a more intense focus on Suburban core markets of Mumbai, Pune and utilization of upcoming reference lab in Mumbai. Management alluded to focus on hub labs with a wider test menu rather than satellite labs with large overheads along with increased reliance on franchise model which would help defray operating costs. Cut FY23/24 EPS estimates by ~14-15% on lower revenue/margin assumption but retain ADD based on 55x (earlier 60x – lower multiple as competition remains elevated) FY24 EPS for a revised TP Rs 2,900 (earlier Rs 3,850). While margin woes would spoil the show in H1FY23, reckon sharp correction in stock factors such near term pressure. Key risk to our view would be lack of rebound in volumes in H2 FY23 & FY24 coupled with major deterioration in realizations, it said.

Promoter/FII Holdings
Promoters held 55.23 per cent stake in the company as of 31-Mar-2022, while FIIs owned 23.44 per cent, DIIs 6.83 per cent.