Ladies and gentlemen, good day, and welcome to the Dr Lal PathLabs Q3 FY 2024 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar of CDR India. Thank you, and over to you, sir.
Thank you, Darwin. Good evening, everyone, and welcome to Dr Lal PathLabs Quarter Three FY 2024 earnings conference call. Today, we are joined by the senior members of the management team, including Honorary Brigadier Dr Arvind Lal, who is the Executive Chairman, Dr Om Prakash Manchanda, Managing Director, Mr Bharath Uppiliappan, CEO, Mr Ved Prakash Goel, Group CFO, along with Mr Shankha Banerjee, CEO of Suburban and the other group company.
I would like to commence by stating the standard disclaimer here. Some of the statements made on today's call could be forward-looking in nature, and actual results could vary from these forward-looking statements. A detailed disclaimer is also available in the results presentation that has been circulated to you earlier and is also available on the stock exchange websites. With that, I would like to invite Honorary Brigadier Dr Arvind Lal to share his perspectives.
Thank you, Siddharth. Good afternoon or good evening, ladies and gentlemen, and a warm welcome to all participants on the call. We are gathered here today to delve into the Q3 FY 2024 earnings of Dr Lal PathLabs. I wish to begin by sharing my thoughts on the evolving market dynamics and the progress that we have made.
India's diagnostic sector is undergoing a rapid transformation, increasing burden of non-communicable diseases, as well as new emerging and existing communicable diseases, increased adoption of evidence-based treatment, and a growing emphasis on preventive healthcare diagnostics are expected to sustain the growth momentum. While the competition in this space has increased, the established Pan-India chains like Dr Lal PathLabs are strategically positioned to exceed industry growth, progressively expanding their market share compared to both organized and unorganized players.
This is possible due to continuous improvement in scale achieved through our deep penetration in tier two and tier three towns, and offering the largest portfolio of tests and services at competitive prices. Dr Lal PathLabs continues to be the preferred choice for customers seeking latest high-end testing and accurate diagnosis over the last 75 years. Yes, this is our platinum year. For example, we have achieved a milestone in histocompatibility and transplant immunology testing with next generation sequencing, or NGS, by carrying out 600 runs of HLA NGS, with 27,000 samples analyzed for bone marrow and solid organ transplantation across India, Africa, Bangladesh and Nepal.
We have also taken the lead in establishing donor-derived cell-free DNA as a non-invasive monitoring test for solid organ transplantation and have recruited 475 patients for post-transplant monitoring, of which 222 patients are for kidney, 70 patients for heart, and 183 patients for lung transplantation. To maintain affordability, we have predominantly retained our pricing mix, barring minor adjustments in prices to account for cost inflation in specialty and super specialty tests. Through this, we aim to cater to a larger patient base, solidifying our position as the leading diagnostic brand in the country. Our performance going ahead will be guided by expanding our presence in the under-penetrated tier three and tier four markets, coupled with the targeted focus on high-potential markets in the West and South region.
This is in addition to extensively utilizing our digital infrastructure, where we have made investments across AI, data analytics, machine learning, et cetera. Not only will this enhance the overall patient experience and provide tailored solutions, but will also accelerate the volume trajectory. In the Western markets, through Suburban Diagnostics and especially its reference lab, we are emerging as a formidable player, aiming to achieve rapid scale by outpacing industry growth. Our synergies are beginning to unfold, and we are on the course to fortify our position in this market. That concludes my initial remarks. Thank you. And I would now like to hand over to Dr. Om. Over to you, Om.
Thank you, Dr. Lal. Welcome to our call today. I shall walk you through the evolving industry scenario and progress on the strategy. In the current financial year, at an industry level, whatever the impact of COVID-19 testing was on the revenue side has all gone away now. We have also experienced the same, therefore, we stopped recording a split since last few quarters. It's only one figure that we report, thereby making analysis easy and simple. COVID-19 also created an uneven, unevenness on growth pattern, both on revenue and volume. That pattern is now getting smoother. Our business has delivered double-digit top-line growth rates on year-on-year basis, both in the current quarter as well as on YQ basis, all inclusive.
We have significantly improved our operating and net margins profile, driven by efficiencies of scale and productivity initiatives. Efforts continue to look for expansion in tier three and tier four towns through organic means of growth. Our teams have carefully identified pockets in the market that will drive future growth for us. Industry experienced bundling of routine tests as a new consumer trend. We led this trend and successfully built a brand, SwasthFit. The revenue contribution from SwasthFit has now stabilized, ranging between 19%-21% of our total revenue.
The next wave of bundling, we believe, would be in the specialized tests, as that could be medically more efficient for clinicians. Our investment in technology and digital at the infrastructure level, at the front end, and in the interactions with patients, are also translating into failure. We are pushing ahead with Suburban brand in chosen geographies, while meticulously executing a network and test menu expansion agenda. With that, I would like to hand over to Bharat to continue the conversation. Over to you, Bharat.
Thank you, Om. I warmly welcome you all on this call today. I will now take you through the business and operating highlights. I am pleased to share with you that we have delivered yet another quarter of double-digit total revenue growth and healthy margin profile. In Q3 FY 2024, we clocked a revenue of INR 539 crore, representing a growth of 10.1%, by serving 6.7 million patients and testing 18.6 million samples, representing a sample growth of 7.1% over last year. The RPP for Q3 FY 2024 is at INR 807, a growth of 1% over Q2 FY 2024, mainly due to mix. Further, to accelerate the patient volume and revenue stream, as a team, we are sharply focused on putting into play our white space expansion plan.
Last quarter, we had shared that we have put in place the program for 20+ new lab expansion. This plan is progressing on track, and parallelly, the creation of collection centers and pickup point ecosystem is also tracking well. During COVID, a trend of acquiring and serving patients digitally emerged, popularly known as B2C. I am pleased to share that we have, in a focused manner, developed end-to-end B2C capabilities, starting from digital marketing to lead generation, to servicing the patients at home.
We are now expanding this B2C program to tier two and three cities as well. Our key product programs, like SwasthFit, contributing to about 20% of revenue, medical centers of excellence like LACE and LCOT continue to fortify position amongst medical community and patients. In addition, digitally enabled initiatives like CHIPS and recommendation engine continue to make meaningful contribution in enhancing patient loyalty and stickiness. Overall, we are moving the right levers to optimally set a growth path, growth trajectory, that will give us sustainable growth. With that, I would like to invite Ved to take you all through the financial performance. Over to you, Ved.
Thank you, Bharath. Hello, everyone, and thank you for joining this call. I'm sharing the key financial highlights for Q3 and nine months. Revenue for Q3 FY 2024 came in at INR 539 crore, against INR 489 crore last year, same quarter, a growth of 10.1%. YTD revenue for nine months is INR 1,681 crore versus INR 1,526 crore in last year's same period, a growth of 10.2%. EBITDA for Q3 FY 2024 came in at INR 141 crore as compared to INR 113 crore in Q3 last year, registered a growth of 24.6%, with an EBITDA margin of 26.1%. Nine months EBITDA is INR 465 crore versus INR 374 crore last year, same period, with a margin of 27.6%.
PBT for Q3 FY 2024 came in at INR 116 crore, registered a growth of 51.6%, with PBT margin of 21.5%. Nine months PBT is INR 386 crore, with a margin of 22.9%. PAT for Q3 FY 2024 came in at INR 82 crore versus 54 crore last year, same quarter, registered a growth of 53.3% with PAT margin of 15.3%. Nine months PAT is INR 277 crore with a margin of 16.4%. EPS in Q3 FY 2024 is INR 9.8 crore, with a growth of 53.2%. Nine months EPS stood at INR 32.9 crore. Cash and cash equivalent as on December 2023 is INR 957 crore. Net of borrowing, it is INR 853 crore.
At last, we are pleased to announce that the board of director has approved our second interim dividend of INR 12 per share. With this, total dividend for the year 2023-2024 stood at INR 18 per share. That brings me to the conclusion of my opening remarks, and I would now request the moderator to open the forum for Q&A.
Thank you very much. ... We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and three. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Prakash Kapadia from Anived Portfolio Managers Private Limited. Please go ahead.
Yeah. Thanks for the opportunity. A couple of questions from my end. You know, diagnostic industry growth has definitely slowed down from, you know, earlier, pre-COVID days. So what is, you know, our sense? Is it customer fatigue? Is it something else which is affecting, you know, volume growth for the sector? You know, we've obviously grown at 10%, but, you know, this is on a 9% base of last year. So any sense you could give us for the industry? Secondly, you know, if I were to envisage a, you know, higher growth from year on for FY 2025 and beyond, so, you know, for us, what will drive that? Is it, you know, Suburban scale? Is it increased contribution?
Is it, you know, newer geographies where, you know, we've been pretty aggressive in tier three, tier four cities, where, you know, we have an early mover advantage? Can specialized tests increase? As you know, the price rise base is also now anniversary is happening in February. So, you know, what will drive growth from year on? And lastly, on Suburban, you know, what's the game plan? Because, you know, now centers are added, labs have opened, reference lab is done, the integration of infrastructure is done. So can we expect, you know, much higher growth in Suburban from year on or no? Those are my questions.
Okay. Hi, Prakash. It's Om here.
Hi.
I think you asked two, three questions, so maybe I'll first pick the industry part and then probably give the other, growth and suburban question to my colleague later.
Yeah.
So, I think on the industry front, you are absolutely right. That the growth rates of all the companies, the figures are in the public domain, are added up. Industry growth rates don't seem to be adding up to what we were having pre-COVID levels. I think what you just said is very right. In fact, we are industry-leading growth because double digits, many of the other players I see are in single digits.
Very low single digits, right?
Yeah, very low single digits. Yeah. And, I think we, we're taking our all... In fact, our number is actually all inclusive. If you take their numbers all inclusive, then it is even, contrasting.
Right.
Now, I think earlier all of us were attributing this to new age competition, right? We were thinking that probably it's losing out to that. Even they also seem to be in some difficult situation, though I don't have any data to support that. But I think as we travel in the market and overall in general, that intensity, which was there two, three years back, is not there anymore.
Right.
The question arises, what's going on? My one hypothesis that we have is probably that fatigue factor that you talked about. During COVID times, there's a tremendous amount of testing and a lot of people went for health checkups, et cetera. There is a bit of a pause because this is not a want that you want to get tested every now and then.
Right.
It's a bit of a need base, and then suddenly you say, "Listen, I just got myself tested last year, then can I give it a pause?" Because there's too much of testing and healthcare and all being talked about, right? So there could be that one qualitative reason, but there is nothing that supports this argument. Second also could be a lot of these bundling things that we have done.
Like, say, for example, we were discussing earlier within us, is that this fever panel is one test and one visit. Now, in the earlier years, this fever panel may have been multiple visits, because you test for dengue, and then you test for malaria, you test for something else. Now you want to get everything tested in one sample itself. That probably could be. There could be correlation. While one has seen in the industry revenue per patient going up, but volume growth is not that high. I think revenue per patient for most organizations have been significantly higher.
Higher.
But volume growth has not been. So could the bundling be causing this less frequency of visit? Third hypothesis could be that many of the hospitals have woken up to this idea of how do they keep their captive business intact and not let this leak out to private players. At least this is some phenomena that I've seen in larger cities, where probably some of the hospital chains have become a little more aggressive in retaining their OPD business for diagnostics as well. So I think on the whole, this is, this is what probably I can think of.
Now, I think the million-dollar question is that, going forward, do we see the softness or do we see this reviving? My personal view, and I think I always maintain that, is the diagnostic is the important part of any medical practice. Without this, actually, to my mind, there is no medicine. And these days, wherever I go, without prescribing a test, doctors really don't shift to medicine. I think the next phase of growth actually lies as we go down the pop setup. A lot of action has been in the diagnosis in the larger cities. I think we just need to go down and probably trigger more shift from unorganized players, trigger more sort of prescription habits of higher order tests.
So I think that is where the industry growth lies, and we have been talking about this tier three, tier four towns now for the last three, four quarters, and we have separately started tracking this data. So we are putting tremendous amount of focus in these towns. Technically speaking, going deeper into our core markets. So the idea is to really increase market access, get more patients by getting deeper and wider, is where we are. Now, other questions related to Suburban, and I think you asked something else as well. I'll hand it over to Bharath to respond.
Yeah. On the Suburban question, so yeah, I think, like you rightly said, that the reference lab has been set up. It's almost a year now. You know, the infra expansion of CC is actually not only expansion, we are also looking at strengthening, you know, the, the way that channel is being run. I think quite a work on that has happened. And to cut the long story short, yes, you know, growth rates will improve in the future. That is really what we are working towards. There was something on Lal PathLabs. I think Bharath will take that question. There was some part you... You had some question on the Lal PathLabs growth side as well? And I told address from tier three, tier and tier three, tier four. Okay.
Yeah. So, so in terms of, you know, the growth drivers, if any, I was just trying to understand, will tier three, tier four be the biggest driver, or will specialized test, you know, drive this increase? Gross contribution looks unlikely to majorly drive growth from here on, or, you know, it's going to be Suburban scale, which will grow now at a much faster way, so the overall revenues could be significantly higher or much better than what we are currently trending, is I was trying to understand.
Prakash, this is Bharath here. So I think, what we have said so far is that we will significantly scale up our tier one, tier two presence, led by Suburban, obviously, in Mumbai and some parts of Maharashtra. It's a wide space for us. We'll build aggressive presence in tier one, tier two cities in that fashion. Second thing I said so far is that tier three, four is where Lal PathLabs in the core markets will focus to drive its growth from. From a product point of view, Dr. Om mentioned his opening speech, that apart from doing bundling on SwasthFit, we're now looking at bundles on the higher end specialty tests also. So you must see a product innovation continuous pipeline as other source of growth.
In my opening remark, I mentioned D2C as a capability we have built in, so we are building multiple other capabilities in the company to drive the channel growth, including PUP, key account management, et cetera. So there are three verticals. So geographic expansion is one vertical, channel is one, and product is the other one.
Okay. Okay. So you're saying all of this should at least directionally looks like we should head for higher growth?
Yeah, we are trying the best we can to get the numbers moved up from where it is. I know this number has been slightly, yeah.
Yeah, despite a low base. Thank you.
No, no, no, low base of Q3 always remains low base, so I don't think that is the thing. So because year-on-year is the best way to look at. In fact, this quarter number, by the way, is very similar to what we did in Q1. And if you look at historical trend, Q1 and Q3 being very equal, so to that extent, it's not below.
Sure. I'm saying industry, obviously, doctor has slowed down. What I was referring to, the low base was, you know, last year in the base of Q3, there was a 9% growth in non-COVID revenues. That is what I meant.
Right. Okay.
From that perspective, despite, you know, being 9% non-COVID revenues, our overall revenues are up 10%.
Right.
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 looks like there is a large potential and, you know, the scientific base or evidence-based testing. Because anywhere you talk, go talk to, you know, friends, fraternity, without a report, no doctor is willing to give a medicine. So from where I was trying to understand, what am I missing? Anyway, thank you. All the best.
Thank you, Prakash.
Thank you. The next question is from the line of Rahul Agarwal from InCred Equities. Please go ahead.
Hi, very good evening to everyone on the call. I have four questions. I'll try to be very quick. Firstly, on this tier three, tier four cities, Dr. Om, basically, you know, 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, you know, when we started tracking this? You know, there are two things here. One is in purely in terms of operations. You know, how does it change your daily routine in terms of the entire effort of capital allocation and sales force being focused on tier three, tier four?...
Secondly, in terms of financials, as analysts and shareholders, what should we focus on when this business actually sees higher growth in tier three, tier four? You know, it could be revenue mix, it could be more B2B, it could be, you know, higher working capital, it could be higher, you know, lower, higher margins, anything. And the related question to that also was that, you know, doctor influence in these cities, according to me, should be even, you know, tougher to break in versus what we see in metros. So your thoughts, please.
So I think one of the hypotheses that we have is that our strong areas are UP, Bihar, Odisha, the rest of North, like Punjab, Haryana, et cetera. We have great sort of franchise in larger cities. If you look at the population of this block, I'm told UP alone is nearly 20 crore plus. It's a huge market, and there are 75 districts and 335 tehsils. Even in these, all the districts, we still don't have labs, right? These districts are actually not, they don't fall in big, big sort of population numbers. So idea is: how do you go deeper in these markets? There's so many businesses down there. So the tier three, tier four idea comes that if we take larger test menu to district headquarters, so that will give us the ability to go deeper.
If you look at government medical infrastructure, it also operates something like that. You have a district hospital which have very large patient flow coming in. And if you analyze that flow, actually, it's all building it up from ground up, which is like tier three, tier four, villages, et cetera. So we just want to actually follow that pattern and go deeper and leverage our strength in these places, because our brand is very, very strong. Now, obviously, this tier three, tier four strategy will not work in South and West market, because there, even in metro and tier one town itself, our presence is weak. So that clearly falls in this bucket of looking at inorganic opportunities. That's the whole idea of tier three, tier four.
Now, I think your next question was: How do you look at from a working capital perspective, operations perspective, and infrastructure? I think from a financial perspective, Ved, I don't see any difference between what we do otherwise and hire folks on tier two, tier three. I know the realization would be lower as we go down the pop setup, so would also be the cost as well, because many of these tests that will come from these places will be routine in nature, and routine testing is not in the range of 20-21% of the revenue. It's more in the range of 15 odd percent. So to my mind, the financial profile of the P&L and the balance sheet may not change.
Operationally, yes, it's a bit of a challenge for us because you are technically managing a network of business which is much more spread out than what it is today. But that, I think, has been our differentiation as well, because that is how, why we have grown the way we've grown in the past. Mainly because our management capability of managing remote infrastructure and do it in a quality manner. So I think operationally there is a bit of a change for us because we will have to really get the management more decentralized than running it from the corporate office, is what I can think of.
Anything on the doctor influence?
Doctor influence, I think that is where I would say we will have to use the whole D2C approach and brand building approach. My personal experience has been, as we expanded our Delhi NCR went into other markets, it's definitely a long run process, but over a period of time, if we have a reason to communicate with the consumers, which is more in the form of service, more in the form of health checkups, I have a sense that once brand crosses a particular critical mass, it becomes very difficult... it becomes difficult for doctors to de-sell you.
Because if everybody is using Dr. Lal PathLabs, and some doctor says, "Don't go there," then doctor runs the risk of losing his or her own credibility. So I think we know that entire brand building process. It takes a bit of time, but that is what we will try and do, as we go forward. But obviously, we will have to offset the doctor influence and build a direct-to-consumer brand.
One more thing was, you know, this 32%-34% of total top line which is coming from these markets, I see that number, you know, pretty, pretty, you know, in a very narrow band over the last four years. I don't have the nine-month number, but, you know, when I look at 2019-2020, what you have disclosed, it's not really moved ahead. So anything different you're doing this time around that this, this number will actually track, you know, higher going forward?
I think, maybe this is the way our internal number is right now. It is more. We are giving more focus in the system. That is why it's coming. I think the first stage is for us to know where we are. The second is, is the growth rate in tier three, tier four, is higher than other places? The answer is definitely yes. Now, I think our teams are aiming at how do we accelerate this growth. So that's the whole idea. I think it's just that, I think it just tells us that we have a long way to go. Yeah, you are absolutely right that it may not have moved much. It's still moving within the narrow range, but it can. It needs to move up. That is what the whole idea is.
Yeah, and then secondly, you know, I wanted to discuss one new topic with you, and the team. You know, because this business run, you know, 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, you know, picking up as what we all want to, you know, mid-teens. And my understanding is Dr. Lal has a very, very decentralized franchisee network, which basically means that each franchisee is running at max, you know, three centers, maybe nationally.
Would it be a good idea to track revenue per franchisee? That is one question. And secondly, would it be a good idea to basically aggregate and have larger franchisee partners, you know, so to keep them motivated, compete better, you know, commit more capital and effort, to, you know, basically get the growth higher?
Rahul, this is Bharath speaking. Yeah. So we have a metric called revenue per franchisee, and we track it, internally and as, you know, regional teams do that, because underlying is the profitability of the franchisees. We're very conscious of that. Secondly, I want to just say that is that we have got about 300-400 odd multi-franchisee, operators with us. So it is typically it works well in larger cities, where cities we can put up one, the same person can put up three, four shops and then kind of, supervise them. Beyond that, since, you know, we have a lot of other smaller town operations, one person doing multiple centers, A, from a quality of talent, management, bandwidth, et cetera, that becomes difficult for him. And that is our observation.
We encourage multi-year franchising, which is we haven't stopped people from taking multiple centers. We've got people who have gone up to six, seven. Our view is that beyond seven, it becomes difficult to manage the geographic dispersion, people rotation, et cetera. But yes, it is an important angle of, you know, how we build franchising in the future.
Okay. So it doesn't really make any difference, and there's no thought internally that we should do this kind of things to basically get growth up? It doesn't really help, right?
No, no, we track profitability, which is a key metric, and as long as we manage that, then we are okay with that. Yes.
The revenue per franchisee trend over the last, you know, post-COVID, let's say last three years, how has that behaved? According to me, it should have been declining, but your thoughts.
No, no, it doesn't decline because of the bundling effect. The bundle test, they make more money on that. So on a retained revenue basis, they make more. They are making more money. Yeah.
Okay. One last small question. Seasonally, your gross margins 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? Amit?
Sorry, Rahul, I missed that. Can you repeat what, what's the question?
Well, seasonally, third quarter has never seen such high gross margins. I think when I look at past four, five years history, 3Q, generally, you see a drop in gross margins QoQ. What was different this time?
No, as Dr. Om mentioned in the opening speech, the operating efficiency and obviously, the mix is also... which is, sometimes, you know, create. You're right, I mean, in the past, there may not be that kind of margins, but, yes, what we are doing is right now, probably you have seen, which has improved some gross margin this time.
No, I think, just to add to what Amit said, is that, this year, definitely lot of initiatives we took to, improve efficiencies on both purchase, consumption, consumables, and all that has come and baked in, in these numbers. So that is also showing up. And I think the mix-
Sequentially, if you see, Rahul, it is not very different from quarter two to quarter three. But, last year-
I think, when it was down-
Yeah.
We was expecting higher, lower gross margins, right?
Yes, I was expecting a lower number. Yes.
You should be happy.
I'll come back and with you. Thank you so much. All the best.
Yes.
Thank you. Ladies and gentlemen, if you wish to ask a question, you may please press star and one. The next question is from the line of Rahul Jeewani from IIFL Securities. Please go ahead.
Yeah. Thanks, sir, for taking my question. 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, seems to be between 12% and 13% kind of a number. And obviously, the last year under realization-
Sir, sorry to interrupt, but the line for you is not very clear. It keeps breaking up in between. I request you to please move to an area with better network.
Hello, is that better?
Yes, this is much better, sir. Please go ahead.
Yeah. So the volume growth in our portfolio, both for the third quarter and the nine months, has been growth only. So can you comment in terms of this volume growth settling over the next three, four quarters? And are you planning to take another round of price increase there?
So we are not, if we take the second question, we are not planning a price increase as of now, but, you know, we keep the options open. On the volume front, yes, it has been a bit softer than what we had anticipated. What we're trying to do is to revise the volume growth by going deeper in the geographies of tier three, tier four. We're trying to center the suburban business so that Mumbai, which is a tier One city, we start to get a better presence. ... and get a bit of medical equity also going by the new centers of excellence. So there are a host of initiatives we are taking as a team to drive the volume growth up, and, we are hopeful that this will start to turn around in some time.
Sure, sir. So, if you are not planning to take 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 growth in percent going into next year?
So I think that's a, that's a mathematics, right? So idea is, we are, pricing the last resort. We don't want to use pricing as a lever to show higher revenue growth. We definitely want to make sure that the volume is a lever to show a higher revenue growth. There's no doubt about that. And, we don't want to also get into a situation where we keep increasing prices and, and start losing our competitive advantage. We just took price increase last year. We will, as, as Bharath mentioned, that as of now, there's no plan.
If situation demands, if we are not able to cover up our cost, through higher gross margin, then we'll consider this and depending on... Because last year, price increase was not taken on the entire portfolio. It was only taken on the part of the portfolio. We still have a possibility of taking other part of the portfolio, but we will use that as a last resort, because we want to stimulate volume growth. That is very clear in our mind.
Sure, sir. And since you pointed out that you are trying to accelerate your growth by opening 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.
I think Suburban, though, Shankha mentioned, but, last time also, I think I talked about this. We are actually doing a very strategic shift in Suburban. The shift is basically driving the growth through channel collection centers, and we are also doing a strategic shift from our, B2B doctor-driven business to direct-to-consumer. So there are early green shoots where we are seeing, this strategy is working. I think you got to give us little bit a few more quarters to actually start sharing these numbers in much more detail.
Right now, I think the numbers are still subdued, but we are very confident that this whole, franchisee network-driven, direct-to-consumer business should work for us, and, will give us long-term sustainable advantage. Because, I think Rahul or somebody asked about this doctor influence, we want to really come out of that mode and drive direct-to-consumer growth. So give us a few more quarters to talk about Suburban as we go along.
Sure, sir. Thank you. That's it from my side.
Thank you. The next question is from the line of Omkar Kamtekar from Bonanza. Please go ahead.
Hello?
Yes, sir. We can hear you.
Hello?
Yeah, please carry on.
Yeah, sorry, sorry. So for first question that I wanted to ask was, what was the free cash flow generation for the quarter and for the nine months?
Free cash flow.
Yes.
So we have INR 853 crore net cash in our books. And for nine months, we have added about INR 250 crores, roughly.
That's the free cash, that's the FCF generation for the quarter.
For the quarter.
For the quarter, it's roughly INR 116 crore.
116. Okay. And, if we look as we calculate the revenue per patient, those are revenue per patient for the year, YTD nine months is INR 789, so let's round it up to INR 800. Other than the change in the mix, and change in the mix, what are the drivers that we can see that this revenue per patient can increase? Because it has been steady, very steadily increasing. It's now close to INR 800. What, what do you think will take to reach maybe INR 800, INR 850 and higher levels?
RP, RPP.
Sorry, what?
So this,
I'll probably talk about that. I think there are some things that have helped, as you rightly mentioned. One is, SwasthFit package, price increase, mix change, all that has contributed to this. Now, going forward, we clearly foresee that, this bundling of high-end tests is a very low-hanging opportunity for us, and, I think should drive, revenue per patient.
But I'm not really... I won't chase this number as much as the volume growth, because I know if I go down the pop sector, I go to smaller towns, so that may pull this number down as well. I, as a metric, I think to me, this could be a side effect rather than the main effect that we'll probably drive. Our focus essentially would continue to remain on two things, is that how do we get more number of tests per patient and how do we get more patients? That's it. The rest, I think this CNN will take care of itself.
Okay, okay. So on that point, 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 range, and so that they are,
Let me correct this. I think the whole B2C or B2C idea is how do we keep the brand at top of mind? I would actually say that we want to keep the top of mind awareness for Dr. Lal, because as and when the need arises. The person should think of Dr. Lal PathLabs rather than any other brand.
Understood.
That can be served through many other channels. It can be served through even hospital also, no problem. It can be served through a small lab also. As long as the person is very keen to have a report of Dr. Lal PathLabs in his or her hand.
Understood. Understood. So it's like we are trying to build a position ourselves as the product leader or service leader. Understood.
Right.
So with that, 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, you know, contracts or maybe MOUs with, you know, these smaller town, tier two, tier three hospitals, district hospitals, and et cetera. So, 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's going to these specific hospitals in their regional, in their regions. So is that something of a route that we may go down? Maybe, maybe we can even approach government hospitals for that matter, so that the volume that we have been missing could be could be brought on board. Is that something that could be taken taken up?
Yeah. So let's put it this way, that we will look at all channels as long as we are assured of, let us say, the volume and also the payments coming in through. Government contracts, we evaluate very, very carefully because there are multiple angles to be taken care of. So we will kind of be present in all the areas where the government hospitals are. We do have contracts with government on many fronts. So as long as we look at the total commercial package and it makes sense for us, we'll definitely do those agreements and sign-ups. But if they don't, then we will rather walk away from those opportunities.
Yeah, I think we need to be careful about are we managing the optics of volume growth, or are we actually creating long-term sustainable advantage? If you were to manage the optics of volume growth, there are multiple ways to get this volume. So we can actually, tomorrow, use sugar camp, and you will have lakhs and lakhs of customers coming in. So I don't think that is what we want to do. We want to make sure that, whatever we do is sustainable and profitable.
Okay. Understood. Understood. On the cash flow question, so we have approximately INR 800 crore 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 we, that is on the block? Not that I would ask you to disclose it, but are we looking for any specific acquisition or something, so that we can utilize this cash?
No, I agree with you, actually. Our strategy is fairly clear, which is that we want to have market access, and that can come through both organic, which is what tier three, tier four we keep talking about. We come through organic means in our strong markets. And other markets, it's all M&A, right? I think last M&A that we did was, Suburban, 2.5 years back. And, our thesis is that, okay, if you do 10 M&As, three, four may not work, but the other four, five, six will work, will take care of the, the failures. I think last three years, the valuations had gone through the roof, and expectations of even private players, was in line with sort of a public market, multiples, which were- which we can't give.
I think now a bit of a, with a smoothing of curve, and I can see the numbers of other companies, as they are getting declared. My sense is that the P&L of many of these companies will come under a bit of a stress, and hopefully, this whole M&A piece should open up, and we are open to doing M&A in those markets where we need.
Okay. So, have you counted anyone, any candidates, or we are just-
Right now, I don't think we have anything that can be shared with anyone, but efforts are always on.
No, no worries. Thank you. I'll try and make a note for follow-up.
Thank you. The next question is from the line of Puneet Pujara from Helios Capital. Please go ahead.
Yeah, hi. Thanks for taking my question. So if I look at margins on a nine-month basis, be it gross margins or EBITDA margins, so gross margins are 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 Dr. Sree was talking about?
Sorry, I missed the last line. You mean what?
Is there a way to reinvest the extra margin?
Yeah, yeah. I think we have done that piece, quite a bit. While I don't know the line-wise items are visible to you or not, we have invested in two line items aggressively. One is our A&P-
Yeah.
which has significantly gone up what we have done in the last couple of years. There was one more.
NIT. NIT expense.
I think on the technology front, we are actually a tech company. A lot of investment has gone in these areas. Maybe one area that I probably would like to invest is go deeper and spend on our bit of lab and try in tier three, tier three, tier four, that we have repeatedly talked about on this call. Because sometimes it's very difficult to actually know what all these efficiency efforts will lead to, since we believe we have a buffer and so we will start investing. I think some of those efforts have already started in the second half of this financial year. But to reassure you that we want to invest for growth. We are not here to just maximize the margins and slow down. The idea is to really reinvest some of this profitability back into the top-line growth, and that too, more on volumes.
... Sure, sir. And Dr. Om, you also mentioned about driving a durable growth, which in my opinion is through number of patients 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, would that be a right metric for, like, durable growth that we just referred to?
Actually, this, I know we've always talked about patient growth, volume growth.
Mm-hmm.
These are actually not patients, they are actually patient visits. And what we are little unsure about that whether all the efforts of bundling, et cetera, or fewer panel, et cetera, are leading to reduction in patient visits. You understand what I mean?
Yeah. Yeah.
That piece actually we are not able to establish through data, because it is not a regular purchase. Patient comes to us only when that person needs us. So sometimes that patient can drop off. It's not that patient has dropped off because he or she has gone to competition. Patient has dropped off because that patient now is cured and doesn't need us, and will come back maybe after two, three years whenever the need arises. So these are all patient visits. So I think we are also parallelly tracking. We are not in the position to share that data because we don't have the capability of get the exact number.
But from a trend perspective, we are constantly looking at what's happening to unique patients, rather than looking at just patient visits. And also, please remember, these patient visits that we are talking about, I think three quarters back, we were also in a trajectory where it was negative growth, by the way. We may have forgotten this. So to that extent, actually, we are seeing, I have the data in front of me. Q2 2023, FY 2023, -2.3%. Q4 2023, -4.8%. Q1 2024, -0.9%. I think on back of that negative growth, having these three quarters positive also is a positive sign, I would say. So we are improving. We are still not there, but I think there is a, there is a slight, improvement on these numbers.
Sure, sir. So I believe these tech investments that you all have made will enable you to track that-
Things have done exceedingly, exceedingly well on samples growth. This growth of revenue is not only driven by pricing, it is driven by samples growth, which is more testing also.
Sure, sir. Sir, these tech investments that you referred to will enable you to track this unique patient visit in a, in a better way, I believe?
Only in one segment, because some segments like which come through hospitals, which come through even collection center, also a limited way, but which is coming directly to us, that we can track it definitely.
Sure, sir. That, that's helpful, and that answers my question. I don't like to-
Thank you.
Thank you. The next question is from the line of Prashant Nair from Ambit Capital. Please go ahead.
Hi. Good evening. Om, I think you partially addressed this, but if you could elaborate a bit more. When you talk about, you know, maybe increasing lab infra to target tier two, tier three cities, you know, is there any way you can quantify either number of labs or if you could even give qualitative color on, you know, will these labs be similar to what you currently run in the bigger cities, or will they, you know, kind of have, you know, slightly more limited test menu? Will the number of spokes they can support or number of collection centers they can support be higher or lower than what you have currently? Is the nature of the network likely to change, or is it just adding the way you have been adding so far?
So if you, if you study our infra, we went through a phase where there used to be satellite lab and there was a central lab, right? If you go back 10 years.
Yeah.
And now we are sitting on a format where there is a, there's a in-between layer called hub labs. These hub labs are more similar to central lab, but they are still not central lab. So I think it's more a colonization of that cluster where you have put already a hub lab, let's say, a city like Varanasi or city like Kanpur. Now you want to go deeper in that cluster, with satellite labs. So obviously, the answer to your question is that this will have a limited, may not be that wide menu, but as the volume picks up, the menu will also expand. But obviously, we will start with the... These, these labs will act more as a feeder to the big lab that we have in the region. So it will have a limited menu.
Okay. Is there any, you know, target in terms of increasing, setting up x number of labs or, if you could talk about that?
We are in the process of identifying those markets. Maybe in the next quarterly meeting-
We've done 20, around 20 now.
We've already said that we'll do 20 labs. By when they will be ready?
March, April.
By March, April, 20th more will be ready, right?
Yeah, they're actually in the process. We are already-
20 labs are right now in the works, and by May, when we come for the next whatever annual board meeting, annual results, those labs will be up and running. But while having said that, we are also doing the planning for next year, because we want to identify the potential towns for us and support system for these labs, and then maybe next meeting we'll be in a better position to highlight those. But I think directionally, you should get an idea that we are expanding our market access, going deeper.
Right. Thank you. Thanks a lot. Thank you so much.
Thank you. Ladies and gentlemen, we will take that as our last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you, everyone, for being with us on this call today. I hope we are able to answer all your points satisfactorily. Please feel free to reach out to us in case you have any further questions. Thank you once again.
Thank you.
Thank you.
On behalf of Dr Lal PathLabs, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.