Q2 22/23

Nov 8, 2022

Ladies and gentlemen, good day and welcome to Doctor. Lalpath Labs Q2 FY 'twenty three Earnings Conference Call. As a reminder, all participant lines will be in listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishith Solanki of CDR India. Thank you and over to you. Thank you. Good afternoon everyone and welcome to Doctor. Lal PathLab's Q2 FY 'twenty three earnings conference call. Today, we are joined by senior members of the management team, including Hon. Rudi Birgait here, Doctor. Arvind Lal, Executive Chairman Doctor. Om Prakash Manchanda, Managing Director Mr. Bharat, CEO Mr. Vaid Prakash Goyal, Group CFO along with Mr. Shankar Banerjee, CEO of Suburban and Other Group Companies and Mr. Ajay Palga, Company's Secretary and Head of Investor Relations. I would like to share our standard disclaimer here. Some of the statements made on today's call could be forward looking in nature and the actual results could vary from these forward looking statements. A detailed statement in this regard is available in the results presentation, which has been circulated earlier and also available on Stock Exchange website. I would now like to invite Doctor. Lal to share his perspectives. Thank you and over to you. Thank you, Nishith. A very good evening and a warm welcome to everyone present on the call today. We are here to discuss Doctor. Lal's Prasanth's Q2 FY 'twenty three earnings. I would like to take you all through some of the key initiatives and perspectives that have unfolded during this quarter. Doctor. Lal Pratran's has been very tactfully increasing its presence across the country, which is otherwise fragmented and dominated by unorganized sales. According to news reports, there are approximately 3 lakh labs operational in India. During COVID-nineteen, we also witnessed a new phenomenon of carrying out R2C access by certain operators who had never been in the diagnostic field earlier, but were able to pick up COVID samples, and we have learned that many such companies have now closed down as if they did not have the expertise in carrying out the non COVID tests. For Doctor. Lal Khastraab, our relentless focus has been on delivering high quality diagnostics to customers at competitive rates while offering them superior test experience with omni channel approach. This is precisely in accordance with the internal strategy framed by us to reach out to more customers across different towns in India. Today, Doctor. Lal brand has significantly strengthened premise on best in class quality of services offered across the gamut of test range that is second to none. Not only have we created an excellent lab network, but also invested extensively on the brand to create a lasting impact on the customers. Patients trust us for the entire test experience from drawing the blood to receiving accurate reports in a time bound manner. To streamline the overall brand experience for our patients, we have heavily invested in solidifying our technological infrastructure across the entire value chain. In fact, we have witnessed twice the increase in the IT spend over the past few years to create an asset that has cutting edge technology with enhanced focus on R and D capabilities. Lately, we have witnessed a very noticeable shift in the industry dynamics, favoring the organized change due to consistent quality and superior service standards. Increased test intensity is also being driven by higher literacy rates, health awareness, better disposable income and an aging population. Doctor. Lal Prakash being the biggest fan India player is well poised to benefit from this rapid shift and the acquisition of Suburban Diagnostics has only bolstered our presence further in some of the key clusters of the Western region. I believe we have built a robust business enterprise with a very strong interconnected lab network and the focus going ahead will be to switch this huge infrastructure to deliver accelerated performance and enhanced value for all the stakeholders. Thank you very much. I would now like to hand over the floor to Doctor. Om. Over to you, Om. Thank you, Doctor. Lal. Welcome everyone to Doctor. Lal PathLab's Q2 FY 'twenty three earnings call. I hope that even your loved ones are safe and healthy. The diagnostics industry in the Indian health care context offers enormous growth potential even today and will continue to do so for the foreseeable future. I will talk to you today about the current trends as well as strategic focus of Doctor. Lal Pat Platts. First, let me share a bit of current trends competition to start with. Post COVID-nineteen pandemic, the Indian diagnostic industry has faced severe competition that is 2 pronged, one from the online aggregators and e commerce players and another one from hospital chains and pharma companies. This is a different kind of competition that we are witnessing today than earlier. This intense competition has resulted in some kind of price erosion in some of the key routine tests and wellness packages. Given this backdrop, LPL has further increased the spends on marketing and promotion and in technology to maintain its leadership position. The service delivery levels remain top notch, thereby helping LPL gain competitive advantage over peers. On the other side or the positive side, one advantage of organized competition has been that it has pushed the overall quality and service standard in the industry. Now let me talk about general industry environment. Based on the publicly available information, it seems after witnessing a strong pent up demand for diagnostics following the ease of pandemic restrictions, the industry is staring some kind of moderation in growth in some of the matured and highly penetrated metro markets. LPL is leveraging its expertise to penetrate deep across some of the untapped regions with high growth potential. Overall, the sector is also seeing some pressure from diverse form of competition in the market, which is also transforming the industry value chain. However, in the recent months, we have seen some of the new entrants who had been resorting to deep discounting have started taking up the prices of some of the bundled packages. Having said that, India remains a very large market with limited access to diagnostics. Hence, from a long term standpoint, we believe the growth prospects appear promising. Now a bit about our business. At macro level, we continue to witness favorable trends in sample collection growth on the non COVID side of the business. As you are aware that last year had wild fluctuations on month on month basis for both COVID and non COVID sales. Last year, Q2 and Q3 were very high based non COVID quarters, while Q1 and Q4 were soft non COVID quarters. Therefore, the best way to analyze the numbers is either on an annualized basis or on sequential terms. Sequentially, non COVID business growth for the current quarter, that is Q2 over Q1, is more or less in line with what business used to deliver in the immediate years before COVID. There has been increased relevance of wellness and bundled tests, especially post the COVID outbreak. This has been driven by higher awareness around keeping good health and rightly managing underlying home morbidities. Swarth Fit, which is our bundled testing offering, has reached 20% in contribution to non COVID revenues. On the operations front, as we grow in scale, our teams are continually evaluating and incorporating new tests into the menu such that our patients can benefit from the latest generation of technology and testing. This is driving sample traction both on the B2B aspects as well as directly for walk in patients as doctors take to prescribing and rely on such new tests. Over the past few years, we have meticulously developed the Pan India operation, reaching important population centers. We have strengthened home collection capabilities and revamped our digital assets at the front end. It remains a constant endeavor to densify our reach to adjacent clusters, and we have taken the route of creating hub labs and modern reference lab to support higher momentum in sample volumes. In North and East, we are moving into the hinterland, and in the West, we are making inroads through our dual brand approach with Suburban. And in South, given our new reference lab at Bengaluru, we are driving sample collection across the region. With that, now I would like to invite our CEO, Bharat, to continue this conversation. Thank you. Thank you, Om. I warmly welcome you all to this call today. I will take you through the business highlights. In Q2 FY 'twenty three, we served 7,200,000 patients, generating a revenue of INR533.8 crores with a growth rate of 7.1% Y o Y. COVID and Allied Test contributed only INR 19.6 crores, which represents the lowest ever contribution at 3.7 percent of the overall quarterly revenue. Our non COVID revenue of INR514.2 crores registered a growth of 14.8% over Q2 last year. This growth has been led by patient volume of 8.6 percent Y o Y. Sequentially, that is Q2 FY 'twenty three over Q1 FY 'twenty three, the revenue uplift rate for non COVID business is 6.7%, which is near historical pre COVID averages, which used to be around 8%. Last year, we had an uplift of 16.1% Q2 over Q1 in our non COVID portfolio due to COVID pandemic led non COVID testing for tests like AFP, LFT, CBC, etcetera. Hence, these numbers have been achieved in the context of a high base of last year of COVID associated non COVID tests, flip in seasonal and festive calendars along with unprecedented range towards the last fortnight of the quarter. Now I'll take you through some of the key trends and directions in the business. Last quarter saw a significant uptrend in SaaSfit portfolio due to our continued market activation, family offer and other distribution excellence programs. Continuing on this trend, we are pleased to share with you that Q2 FY 'twenty three, we have achieved the highest ever quarterly revenue of INR94.9 crores from our short fit portfolio. After the launch of LACE, LACE, our center of excellence in autoimmunity, we are happy to launch our latest center of excellence, LCORD. LCORD stands for Doctor. Lalpath Lab Center of Excellence for Reproductive Diagnostics. Our mission via the center of excellence at LPL is to improve the medical outcomes in infertility, pregnancy and newborns. Issues like infertility have over affected over 15% of Indian couples due to late marriages, stress and poor lifestyle. Over 1,700,000 babies are born with birth defects in India every year due to lack of awareness and affordability. This center of excellence will significantly benefit from a wide geographic footprint, strong Clinician Connect, comprehensive menu and sample aggregation capabilities. Our expansion in South and Tier 2 plus cities continues to do well, and we are further strengthening these efforts. Recognizing the competitive landscape, we continue to be aggressive in our customer acquisition and retention programs. The operating teams have continued to focus sharply on productivity initiatives to actively manage test mix, cost to deliver a healthy EBITDA margin. With that, I would like Vaid to take you all through the financial performance. Over to you, Vaid. Thank you, Bharat. Good evening, everyone, and thank you for joining this call today. I trust each of you and your families are safe and healthy. Please note that Q2 FY 'twenty three results include suburban, hence not comparable with previous year same quarter. Now I will share some of the financial highlights. We clocked the highest quarterly non COVID revenue of INR514 crores, a growth of 14.8%. Non COVID revenue grew by 19.5 percent INR2 INR996 crores in first half FY 'twenty three. Though the non COVID revenue increased by 14.8% in Q2, Reduction in COVID business by 61% as compared to last year resulted in overall growth of 7.1%. Total revenue came in at INR 5.34 crores versus INR 4.90 crores last year same quarter. Revenue realization per patient for Q2 FY 'twenty three is INR 7.46 as against INR 7.21 last year same quarter. The better realization is due to the higher contribution of Swapsid, which has now reached to 20% of non COVID business, excluding Suburban. Normalized EBITDA after eliminating the impact of RSU and CSR for Q2 FY 'twenty three is INR150 growth as compared to INR152 growth reported in Q2 FY 'twenty two. Normalized EBITDA margin for Q2 FY 'twenty three is at 28.1 percent. These margins inclusive of suburban, which is relatively a low margin business. Normalized PBT after eliminating the impact of no shell depreciation on account of suburban expeditions, rupees 12 crores and one time exceptional expenses of rupees 2 crores for Q2 FY 'twenty three is INR117 crores. Normalized PBT margin is 21.9%. Normalized PAT for Q2 FY 'twenty three is INR86 crores and normalized PAT margin is at 16.1%. Net cash and cash equivalent after adjustment of borrowings at the end of September 'twenty two is INR4.19 crores. At last, a quick update on Suburban performance. Suburban revenue for Q2 FY 'twenty three is INR40 crores of which non COVID revenue is INR38 crores. Please note this revenue is recorded on net basis due to transition to India. This is equivalent to INR55 crores as per worldwide accounting practices. Normalized EBITDA margin for Q2 FY 'twenty three for Suburban came in at 17.6%. With that, I request the moderator to open the forum for Q and A. Thank you. Thank you very much. We will now begin the question and answer session. We have our first question from the line of Rahul Agarwal from Incred Capital. Please go ahead. Yes, hi. Good evening and thanks for the opportunity. I have three questions. Firstly, Doctor. Romp, I wanted to know how was 2Q as per your own internal expectations? Because the monsoon quarter should have been seasonally stronger. I understand the festival change in the quarter also and the base being bit higher because 1Q last year was COVID impacted. But 6.5% revenue growth ex of suburban, is it in line with your expectations? I mean, you highlighted on competition, but how do you look way forward for this? This is my first question. You want me to answer now or you wait for your second question? Yes, I mean, I can give you the question. So secondly, on suburban, non COVID was flat QoQ. My sense was we were focusing on aggressive faster revenue growth because of new center openings here around Mumbai and Pune. So I was not really sure why this number has stayed so low quarter on quarter. And thirdly, staff costs declined from Q1 to Q2 to INR 91 crores. Is there any one offs there, please? That's all. Okay. I think the first question, this is a very good question, is how do we see this number internally? I think what we are looking at is before COVID, there used to be a pattern on quarter on quarter. Let's say, if you look at 'eighteen, 'nineteen, 'nineteen, 'twenty. So normally, there are 2 moments when the uplift in our revenue line happens. 1 is Q2, another is Q4. So Q2 usually, as Bharat mentioned in his comments, is about 7.5% to 8% higher than Q1. And this number that we have is about 6.5%. We were cruising along well, I think, end of September. I don't know, you know that a lot of part of India had massive rains, and it got affected last week. But that's not probably an excuse as to why this number is lower. But I would actually say slightly more or less in line with what we were doing earlier. But I think 6.5%, I could have been happy with the currency about 7.5% is what I would say. Now why this number looks lower than year on year basis is mainly because Q2 of last year is highly bloated quarter. And Q2 of last year versus Q1 of last year, there was a jump of nearly 16%, which, to my mind, I think, is affecting this particular year on year number. And that's what I actually said in my commentary that try and look at for the full year basis as to what the growth would be rather than on just 1 quarter. And I going forward also, Q3 is also 1 such quarter where the base is relatively higher, while Q4 is a soft quarter last year. Now second question about Sabogand. Yes, I probably, yes, internally, we would have expected slightly higher growth, but I think there are a few challenges that we are facing in stabilizing the asset. We've just the new leadership is just stabilizing. There is some sort of a cleaning up that's happening about because there's a huge tail with a small little volume here and there. There's a bit of a rationalizing on our channel is happening, and that is what has led to this, but we are very confident that going forward, it should come back quickly on this. Lastly, sir, on the staff cost, why does it come down quarter on quarter to INR 91 crores? Yes. So there is a charge of RSU and RSU particularly. This was reduced by roughly INR8.5 crores. That is where you are looking this employee cost down. That is not normalized, sorry, it's all inclusive. All inclusive. Okay. Thank you and all the best sir. Thank you. Thank you. Thank you. We have our next question from the line of Sriram Rathi from BNP Paribas. Please go ahead. Yes, thanks for the opportunity. Just one question. So on the margins, generally we have been guiding like it should be around 25% or looking at this quarter number. I assume that of course Q2 is on the higher base. Q2 is generally the highest in terms of margins. And how should we look at going forward? Like, I mean, Q3, Q4 moving back to 25% or you will like to say that, I mean, probably it can be on the higher side now? [SPEAKER SRINIVASAN VENKATAKRISHNAN:] So Shriram, Ved here. So you are right that Q2 is always higher margin quarter for us. And if we see peak COVID levels, I think the same trend we have seen for last two quarters. As far as we are growing in this trajectory, I think we are able to maintain our margins going forward, which used to be pre COVID level. Okay. Okay. So reported EBITDA margin of somewhere around 26 odd something before we used to do. Yes. So you see 26.6% and that too with Suburban. Yes, that too. So I mean assuming that Suburban margins will improve, so ideally we should be at this level where we are right now, the first half? Yes. Okay, that's helpful. And just another thing is that I mean Q2 is of course the highest quarter for us. But I mean generally should we expect that Q3 and Q4 will move on the lower side in terms of revenue or this quarter or this particular year it could be different because only still we have not seen the pre COVID level kind of growth in Q2? No, no, no. Q3 is the lowest quarter in our portfolio. So Q2 is the highest actually. Normally, Q4 tends to be higher, but I think the last 4, 5 years, I'm not seeing Q4 equal to Q2. Really, I think I would say out of all the 4 quarters, Q2 is the highest. And that's not only true for us, but entire industry. Right. So I mean just on that only, I think that probably like in this year Q2, we have still not seen the full potential of growth like we used to see in pre COVID era. So, this year, can it be different that only 3 and Q4 may not be that weak versus Q2? May not be that weak. Weak. Weak, weak. Weak, okay. Versus Q2 this year. Just I mean just positively if you can indicate. I don't know. I'm not commenting on the numbers, but generally, winter's business actually in healthcare in general gets very depressed. So I actually have my doubt that Q3 will look higher than or not. It will definitely weaker than Q4. Q2 is what my sense is, right? Yes. Okay. Sure. That sounds good. Thank you. Thank you. We have our next question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead. Yes, good evening and thank you for taking my question. Just the first one, Doctor. Ram, on your opening remarks, you talked about moderation in growth for the industry. Maybe your number also reflects some of it. But also the contrary statement that organized is gaining share from unorganized. So just can you help us understand, is it some commentators have used the word COVID fatigue from a consumer perspective that there has been too much testing and there is now lesser testing or wanting to go out? Anything qualitatively you can share on the moderation of growth? I think this moderation term I picked up mainly by analyzing all the data that's available in public domain. And I noticed that definitely growth rates of our many players is definitely not in line with what market used to have earlier. I think that's where I was coming from that are we seeing some kind of moderation. And then if I look at deep down the profile of various companies and their businesses, mainly it is lying in metros. That's where the moderation is coming. Now it could be combination of few things, which is very, very difficult for us to figure out. It could be competitive intensity because there are so many players coming in. Obviously, they are gaining shares from some of these established players, could be one reason. The other reason could be, I don't know, some kind of fatigue that has set in because so much of testing everybody has gone through is just a bit of a pause in the last 6, 7 months or 1 year. But I think overall, the contradiction that you are seeing in is that because our bundle packages are going up, there's general health awareness. Obviously, people know that they have to charge they have to take charge of their health is where I this comment came. Got it, sir. That's helpful. Just coming to your point on substrate. So we have grown 20% 21% I think y o y. So is there a tailwind post COVID that you are seeing such a growth the way that is? And what are some of the building blocks and enablers that you are putting in place so that this growth can continue? I think there is a changing consumer behavior that I'm noticing. Maybe I'll ask my colleague to add on to this if I missed out something. Is that which I've always been saying, a lot of people used to call this as a preventive health checkup. So I don't think it is preventive health checkup. There may be some component of that, but definitely noncommunicable diseases related customer base is now moving to bundle packages because it's a great value for money from a customer point of view. They see that they are able to get more tests done and they want to scan themselves for much wider portfolio of tests rather than just say only diabetes or thyroid now in maybe sub $1,000 you can actually get lot of tests done. So I think there is a change in consumer behavior who are seeing a much greater value for money. The second thing is illness related testing or high end testing is the relation is 1 is to 1, the doctor visits lead to testing, then it again, they go back to doctor and come back to the lab. But in non communicable diseases, usually it is a one visit to the customer and then a frequent visit to the lab. There's no in between visit to the doctors. So to that extent, it tends to behave like as if consumers are making their own decision or choice about testing. So I think that is driving this whole bundle packages situation, right? Do you want to add something? Just to add, like I mentioned in the opening comment, Shyam, is that 2 other things which are coming up and what hospital really doing is, one is around family offer. So like Om said, there's a consumer behavior change. Today, more and more people are willing to get their spouse or one of the other family members also tested on the same visit or in the same matter of 1 or 2 days. So we enabled some tech solutions where the family members can get tested within 1 or 2 days of the main person getting tested. And second, obviously, is that a lot of focus on distribution expansion for SARS Fit as a product. Number of collection centers, etcetera, selling, are they selling daily? So the usual way product companies sell, that regard is setting in, I guess. Got it. And my last question, if I may, is on the comment again, Apuram on price erosion. Realizations that you quoted this quarter don't seem to suggest. So are we breaking it down like non suburban realizations have eroded? If you can explain the comment, please. That's a good question. So I think good that you asked So let me explain. So I think there are 2 most companies are talking about revenue per patient. But if you look at revenue per test, that is where the erosion is happening because now the number of test operation is very sharply moving up across the industry in the entire industry. So when earlier, let's say, INR 1,000 was realization for 5 tests and suddenly I'm just giving the illustration. Now you are doing more number of tests, maybe just increasing the price by INR 200, not to the extent of INR 1,000. So technically, revenue per patient is moving up, but per test is going down because now you're doing more test for solution. That's what I meant by price erosion. Got it. So you're not alluding to competitive pressures, sir? No, no. Okay. And your comment suggests that you're maintaining price. P. Vijay Kumar:] Per test is falling, But the good news is that if you are able to actually maximize revenue for a single visit, it's actually beneficial. But if it's on the basis of multiple visits, then you have a problem. As Bharat mentioned that if one glibotanist goes for a home collection, if you are able to collect more patient samples, a large number of family members, then actually it becomes a much more viable proposition. We have our next question from the line of Prakash Kapadia from Anewedt Portfolio Managers. Couple of questions from my end. If you could give us some color into Swaswap revenues, I think Bharat did mention about some geographical expansion in terms of increasing the reach. So what would be, say, Swaswap revenues from top 5 cities for us as of now? Prakash, hi, Bharat here. I'm sorry, I didn't carry that number today. But yes, I can pull this out and then we're going to send across. Sure. And in a competitive increasing competitive scenario, how critical are the 100,000,000 patients which we've serviced during the last 5 years? Because as the business works for us and we realize in terms of cross sell, the scale, repeat purchase. So what is our endeavor and focus on these existing customers, which we've serviced over the last couple of years? So yes, Prakash, this is something we realize as a big opportunity. There is obviously work in play, and some has got executed, some has yet to get executed. I will not be able to share some very specifics unless you get tested with us. You can see what we do in the background. But needless to say, we recognize this farming activity as a large source of revenue, and our teams are at work on that front. So we are internally trying to upsell and cross sell to some of these customers and ensure we get more per visit or some more family member tests is what the endeavor would be? Yes. So like Ohm mentioned, we are significantly upping our A and P spend in the direction. And a lot of them are not technology back end spend in now. Sure. Sure. Excellent. Lastly, from my side, Suburban sales annualized revenues of around INR160 crores, we are around INR80 crores as on H1. What would EBITDA margins look like from the current level? So at what scale does those EBITDA margins go to 20% plus for us for Suburban? I think Prakash, I would probably not put a number right now because it's very early stage as I've always been saying that our focus right now is to see if we can simulate the top line growth than worry about EBITDA margins. We probably would look at maybe 2, 3 quarters down the line as to how we look at it. But I see this as a great platform for us to see if we can drive growth further. Unfortunately, this year, because dependence of Sabahiban on COVID was extremely high, nearly half of the business was coming from COVID. And entire industry has seen COVID very sharp fall. So to that extent, Subodhar is also adversely impacted. But we just need to go through this for a couple of quarters and then take a call on how do we look at the margin trajectory. But I think the immediate focus is to see that we are able to build infrastructure, collection infrastructure in the city of Mumbai. And post the acquisition, it's been almost a year, more than a year now. So where are we in terms of, say, the test menu? How many have we added in Suburban? Some sense on the patient collection center? Is that Mumbai lab opened? Where are we in that journey for Suburban? So maybe I'll request Shankh O to talk about this because he's the one who's driving this. Yes. Hi, Prakash. So in terms of 3 specific things you said, in terms of adding collection network, it's an ongoing process. We've been on the job and we are adding network each quarter. I have not been accruing to share exact numbers right now, but maybe after 2 or 3 quarters, we'll start sharing numbers, if at all. And the new lab in Vijaya Vihar that we have set up a reference lab that we have started in terms of testing and stabilizing that lab internally. And all the required accreditations is what is under progress right now. I think as and when that gets over, you would maybe hear more about it in the market place. Sure, sure. And on the test menu, is that going to be now a very important addition to Suburban to drive growth for us? Yes, that is a part of the plan. And yes, it will happen once like I said, once these accreditations, etcetera, are completely done, then action on that end will also start happening. Also, we are looking at a very close integration between the Suburban and LPL test menu, leveraging both together? So I think Prakash, this is Om here. It's very clear in our mind. It's a reference lab for Doctor. Lal Papp Labs Group Companies in the city of Mumbai. So this lab of Dhirya Vyar is not only for Suburban as a legal entity, but it's for the all group companies, and which we believe is very important for us to go forward. Sure, sure. Understood. That's helpful. Thank you. All the best. Thank you. We have our next question from the line of Sayantan Massey from Credit Suisse. Please go ahead. Yes. Thank you for the opportunity. So I have a clarification on the personal cost. So the CSR and RSU expense is £63,000,000, right? So where is this £85,000,000 sitting? [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Sorry, Sayanthan. So I had clarified that there is a RSC cost, not CSR. RSC cost, which is included in personnel cost, is down because there is a low cost on account of RSU this quarter. This quarter's charge for RSU is much less than what it was last year. Yes, yes. And I think that is primarily the share price and that's why this fluctuates, right? The share price is one of the variables. There are other variables also. Share price is also one variable. Okay, understood. And also in this quarter, so can you give a rough idea in terms of which were the regions which grew at a faster rate compared to the corporate average? So for example, is North India growing at a slower rate compared to, say, East India? Go markets of UP, Punjab, Rest of North, South, they all really grew at a very fast pace, yes. Okay, cool. Yes, thank you for answering questions. Thank you. We have our next question from the line of Sameer Kilani, an individual investor. Please go ahead. Yes, hi. Thank you for taking my question. My question is more on your cash flow statement. There seems to be an increase of paid receivables by INR92 crores, which is not a large number, but given the number we've seen in the past, it seems slightly large. Can you throw some light on this, please? Sir, your voice is not very clear. I'll repeat. You were saying there is an increase in cash flow amount this year. This quarter, you're seeing a very large number. Is that what you're asking? No, no. I'm saying no, I'm asking on the trade receivable side, there seems to be a jump in the trade receivables to INR 92 crores. So I was just wondering what that number was? [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Yes. So it used to be INR85 crores kind of numbers. This quarter, it is slightly high because of government outstanding, but still well within our DSO, which is 30 days. Okay. Thank you. Thank you. We have our next question from the line of Nitin Agarwal from DAN Capital. Please go ahead. Hi. Thanks for taking the question. Just two questions. One is, A, on Swatswe. Since just switching back to the price competition that we talked about, I mean just your thoughts on isn't the bundled packages most relative to the acute pack sort of testing more acute to price erosion or the pressures around the discounting and all of that? So, I'm not sure that I got your question. So, my question was, when we consider bundled packages versus a few testing which happens in response to when a doctor sort of decides a diagnostic test where the quality and the brand starts to become very important. I mean, Abundant test is an impulse sort of a purchase in some sense and are more prone to maybe surprising or the discounting that really the best offer that potentially a customer gets. No, no, no, no. Quality is equally important in this, sir, because I have also talked to my subordinates as well as our courier network. They have actually told me that, yes, it leads to certain trial generation, but people are still coming back and saying that, okay, we want to go back to quality. Nobody will take chances just because somebody is selling 100 rupees lower. They would definitely want to try it out, but quality is important across the portfolio, not only just because it can also a wrong result can also lead to anxiety. Otherwise, you may not have a problem, but you may have anxiety disorder. So I think quality is important all across. Yes. And I have actually come about first hand feedback from my team, people who actually go and collect the samples. Okay. And secondly, on Swarthritis, I mean, these are largely what home tests, which are which is home collection, I mean, how important is home collection? Is this sort of bundled test versus the auto test? So I think I go back to the first question someone asked about generally what is happening in that industry. I think there is a definitely a consumer behavior change, which is coming. One is that they are looking for a value for money, which is leading to bundled packages so that what are the preventive and check out bundled packages that we talk about. I think that's one change. 2nd is convenience is becoming a more sought after sort of value by patients. And convenience essentially would mean is that can they access the brand online, can they pay online. So they don't want to come to the lab and wait for 40, 45 minutes. So I think with all that put together, home collection is one element of the convenience. The convenience could also be how quickly you deliver the report, how easy your website is accessible or app, etcetera. So I would call that a convenience as an overall value is quite sought after by the patients these days in addition to pricing and quality. And just one more thing, we talked about you're not increasing prices and some amount of pricing competition. But our gross margin seems to be probably amongst the higher than we've done in a while. And it's despite some amount of rupee depreciation happening and we probably having some amount of imported raw materials. So how does the man sort of tally that? So I think mainly because Q2 generally, one is, of course, we all get growth percentage. But if you keep mind away from that, in absolute terms, it's a very high quarter. So INR 5.34 crores in just one quarter is a very high number. So whatever our Q2 margin that you see, I don't think they are representative for the annual for the year. Mark. This quarter is non COVID is highest revenue, INR 5.14 crores is the highest ever. Highest ever, and I think it will be highest in any quarter of the year. So please do not look at current margins as a margin which we will deliver for the year. I was looking at the gross margin, but I am sorry, EBITDA margin because of an operating leverage involved. I was more surprised by the expansion of the gross margins. Gross margin, is it that has been I haven't seen that. Is it I don't think it's No, no. No. I don't think it's partly high. It's not that. We will look into that. But my gut says that it won't be And if I can take one last one, on a when you take a 3 year view from here on, what kind of what would be a what is the Let me come back. Let me come back. I think you are talking about gross margin being higher mainly because last year, COVID was higher. So COVID has a lower gross margins. I got it. You're comparing with the last year number, right? Yes, yes. The last year On the Q2 basis. In the last like I'm looking at material costs, which is 23.2% this quarter versus 24.6% last year same quarter. So which essentially means gross margin this year is better than the last year first half, right? I'm looking at both the quarters together. It's mainly because COVID component last year was very high, and the COVID had a lower gross margin than our rest of the portfolio. Now COVID has just gone away, so obviously, our gross margins look better. That explains. Sorry, last one, from a if you take a 3 year view, what is the aspiration or rather what is the what is your assessment when you look at the business, what is a good volume growth number, patient volume growth number that we should be sort of looking at? It's very difficult to put that figure because industry is definitely in a state of flux. And on one side, I'm seeing some euphoria declining amongst competition. So we'll have a later watch. It's too early. Maybe next couple of quarters, we'll have to see. I think this whole excitement, which COVID created in the financials is just dying down. So my sense is we will keep a stable sort of rate after 2 quarters. So my best guess would be, I think you should wait and watch for another 2 quarters to see a real trend. But I think at a macro level, all the macros are in place in terms of diagnostics is highly underpenetrated in India. Medicine has to become evidence based, very large country, 1,400,000,000 people. It has to go to Tier 2, Tier 3 towns. I don't see any reason why industry growth rates should be on a long term basis, if not higher, not the same as what we have seen. From a volume perspective, I actually don't see any reason why industry should not grow. I think the way the challenge could be is the competitive intensity and some of these players continue to resort to cash burn and I don't know how pricing would settle down is the only probably watch out I have in the industry, which to my mind if funding is drying up as we keep reading in the newspapers, we'll have to see after 2, 3 quarters what really happened and how they resort. I think early signs are some of these players have started taking off the prices of these packages, which could be a sign that they have run out of steam to stay on those current price points. Thank you, and Vasilva. Thank you. We have our next question from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead. Thank you and good evening everyone. Sir, can you update us on your distribution expansion that is underway? I know you disclosed the numbers at the end of the year, but we are 7 months down. Is it on course, labs, PSCs and POCs? Sameer, Bharat here. Yes, indeed, it is on track. And I mentioned in the opening comment that we are seeing good response from Tier 2 plus cities and on South also as a geography. And our expansion plans continue both in collection center pickup points as well as the lab network. No slowdown on this front. Okay, great. And so the second question is, you've been mentioning on your presentation deck, things like home ECG testing, radiology and gene testing. If you can talk a bit more about these, do you think these can become big in the overall portfolio? Or how do you view these? I don't think this can become a big. These are much more filler taste, I would say. I don't think this is a value of the business at all. Okay. That's fine. And final question from my side. How do you judge a suburban acquisition on ROI basis, given that you must have spent about 1,000 crores plus and where the numbers are tracking right now? I think we are we have looked at Suburban more from a strategic angle, more from an angle of that Mumbai and Maharashtra are very big markets. On our own organically, we may have had a very huge challenge in setting down. We have tried this last 10, 15 years 160 crores, 170 crores business, 80% are coming from Mumbai. I think we see this as a great platform in the life of Doctor. Lal Patnaab's journey for times to come. So we are not looking at on a quarterly or 1 year basis. I know this year, some of this math will look a little awkward given that COVID has just gone away. We think half of the business, but so be it. That's the life. And I really don't look at from a or rather as a team, we don't look at it from a 3 month or 1 year perspective. For us, this deal is from a very, very long term standpoint. And it also gives us ability to build I think Prakash asked this question about central app. If we are able to build a nice platform of very, very high end wide test venue in Mumbai, I think it's a great thing for us too. On a small scale, sometimes these investments really don't deliver. But at such a high base, this can really work well for us if you can turn this around. Yes, sure. Got it. Thank you. Thank you. We have our next question from the line of Rishabh Tuwari from Allegro Capital Advisors. Please go ahead. Yes. Hi, thanks for the opportunity. I would the question is regarding the non COVID revenue growth, which is around 6.6% for this quarter. Could you please throw some light on how much of this is coming from volume and how much of this is coming from price given that there is a price erosion in the revenue purchase while the RPP is going up? So let us say there is no price erosion per se, there is a bundle test and superficiality contribution moving up. So if you put that the numbers, half will be volume and half will be revenue realization, not a price increase, but the revenue realization moving up. So half, half. Okay, got it. Thanks. Just the last question, what was the contribution of Delhi MCR revenues in Q2? Since the opening remarks mentioned about focus in expansion in South and also the reference lab coming in Bangalore. So if we could have a broad number, the contribution from ready and care, I remember it was 35% in last quarter. It's the same range, yes. It remains the same range. Thank you. Just I think the price erosion comment is not from company's standpoint. I think there is a little comment about industry because that's the way it has happened. Understood. Thanks. Thank you. We have our next question from the line of Rishi Modi from Marcellus Investment Managers. Please go ahead. Hi, am I audible? Yes, yes. Yes. So my first question is that our 3 year revenue CAGR, right, non COVID, non suburban has been around 9% to 10%. So are we seeing some saturation out here or are we losing market share? Like I'm guessing the industry might be growing much faster given post COVID as well. We're just trying to understand, have we lost any market share? See, we have done this analysis for all the companies who published data, and we are seeing at least our growth rate of the CAGR of 10% is still the highest amongst all of them, right? Is this correct? Yes. So I don't see any at least from the published data, I don't see that we are losing our market share very well. So maybe it might just take a bit of time for it to come back to the same old trajectory. But slowly, slowly, the business is inching upward. And that's the point I was saying rather than looking at year on year, see that how quarterly this trajectory is moving, it is more or less mimicking what it used to be earlier. I don't think that we're losing our market share, at least if I look at the base on the published data. Now, of course, there is there are large number of unlisted players, but we don't have access to the information that they have. But having said that, of course, they also are getting some business, so they must be nibbling away a little bit, little bit here and there. But I don't know whether that's a sustainable number for them. We'll have to wait and watch as to how it is. Right. And as you said right now that you're moving into Tier 2, Tier 3, so how do the productivity and profitability in numbers stack up for Tier 2, Tier 3 versus the current Tier 1 numbers? Like what are you seeing out there? So if you look at productivity, there are 2 cuts of productivity. 1 is throughput per outlet and then the entire ecosystem. The throughput per outlet obviously takes a bit of time more than Tier 2, Tier 3 to build up. There are various types of markets, brand strong markets, brand weak markets. On an overall level, if you manage the expansion plan well enough, I think we'll continue to see the results that they are seeing now. I think broad thumb rule is that as you go away from your non from the core markets, your margins are slightly lower. The trick lies in managing in a very calibrated manner how you expand into these markets to manage your margins. Let's say if this our company was only Delhi and our company margins definitely would look much higher. They obviously get diluted as we go into incremental land. I think that's a broad rule. So you have to very, very carefully maneuver the balance between metro as well as tier 2, tier 3 towns and also how you manage your lab in front. All right. Got it. Okay. And so you mentioned on the call that you've doubled your tech expenses in the past few years. So where are you investing this tech? Like on the front end, what are you doing? What are you doing in the back end? If you could give some more clarity? So on the front end so you rightly pointed out front end, back end and the security layer, there are 3 different ways to cut it. On the front end, all our digital properties have been revamped, websites, app, the whole experience has been revamped. On the back on the supply chain side, we put a lot of digital assets to monitor the sample flow. So we talked in the past about having a control tower. We talked about having AI ML layer, analytics layer. All those things are now in play. And at the back end and the infra side also, there's a migration to cloud, which is happening slowly and steadily. Most of our applications are now cloud hosted. Also, there's a large investment around security, governance, data governance, etcetera. So most of initiatives just not about making a nice app, but the entire end to end, front end and back end and the middle layer in between also. And Rishi, this is Doctor. Lal here. Yes. We were the first people to bring IT into the entire healthcare industry in 1986. So the experience that we have in IT and digitization, nobody else has. So we are going around, turning along very well, and I think we are still the best. Got it. Also the partner ecosystem is also largely digitized now, and a lot of programs are running on further strengthening those. Understood. Okay. So, also finally, I know I think Om touched upon the challenges of Suburban. If you could get into more depth on that, I think the 2, 3 points were mentioned on Suburban 1 was getting the partner network economics right and then there was the team settling in. So if you could give more color on that? I think to my mind, nearly half of the business was out of COVID last year. All that is settling or declined to about 90% decline. I think that is one challenge, which we have to now manage because that has obviously dropped the throughput in the channel and you have to look at the whole viability gain. 2nd is we will look at this exchangeable from a promoter run setup to a professional run setup. So I think there are few HR things which are, of course, behind us. And third is putting this Vitya Vihar lab, which is very critical to our success. As Shankar mentioned that we are in the process of getting accreditation as we launch that, this should fall in place. And third is, of course, Mumbai, having said that, is not a very easy market. Otherwise, we wouldn't have done this deal. We would have done it ourselves. So it's highly competitive platform, and I think we'll just find it out. Right. So on suburban, right, you all have some basic radiology in the suburban centers. So are like what's the plan? Are you all planning to continue with the radiology or and then maybe scale it up Pan India or are you all planning to continue being only a pathologist? So I think it's since you use the term radiology, we don't do CPMR there. It's mainly x-ray ultrasound. And primarily, if I look at, they are more getting to the health checkup sort of a concept. I think as a company, we are more a pathology, pathology. I think it will be more in terms of building our collection network that the way we have done in the LPL because that really gives you reach and scale. So our focus is essentially to build infrastructure in terms of collection network. Okay. That's it. Thank you. That's it from my end. Thank you. Thank you. We have our next question from the line of Ashita Jain from Nuwama Group. Please go ahead. Hi, good evening. So, sir, in continuation to the last participant, so you mentioned the new management is still stabilizing this asset. So just wanted to understand what are your internal expectations from this asset, particularly the suburban growth expectation? So I think our internal expectation is if we can build western region or combine business over Pulaupar and suburban together, that's how we will define success for ourselves. And when I say that our ability to really get synergies at the back end so that both sides labs are able to cater to the market and at the front end we continue with the dual brand. So I think I would say if Western region business starts growing, that's how success will be defined for us. You think this can grow much higher than the market growth, industry growth in coming years? Yes, I understand. Can you repeat the question? No, I'm saying you think this asset can grow much faster than the industry growth in the coming years? I think so, yes. Okay. The second question is on your there is any contribution from the metros and Tier 1. What is it now and what was it 3 years back? Any color on that? So let's say if I take Delhi NCR, 3, 4 years back, it used to contribute nearly about 50% or 55%. Now it is down to about 36 percent. 35%. Is that correct? Yes. So we are spending our reach very well outside the E and C. So our dependence on metros over a period of time is reducing. If you even include the Tier 1s also? I don't know what you mean by Tier 1. Are you talking about mini metros or Tier 1? Or how do you define Tier 1, if I And we just wanted to know your contribution from Tier 2 to Tier 6 towns, I'm not Tier 2, Tier 3 towns, right? Directionally, we are all going down the cost setup for our growth strategy. So whether we go to Tier 3 or Tier 4, idea is to go down the pop setter. Let's say you're in the South region, you're slightly still fighting the battle out in metro. So we will go to the next layer of towns. In North, we are obviously in Tier 3 right now, Tier 3, Tier 4. So I think it's, I would say, whatever markets we are, we are looking at next power sector, which is down the power sector. Yes. And lastly, it's not really 20% of your non COVID revenues. Where do you think this contribution can move up in the coming quarters since you're seeing change in the customer behavior or consumer behavior? I think that's a brilliant question. And I think that's an overall trend in the industry. I would actually say that it will keep growing. I don't know what that number is because if you historically study 15, 20 years back, even these panels were not there, LFT, KFT, etcetera. And somebody would have talked about these panels as a great story that time. Today, now you're bundling these panels, calling them bundle packages, right? So I think directionally, that's the way industry has moved from single test to a panel now, panel being bundled into a big business. So directionally, I would say, we'll keep going. I don't know where it finally lands up. And good news is that these are those packages where doctor intervention is relatively lesser than let's take in an acute testing. And Ashita, this is Doctor. Lal here. Don't forget that 65% of the mortality and morbidity in India and elsewhere is due to the non communicable diseases. And you know which diseases there are, so those are not going to stop. Diabetes is going to grow, hypertension is going to grow, cancer is definitely growing and the liver disease, kidney disease. So there is where is the stoppage? There was a lull there because of the COVID, because COVID took its own place because of the mortality, but the rest of the things have not disappeared. We have our next question from the line of Capital Management. Please go ahead. The non COVID non suburban patients would be 6,700,000, right, for the quarter? It will be around 3 lakhs, right? What is the you want to exact number or is the question behind it? No, I basically what I want is that I was looking at you saying that seasonally Q2 has done well. If I have a number of based on my math, 6,700,000, so there is just a 2000000 increase in footfalls, which is a measure of number of patients ex COVID, ex suburban between Q1 and Q2, which in a pre COVID time used to be anywhere between 400,000 to 500,000 extra patients you would get between Q1 and Q2. So from a footfall point of view, it's been softer versus what you would see in the pre COVID time periods. Between Q1 I think these numbers are right that I'm talking about. So For Q2, the volume growth is 3.3%. I think his question is the way we are highlighting Q1 to Q2 6.5 value growth, he's saying volume growth is lower, right? Is that correct? Yes, volume growth. Yes. If you look at it just in terms of delta between the patient footfall between Q1 and Q2, on an absolute number, it is much lesser versus what you will do in the pre COVID. So pre COVID in FY 'nineteen between Q1 and Q2, we did about 500,000 extra patients. Then in FY 'twenty, we did obviously COVID hit in the last quarter, but if you see between Q1 and Q2, that was about 400,000. This year, if you take out suburban, it is only 0.2. Yes. So I think you have an observation. I think we if you don't mind, we would definitely love to have an offline conversation of this. I don't have readily that data available, so I can't engage myself deeper into the conversation. But is that the right metric now you're saying that looking more at patient footfall, so that is the measure that we should because more tests are getting bundled. So patient footfall also will be an important metric in your mind or value growth is more important? No, no, no. Actually all 3 I would say. I think that's a good point you are saying. I would say revenue, then revenue per patient, then number of patients, then I would say number of tests per patient. I think all the 4 are important for us to actually see how healthy trends the business is going on. Okay. And we sorry. Go ahead, sir. I said all these four metrics are important, yes. But having said that, I won't worry about quarter to quarter variation. I'll tell you reason why. Now this year, let's say year in which dengue incidence is very high, you will suddenly see a volume shooting up very sharply because one dengue patient in a week's time might visit your lab 10 times. You understand what I mean? Yes. So in a quarter, if the dengue is not that high, suddenly you'll see volume drop. So I really won't worry about 1 quarter to another quarter. I would see I would definitely look at this metric over a longer period as to how it's trending. Certainly. How would you characterize dengue this quarter versus the past year? I really won't have that data, but I think this year slightly Zhenggi has been just noted and in some places it's an average thing. I won't say it's unusually high. Okay. And Ved, what was the acquisition related amortization? And what was the Ind AS adjustment? So in this quarter, INR 12 crores amortization on account of acquisition. Okay. And what was the Ind AS is INR 14 crores in the adjustment between the EBITDA and the Indes adjusted EBITDA? So it is not unusual. It's in line with the pass end only. So it's about 1% Okay. Yes, it is 2.9% of revenue it was last quarter, which was 14 crore in absolute term, which is higher than 1%. I'm assuming it will be similar in absolute term versus last quarter, right? Yes, similar. So there is no change. The only thing in India, rental cost is coming down in the form of interest and depreciation. That's it in our case. Okay. When you say 1%, it is higher than 1%, right? It is INR 14 crores, which is INR 2.7 percent? I will just check, but it is It doesn't have that figure in. Okay. I'll connect often. Thank you. Thank you. We have our next question from the line of Prashant Nayar from Ambit Capital. Please go ahead. Yes. Hi. Good evening. Thanks for taking my question. So first question was on tax rate. For the full year, will it settle back down to the 25% or levels that you normally have or will it stay elevated as you've seen in the first half? Yes, it will be similar. There is nothing changes there in terms of tax. So similar as the first half of this quarter or similar to what you've been doing in the past? Yes, similar. I mean, in this first half also is similar. It's nothing which has changed. All right. And so one question on generally on the growth plan. So when we look at industry growth, would it be fair to say that, say, the growth that you are doing in, say, in the Delhi NCR market where you are a leading player and have high market share is a fair reflection of what the industry will be growing at? Or do you think you are still getting some share in that market as well? In Delhi NCR? Yes. So I mean is that so for example, my question, if you're growing, say, 8%, 10% in Delhi NCR, is that a reflection of what industry growth would be for that market and similar markets like, say, larger markets, larger cities or each state has its own dynamics and growth rates could vary? I think each city has its own dynamics because I think competitive intensity in general I'm seeing is high in 4 or 5 cities in the country. That's where the maximum noise is. You go down the Puffeta, you may not hear some of these names. So I think it's a city level sort of a thing. And let's say, we all talk about certain pharma companies, we don't even hear them here in Northern part of India. So I think depending on where they are strong, with infra, it's strong, that's where it is. I would say it's very strong simplicity. But definitely, 4 or 5 big metros are where, especially online players, are more aggressive. All right. Thanks a lot. Thank you. We have a follow-up question from the line of Nitin Agarwal from D. A. M. Capital. Please go ahead. Thank you for taking my question. Om, on the I think in the initial comments, you mentioned something about introducing a new suite of tests for pregnant women. I mean, if you can probably highlight a little bit more color put some more color on that? And I mean, what kind of opportunity do we see in this space? So I think that's Bharat mentioned about that. Our view is that industry is getting sort of vertically split. You have bundle packages and then you have all these high end packages, right? Now that's where the segmentation would come in. Since many all of you cover pharma space and you have things like derma division, you have gyne, you have Singular Act. So similarly, like we have launched autoimmunity and this kind of segmentation segment focus will come, whether Doctor. Lal talked about histopathology. So this reproductive diagnostic is one such promising segment in the industry, and that's what Bharat meant by that. So it's not about just pregnancy alone. And I would say, we are all life stage testing, starting with puberty and motherhood and things like that. So I would club all that into a reproductive diagnosis. Okay. And just one more also a separate question. So very particular, alluding to the earlier point about expansion in sort of smaller towns and your comment that they probably that growth comes at a slightly lower margin. So is there just taking a thought on it, is it something like an absolute EBITDA per patient? Is there a right metric to look at this business when you are overall is there a metric that we track internally also? I think what I meant by that was basically it's a lower utilization. As you go down the cost data, it's affected by many factors like ability to pay or subscription habits of doctors etcetera. It's not like where you somebody would go for a 2,003 round of Sir, sorry, I'm not able to hear you clearly. Okay. Can you hear me now? Yes, sir. What I meant was that ability to pay is lower and down the cost side. And similarly, restriction behavior is very different than, let's say, the metro cities. And the profile of testing is also very different because they are more routine in nature, which are low price. And compared to that, we already know it's sometimes very difficult to get technologists, we supply the tiles we end up in slightly higher salary in smaller towns and even metros. So it's all in all put together. And plus, you may not see Sorry, your voice is not clear, sir. I don't know if I can speak to you on longer than just go. I said it's also revenue trajectory also doesn't pick up that sharply. And thereby overall net impact is the margins are slightly different than what you realize in metros. The scale is also very high in metros. Also, this is Doctor. Lal here. Also, when you go away from the metro, you go into the other towns, smaller towns, you are faced with lack of electricity, lack of portable water. And so you're going to spend money on other things, including electricity, you're going to pay much more. And sometimes we've even had to carry out of water all the way from very small towns. So nothing goes cheap. As you go actually deeper down, the cost of servicing that patient actually increases. And just a big point on it is as a proportion as we go as we grow, since more of our volume growth is coming from these smaller areas, does that on a weighted average basis create pressure on our EBITDA margins? Right, absolute EBITDA may come through, but from a margin perspective, it may just create problems or rather pressure on EBITDA margins? So I think there are factors which are favorable. They are favorable. I think that is where the whole management lies, art of management lies. And to the best of our ability, we are trying to see how we don't dilute the margins. I think that's where you are seeing the numbers. But we are are cautious also in our commentary because as you go down the pop set, I think it's natural to believe that margins won't go up, but we are trying to see how we keep on sustaining our current levels. Okay. Thank you very much. Thank you. Ladies and gentlemen, that was the last question for today. I now hand over the call to management for closing comments. Over to you, sir. Thank you, everyone, for being with us on this call today. I wish all of you remain safe and healthy. Looking forward to meet you next quarter conference call. And then thank you and all the best. I would now request the moderator to close the call. Thank you. Thank you, sir. On behalf of Doctor. Lal Pathlab that concludes this conference. Thank you for joining us and you may now disconnect your lines.