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Strong, sustainable business model…
Dr Lal PathLabs (DLPL) is in the business of providing diagnostic & related
healthcare tests and services in India. With a cumulative offering of 3,495
diagnostic and related healthcare tests & services, DLPL has proven
capability in performing most diagnostic healthcare tests and services
currently prescribed by Indian physicians. Its customers include individual
patients, hospitals and other healthcare providers as well as corporate
customers. DLCP has a pan-India presence with a strong network of 172
clinical laboratories (including a National Reference Laboratory in New
Delhi), 1,554 patient service centres & over 7,000 pickup points.
Investment rationale
Strong business model
DLPL’s business model is a combination of (i) a hub and spoke model,
which facilitates economies of scale and future growth scalability, (ii) an
instrument leasing model that results in lower capital expenditure and (iii)
a large network, which enhances its purchasing power with suppliers.
Also, its centralised information technology platform fully integrates a
large network through a common logistics and payments system, thereby
allowing it to facilitate seamless sample collection and payments from
patients and healthcare service providers.
Robust financial performance
Revenues have grown at a CAGR of 20.7% to | 662.5 in FY13-15 mainly
due to growth in sample collections, which grew at 16.7% CAGR in the
same period. The strong growth in sample collection was mainly due to
network expansion and enlarged portfolio of diagnostics and related
healthcare tests and services. Due to its strong business model, the
company maintained robust EBITDA margins (~24% in FY15) with healthy
return ratios (RoE-27.9%, RoCE-38.3%).
Well poised to cash in on growing Indian diagnostic industry
Evidence-based treatment is slowly becoming the norm for many doctors
as correct diagnosis enables correct therapy and faster patient recoveries.
Moreover, as literacy rates and disposable incomes rise, households
increasingly demand better healthcare facilities and quality of care. This
increase has also been boosted by the rise in urbanisation and increase in
lifestyle-related diseases. Crisil expects healthcare delivery services to
grow at 16-17% CAGR in FY15-18. We believe DLPL, with its pan-India
presence and reputation for providing quality diagnostic healthcare
services, is well positioned to take advantage of the growth of the Indian
diagnostic healthcare services industry.
Key concern
Low entry barriers and sensitivity of brand image.
Priced at 46-47x on FY15 EPS of | 11.7
At the IPO price band of | 540-550, the stock is available at 46-47x on
FY15 EPS of | 11.7. We recommend that investors SUBSCRIBE to the
issue.


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