Ladies and gentlemen, good day and welcome to the Dr. Lal PathLabs Q1 FY 2023 earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth of CDR India. Thank you, and over to you, sir.
Thank you, this is Siddharth. Good evening, everyone, and welcome to Dr. Lal PathLabs quarter one FY 2023 earnings conference call. Today, we are joined by senior members of the management team, including Honorary Brigadier Dr. Arvind Lal, Executive Chairman, Dr. Om Prakash Manchanda, Managing Director, Mr. Bharath Uppiliappan, CEO, Mr. Ved Prakash Goel, Group CFO, along with Mr. Shankar Banerjee, CEO, Suburban, and other group companies. Mr. Rajat Kala, Company Secretary and Head of Investor Relations. I would like to share that our 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 update in this regard is available in the results presentation, which has been circulated to you and is also available on the stock exchange website. I would now like to invite Honorary Brigadier Dr. Arvind Lal to share his perspectives.
Thank you, and over to you, sir.
Thank you, Siddharth, sir. A very good evening and a warm welcome to everyone present on the call. We are here to discuss Dr. Lal PathLabs Q1 FY23 earnings. The industry has more than adequate headroom to grow in FY 2023, where with an effective vaccination drive and improved patient care infrastructure, India has successfully met the challenges posed during the pandemic. Meanwhile, the Indian diagnostic industry is undergoing a transformation and is estimated to grow at a CAGR of 14% over the next five years. With very few barriers of entry, it makes a great ground for new entrants that include investors, entrepreneurs, and innovators. To remind you all, when COVID-19 pandemic hit in 2020, we were among the first private labs to be approved by ICMR for COVID-19 RT-PCR testing, and last year we performed over 32 lakh COVID RT-PCR tests.
We have continued to serve our patients in the best possible manner, even with the challenges posed by COVID. I am happy to share with you all that we were adjudged the best star SME of the year by the prestigious Business Standard. For this, I would like to thank the senior management team and all the 5,000-odd workers in our organization, which is the oldest diagnostic lab chain in India, having been started in the year 1949 by my late father, Dr. S. K. Lal. We are all equally driven to achieve our large vision to be the most trusted healthcare partner enabling healthier lives. As we dealt with the COVID-19 pandemic's rapid spread across the nation over the past two years, we too faced both challenges and opportunities to improve our infrastructure, systems and procedures.
The public now has a greater understanding of the importance of keeping a healthy lifestyle, which is more vital. Since then, people have been monitoring their health and wellness better, which from a nation building point of view is a very welcome step. Dr. Lal PathLabs is committed to control the epidemic of non-communicable diseases or lifestyle diseases that are responsible for nearly 65% of deaths in India. For this to take place, we shall further increase our organic network expansion and to create structural levers for driving volume growth. Our methodical network capacity creation nationally, investments in digital technology, Swasthfit, and focus on better service parameters will prepare us comprehensively to lead this space for time to come.
Today, LPL has become one of the most reputed laboratories in the world, with a network of 277 labs, 4,731 collection centers, and 10,599 pickup points serving across 1,500 plus cities with 5,000 plus tests and panels. We have a record number of 33 labs accredited by NABL and 2 labs by College of American Pathologists. As a forward-thinking company, Dr. Lal PathLabs has been at the forefront of incorporating technology into its business strategy. By doing so, we can cut costs while giving our patients a smoother, more coherent experience. Companies like ours must adapt to stay ahead of the competition, given the speed at which the world is changing. India continues to be a grossly untapped market.
For a brand like ours, there is a lot of room for expansion, so we want to take advantage of our position and create a mark for ourselves in the history. Thank you very much, and I would now like to hand the floor to Dr. Om Manchanda. Over to you, Om.
Thank you, Dr. Lal. Welcome everyone to Dr. Lal PathLabs Q1 FY 2023 earnings call. I hope you and your loved ones are safe and healthy. I'll talk to you about the current trends as well as strategic focus of Dr. Lal PathLabs. The Indian healthcare sector, particularly the diagnostic space, holds significant growth potential, as was evident by the response of the industry to the pandemic. Organized national brands like ours have met these challenges without raising prices. The industry has seen entry of many new players. I foresee growth of organized sector, both due to overall market growth as well as accelerated shift from unorganized to organized segment. Our customers appreciate the certainty of quality and effectiveness that Dr. Lal PathLabs provides, which the unorganized players will not be able to structurally deliver.
Going forward, we will continue to build and drive growth through the following. Number one, organic expansion of labs and collection centers infrastructure. Number two, through inorganic expansion route. Number three, use of technology to enhance customer experience and also provide value-added services at one level, and drive internal process efficiencies at another level to achieve productivity. On organic front, the initiative of creation of hub labs has started yielding good results, especially in northern part of India. This will also give us capability to go deeper in tier two and tier three towns in large states like UP, Bihar, et cetera. As the markets get competitive, I foresee segmentation and differentiation will play a greater role in either maintaining or growing market share.
For example, Swasthfit is seeing a good momentum and patients find greater utility in the offering, and we believe that it will further build up credibility of our brand. Similarly, I do see in super specialty business we plan to focus on segments like oncology, autoimmune disorders, et cetera. On channel front, network of collection centers is going to play a very important role. We expect CC network to service all types of customers, like home collections, walk-ins, hospital pickups, et cetera. Last year, COVID contributed nearly INR 400 crore to the company top line. That was roughly about 19% of the company turnover. Of which nearly 55%, that is INR 221 crore, came from first quarter of FY 2022.
From the current quarter, that is Q2 onwards, this overhang of large COVID base, to a large extent is going to be behind us, and we hope to stay focused on more stable part of the business, that is non-COVID business, going forward from here. With that, now I would like to invite our CEO, Bharath, to continue this conversation. Over to you, Bharath.
Thank you, Om. I warmly welcome you all to this call today. I will now take you through all the business highlights. In Q1 FY 2023, we served 6.9 million patients, generating a revenue of INR 503 crore. As you're all aware that the COVID wave has abated significantly, and as a consequence, revenue from COVID and allied tests is INR 21 crore for quarter one, with a contribution of 4% to overall revenue. This is in contrast to 36% contribution in last year same quarter, and also the lowest in last two years. Our non-COVID revenue of INR 482 crore registered a robust growth of 25% over Q1 last year. This growth in non-COVID revenue is led by patient volumes, which registered a growth of 15%.
The test per patient for the quarter was 2.6, the highest ever for the company. This quarter was marked by strong market activation program across our B2B and B2C channels. Our product and activation innovation have led to a robust growth on our Swasthfit bundle test program, contributing to a strong patient and RPP growth. As leaders in the diagnostic industry, we have taken upon the task of establishing India's first center of excellence for autoimmune diseases, and this has shown very encouraging results in the first quarter itself. This initiative, combined with a focus on super specialized tests, including genomics, has contributed to our growth in this quarter. Our digital marketing initiatives and our effort on growing this hub business organically is also progressing well. We remain focused on our strategic agenda and execution focus.
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 trust each of you and your families are safe and healthy. Please note that Q1 FY 2023 includes Suburban results, hence not strictly comparable with previous year same quarter. We are encouraged to share the financial highlights for Q1 FY 2023. We clocked the highest quarterly non-COVID revenue of INR 482 crore, a growth of 25%. Our dependence on COVID revenue has significantly reduced due to COVID revenue declining by 91% from INR 221 crore to INR 21 crore in this current quarter. Though the non-COVID revenue increased by 25%, reduction in COVID business by INR 200 crore as compared to last year resulted in overall decline of 17%. Total revenue came in at INR 503 crore versus INR 607 crore last year same quarter.
As Dr. Om mentioned that out of total COVID business of INR 396 crore in FY 2022, almost 55% business was in Q1 only. Revenue realization per patient for Q1 FY 2023 is INR 727 as against INR 860 last year same quarter. The lower realization is due to sharp reduction in COVID and allied testing.
Non-COVID revenue realization per patient for Q1 FY 2023 is INR 707 as against INR 653 for Q1 FY 2022. Normalized EBITDA after eliminating the impact of RSU and CSR for Q1 FY 2023 is INR 126 crore as compared to INR 199 crore reported in Q1 FY 2022. Normalized EBITDA margins for Q1 FY 2023 is at 25%. Q1 FY 2023 margins are inclusive of Suburban, which is relatively a low margin business. Normalized PBT after eliminating the impact of notional depreciation of INR 12.3 crore on consolidation of Suburban for Q1 FY 2023 is INR 94 crore. Normalized PBT margin is 19% for this quarter. Normalized PAT for Q1 FY 2023 is INR 71 crore. Normalized PAT margin is at 14%.
Net cash and cash equivalent after adjustment of borrowing at the end of Q1 is INR 436 crore. We are pleased to share that the board of directors of the company have approved an interim dividend of 60%, that is INR 6 per equity share. At last, a quick update on Suburban performance. Suburban revenue for Q1 FY 2023 is INR 39 crore, of which non-COVID revenue is INR 36 crore. Please note this revenue is recorded on net basis due to transition to Ind AS from GAAP. This is equivalent to INR 52 crore as per erstwhile accounting practices. EBITDA margin for Q1 FY 2023 came in at 12%. With that, I request the moderator to open the forum for questions. Thank you.
Thank you very much, sir. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Thank you. We take the first question from the line of Pooja Baid from Morgan Stanley. Please go ahead.
Thanks, and good afternoon, everyone. I just wanted to know if you hold on to this year's guidance of mid-teen revenue growth, which was given last quarter. And how would this be if you had to split the growth? Would it be how much would be volume value? If you could give a little color on this.
Okay. Yeah. Hi, Pooja. This is Om here. We probably have not in so many terms given the guidance. It's more related to because one doesn't know the trajectory of COVID business. Now it's becoming a little more clearer. We are not focused on COVID at all because we still don't know how it's going to pan out for the year. The focus for our teams has been on non-COVID part of the business. As the current quarter indicates, we have done 15% for ex Suburban, and without including Suburban, we have done 25%. But one must keep in mind that last year there are many months which are softer and many months which are very high because of uneven trajectory of non-COVID.
If I go by month by month, April, May of last year were a little softer, but then July, August were a little higher. After that, again, it goes down from, I think, November onwards till at least February. So our best estimate is we will still try to maintain that, but it's very, very difficult currently to put a number, but we are still very confident that we should fall in the non-COVID, the growth rate that we used to have it before COVID times, which was, I think, around 13 % to 14 % , to 15%. But I would say that it's very important to wait it out for another quarter to see as to how it pans out.
Understood. On the acquisition front, M&A, what are the assets that would you know potentially interest you? Has there been any moderation in valuations that you're seeing? Is there anything in consideration at this moment?
There is nothing right now that I can share. Definitely, I think teams are focused on making the Suburban assets integrate and work well. But right now I think industry is in a bit of a state of flux. I think we'll probably have wait-and-watch strategy.
What's the roadmap to improve margins in Suburban from currently 12% to, say, company level 30%? What priorities are there to leverage this asset?
If you study last two-year data, it clearly shows that if you have a high top line, there is an operating leverage in this business which suddenly fell because of COVID, disappeared overnight. We believe that if we focus on top line aggressively in this asset, we should really be able to improve our margins because the business is quite concentrated in city of Mumbai, and the potential is quite high. We just want to aggressively drive top line. That's our first priority.
Got it. One last, if I may. We've spoken about the competitive outlook in every call for the past 24 months now. Like, you know, this month there's been a new pharma player who's announced their plan to join the business. As we speak, there are now three pharma players along with many others. Are we really undermining the new players, you know, that have entered into the market in terms of, you know, how we're looking at the industry growing? What's the outlook on this?
We are definitely not undermining any player who enters in the market. I think there is definitely a higher competitive intensity that we have seen, especially in the last 24 months or 12 months. I think important thing is to know what is the sort of the long-term implication of what really is happening. It's my personal judgment, and I think India is highly under-penetrated, underserved from diagnostic standpoint. Although there's no published data, but my sense is beyond metros and these mini metros, diagnostic is very little right now. And more players entering into the market, they're gonna drive two factors. One is, of course, acceleration of unorganized to organized shift, which is going to be very rapid. That's gonna be, I think, number one effect I see of a very high level of competition.
Second is penetration levels will go up. We'll see a lot of growth coming from tier two, tier three towns. I personally believe that this competition is good for two things. One is it will accelerate probably market growth even more for organized players. The second thing is the penetration levels in tier two, tier three towns will actually go up, which will mean that accessibility and affordability of quality diagnostics will improve in this country. Now, obviously, for a company to do well, management team will have to really figure a way out how do we maintain or increase our market share.
Thanks. I'll get back in the queue.
Sure. Thank you.
Thank you. We take the next question from the line of Sriram Rathee from BNP Paribas. Please go ahead, sir.
Yeah. Thanks for the opportunity, sir. Firstly, particularly, I mean, if you can provide some details in terms of, I mean, how much of our revenue is coming from, franchises as such. Because it seems that the fees to collection centers as a percentage of sales has got increased this quarter. Just to get an idea. 40%. Yeah. Oh. Bharath, you okay?
Maybe 40% plus is franchisee business for us. Right? But I don't think there's been a sharp increase on fees to collection center. It has been as per the normal trends.
I thought it has slightly come down this quarter.
Sriram, fees to collection center is not where we have increased the revenue share for any franchisee. The only thing where the business contribution is increasing, that's where.
Yeah.
In this quarter, fees to franchisee is reduced as compared to last year.
Yeah. Why it is reduced? Because of COVID, I think. Yeah. Okay. Got it.
I think one important thing to note here is, Sriram, that the contribution of a franchisee business to our total business is on the rise.
Right.
It went up. Now, I think as the COVID is receding, we are seeing a slight dip in that, which essentially means the patients are coming back to a bit of walk-in format. Now, obviously we still will not go back to where we were before COVID, but I think it's going to settle down at a slightly higher level of contribution from franchisee.
Okay. Yeah. My second question was on that only. I mean, are we seeing the trend again reversing towards walk-in patients now, versus what we would have seen in the last few quarters?
I think there is a comeback to that.
Yes. There is.
There's a comeback to that stage. Yeah.
Okay. Got it. Secondly, on the other expenses, I think that amount is higher this quarter on sequential basis than Suburban was there in Q4. Should we assume this INR 105 crore kind of run rate to continue, or it could be fluctuating quarter-over-quarter?
Sriram, if you are comparing last quarter to this quarter, I think there are few investments we have made, especially in this quarter. One is on digital side, in IT. Second is, you know, spend on marketing, which is A&P, is also high in this quarter as compared to last year. I think these are the two broad head where we have spent little more in this quarter, and that's where you are looking at that there is a difference between other expenses.
Okay. Got it. I mean, that kind of high amount may not continue in the coming quarters. Is that?
See-
My understanding or?
There are expenses which we are continuously spending, especially on the digital side and obviously on A&P it's quarter on quarter. This is not something exceptional which we have spent in this quarter. These are normal expenses. Maybe IT on a special case we are investing in this quarter, but not otherwise.
Okay. Got it. Sure. That's helpful. Lastly, I mean.
I think certainly.
Yeah.
Certainly you should keep in mind that margins that we have seen during COVID times are not sustainable. We are definitely going to settle down on what we used to do earlier, which was in the range of, I think, 24%-26%. Yeah. That's the way it is.
Okay. For the full year, it should be in that range more or less.
We still don't know as to how it's gonna pan out, but I think. Right now, the way P&L shape is looking like, it's definitely sharply down from what it used to be during COVID times.
Right. Okay. Got it. Lastly, just going back to the competition part. I mean, during this quarter, in the last, I mean, three to four months, I mean, what part of our business would have seen higher competitive intensity and might have some impact on the business or, I mean, not that much so far?
I think the intensity is, brand awareness in general for many brands has gone up, so you don't wanna lose out on top of mind awareness. I think that is the way probably the right now heat is being felt. That's why probably what Ved mentioned that, we had to spend this extra marketing money to stay top of mind. I think, one should know that for any brand has to remain top of mind, in especially even a healthcare because this is a need-based business. It is, if you just drop on top of mind awareness, then you may tend to lose out. I think that's one area which I find is marketing spend will continue to stay up till the time this intensity dies down. That's the way I look at it.
From a business standpoint, I'm not sure because many of these companies that are coming in are very routine business because we have a test menu of 4,000 tests and a lot of high-end tests that not all these players have that kind of portfolio.
Right. Okay. Got it. Sure, that's helpful, sir. I'll join right back you. Thank you.
Thank you.
Thank you, sir. We take the next question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead, sir.
Price volume. I think.
Sorry, Shyam. Shyam, you'll have to repeat that. I think we missed you.
Sorry. Let me repeat. I'm looking at the Dr. Lal own non-COVID sales, excluding Suburban non-COVID. I think you said it grew 15% YOY. Just want to disaggregate that into price and volume because I don't know whether we got the volume numbers for Dr. Lal non-COVID.
Our volume growth is about 12.5 to 13 give or take. Rest is mix impact on pricing. You see a price impact of 2% odd. It is not a price increase. It's a purely mix impact because of, say, higher contribution of Swasthfit. Our Swasthfit program actually did very well this quarter. Our super specialized test portfolio did extremely well this quarter. Both these two contributed to a mix impact because of which the RPP went up.
Got it. Bharat, this reminds us of like older days where it used to be largely volume growth driven and like some contribution from mix, maybe some price. You're denying the price, which is fine. Largely volume growth is 14% to 15%.
Right.
If you could then disaggregate that into geography because the worry was that, and again competition-linked point, some of our core markets like NCR. How would the trend be in volume growth in our core markets?
We are seeing robust growth as per the past trends across geographies in this quarter. Like I mentioned in my opening comments, our South business has also done extremely well this quarter. It has been an all around performance North, South, East, West, no specific spreads. These are the past trends. All of them have contributed to a good volume growth this quarter.
I think, just picking up the question that you were asking about Delhi NCR versus rest of India, right?
Yeah.
I think we've always said that Delhi NCR will definitely be below our overall company growth. In our scheme of things, we always look that Delhi NCR should grow at least in high single digits, and that is what we have registered this quarter. Our rest of India is compensating for that. The blended average is where the 15% is. Overall contribution of Delhi NCR is steadily declining, which is basically our dependence on Delhi NCR over a period of time has sharply come down. I don't know what is this quarter, but I think it had come down to 35%.
35%.
35%.
35%, yeah.
Yeah so, the contribution from Delhi NCR is now 35%. Two-thirds of our business actually is coming from rest of India.
Dr. Lal, thank you for that. My second question, I think I missed it. Realization per patient, I think Ved called it out as INR 707, is it? Is that the number? And can you also explain why it declined? Sorry, I couldn't get those two bits. Sorry.
No, that is.
No, no.
COVID Non-COVID is, Shyam, INR 707 against INR 653.
Yeah. You're saying whatever you're calling non-COVID realization is INR 707 versus INR 653 last year, right?
Yes. Yes. I give that on year-on-year basis. Yes. Yes. I think on a full year basis, this number might look very different because.
Mm-hmm. Yes.
I think the overall sense that I get, I don't have full year data with me, is that as the contribution of bundled tests is going up, which is probably the likely trend because customers are seeing greater value for money in that format, maybe a little bit of increase on revenue per patient may happen.
Just to give an immediate last quarter Q4, it was INR 693.
693. Yeah. Yeah. 653 is not representative.
Representative o f the year, right?
Yes. Yes.
Right. Don't go by INR 653 versus INR 707.
Growth sequential, which is last quarter it was 693, and now it's 707. I think as the Swasthfit contribution goes up, this number may inch a little bit upward as we go along.
Got it, sir. The last one, you also called out the 2.6, sorry, test per-
Yes. Yes. Yes.
Is that-
That is also.
What is the link? Yeah, sorry.
That is also because of Swasthfit, because Swasthfit as a package has much more tests per patient.
Got it, sir. Thank you, and all the best. Thank you.
Thank you, sir. We take the next question from the line of Prakash Kapadia, Anived Portfolio Manager. Please go ahead.
Thanks for the opportunity. Post-COVID, we are witnessing an increased collection from home contribution. So if you could highlight, you know, what are the kind of initiatives we have taken to ensure a more seamless journey using technology or manpower, related training or other things. That's my first question.
Hi, Prakash.
Hi.
Yeah. Hi, Prakash. Bharat here.
Yeah.
Hello. Can you hear me? Yeah.
Yeah. I can hear you, Bharath. Hi.
Prakash, you know, our home collection contribution pre-COVID used to be about 5%-6%.
Right.
It has settled around 10 % to 11 % to 12%, give or take, and that may differ depending on the quarter.
Right
On the non-COVID side of the business. Three, four things have happened on the home collection side. One is the geographic expansion, number of cities we cover. The second one is that the technology engine which we use has gone up significantly in sophistication. So slot allotment, our ability to look at, delayed visits, reallocate visits have all gone up tremendously because we have now perfected this art of how do you manage technology and people together.
Okay.
The third angle is we introduced new features like digital ID cards. Before today, when a home collection phlebo comes to your house, we send in advance his ID card to you so that it's an added measure of security and safety that, you know, he's the guy who's coming to you. Lot many such initiatives on building confidence, among, you know, the people who are users of service. The second thing which the people are now doing using technology is upselling, or cross-selling while at the point of patient's care, which is the home. They are able to now add on tests for their spouses or family members who were not getting tested, so that we get more from the same visit. There's a lot many more initiatives in the pipeline as well.
We're happy with the progress we are making on the home collection front, leveraging technology, Prakash.
You know, as a consumer, I see a lot of proactiveness, at least in the Mumbai market, where, you know, there are now calls for new test or a last test done due date. So you know, coming to the question, you know, which you were hinting at, of cross-selling and upselling, what is the approach we've taken? Is it, you know, across newer geographies, or is it just Mumbai? If you can highlight some clusters where we are trying to, you know, follow this approach, because I see a lot of activity, at least in Mumbai.
From Dr. Lal PathLabs or company.
Yeah, yeah. Dr. Lal PathLabs. I'm talking Dr. Lal PathLabs.
Yeah, yeah. You know, we have an approach on martech, how we leverage data for marketing programs. We just have to be cautious on the other side as well, because there are privacy-related issues and so on. It's a fine balance. Yes, we are giving. Like I mentioned in the opening comments, we had a very aggressive, what I call activation program around both B2B and B2C in this quarter, which will continue, and some of this are part of that effort.
Okay. That is specific clusters of cities which you've identified.
Yes. We do have strong points where we want to push the levers, yeah.
Okay. Lastly, you know, how are we managing attrition, if any, due to increased competition and any inflationary pressure or input cost increases we are witnessing, which could be a worry given the general inflationary environment?
Yeah, yeah. The good news on inflation is, yes, visible in our system because fuel costs have gone up and so on. We have been looking at internal efficiencies and getting those efficiencies into picture. That is the reason, one of the reasons why we're able to keep the P&L healthy without taking a price increase. Attrition in particular, nothing substantial, I would say at this stage. Frontline attrition continues at the previous rate, no significant change. And you know, because we are now more a systems-driven company and a technology-driven company, dependent on people per se, specific individuals is far lesser than what we have been many years in the past. We are also seeing another trend because COVID business is down 90%, not only for us, for the entire industry.
Right.
There are a lot of the reverse also is true.
Okay. Understood. Thank you. All the best.
Thank you, sir. We take the next question from the line of Bharat Shah from ASK Investment Managers. Please go ahead, sir.
Hi. When there was a mention of growth drivers, one of the major ones that was highlighted was inorganic. When we look at kind of recent acquisitions, Suburban Diagnostics, where price paid is a multiple of revenue. Margins are rather very low. Not just compared to Dr. Lal business per se, but rather inferior margins. Therefore, is this a kind of acquisition race that we are running? Because growth for the sake of growth is a philosophy of cancer. It doesn't add to the value.
Yeah. Are you finished?
Yes.
I think you're bringing a very good point, and I value that. I think we have never looked at revenue or any organic sort of option to increase our revenue. We've always looked at any inorganic assets from the point of view of entering into that market. I think in our judgment, we felt that Mumbai is a highly competitive market. On our own, we have tried in the past, and we believe that on our own we couldn't have really gained that kind of scale in that city without any inorganic sort of option. That was the reason why we looked at Suburban. Now, coming to your question, yes, we realized that Suburban has low margins.
Unfortunately, in our judgment, maybe COVID fell much sharply than what we had anticipated, because last two years COVID was very high in Mumbai, especially for Suburban. I think probably we didn't anticipate that in within three months this decline of 90% would happen. That means, with that fall, margins have gone back to what historical margins for this company was. Having said that, what it has told us is that if we are able to at least double the sale of this business from here on, margins should actually go up to, if not to our parent company level, but at least definitely close to 20%. All we need to do is just grow the top line, and we feel, we should be able to do that in the next two to three years.
But having said that, if we had not taken this option on our own, we could have done that. I think in my personal view, it would have been very tough for Dr. Lal PathLabs. We can't ignore not only just Mumbai, but I think state of Maharashtra not being present. That's been the reason. Otherwise there are a lot of assets which come for to be acquired. We just don't chase them at all, because unless it makes sense for us, we don't go to those markets. For example, there were a couple of assets available in the eastern part of India. This would have been an asset for us maybe six to seven years back, but now our east business is much more stable, so we are not looking at anything in the east.
There are lots of businesses that come to us from northern part of India. We don't look at any asset at all. I think today, if I look at any white space which is left in southern part of India, we are seriously evaluating if we want to drive that now organically, if not all inorganic. Yes, you are right. One priority that we have is that in order to tap the overall growth of the diagnostic market in India, we need to have a wider footprint compared to what we have today. I think the whole objective of Suburban was to how do we establish ourselves in west, especially from a presence perspective. Let's see how it goes.
We are still very hopeful that in three to five years time we should be able to do something with this asset.
So am I to interpret that Suburban was a bit of a one-off acquisition and was a strategic imperative which will eventually, after you work through it, would also make financial sense compared to the price that you paid for it?
Yes. It's a very strategic one. Whatever we have paid here does not stand good for any other acquisition that comes. I don't think we will look at any other asset the same way we have looked at Mumbai
Eventually it will make financial sense as well. I think so, because last year, I think the company did close to INR 300 crore. Of course, not in net terms. At that or maybe even FY 2021, it was nearly touching INR 300 and the EBITDA was in the range of 21%.
Yeah. Of course, half of that was COVID. Now COVID has disappeared, so they're saying it has gone back. I think it's fairly well-placed infra. We also know where the levers for cost cutting in this asset are. I think we should be able to do that. It may not happen within three or four months or one year's time, but I think over a longer period of time, this asset I am very sure will turn out to be good for us.
Okay. My second question was, in the opening remark, Dr. Lal alluded to 14% to 15% growth rate. You also referred to it in your address. We talked about the huge untapped opportunity, apart from conversion highway available from unorganized to organized. In all of these, I also kind of sense that there is a pressure on the margin. Of course, we are talking of reverting back to the pre-COVID margin. It is understandable that COVID might have just improved the margins for a temporary period. Eventually growth is unlikely to mean only growth of revenue but also that of profits. Because growth of top line is an affirmation of relevance of the business to society. Growth of profits and the cash flows is the affirmation for the value creation.
My fear is the growth of top line, will it come at inferior performance on the profits and cash flows compared to reasonably modest 14% to 15% top line growth? Or have I understood it wrong?
You all study businesses much more than I do. I look at this one. At the end of the day, pricing and profitability, a lot of it is external market forces driven. I think currently as I speak to a lot of these consultants, they actually tell me that diagnostics margins are pretty visible and there are many companies who look at offsetting what is happening on their other side of business. This could be a noise which will remain for next 12-14 months. I think we do not want to get ourselves in a situation where our turnover, you know, starts coming under a bit of pressure. I think two, three things we need to do.
One is make sure that our presence is across the country, keep widening our footprint. That's number one priority. The second priority is that run the business so efficiently that if at all we are competing with somebody like to like business, so our inefficiency should not be loaded on the price. That's productivity is very, very important. I think third is right now this mix of competition that we have, some of them are very similar, cost structure. We don't have much problem with that. I think some of them are resorting to cash burn model. I'm hoping that in next two to three quarters that noise should settle down. As far as the margin sustainability is concerned, then probably market forces will decide.
We are very hopeful that it won't crash to any much lower level, but I think at least mid-20%, it should remain for overall industry, is the sense that I get, for at least next three to five years. Because market is also opening up in tier 2, tier 3 towns. It's not. I think there are a lot of people jostling for space in metros, especially Delhi, Mumbai, et cetera. As you go deeper in, down the population strata, there's a lot of growth coming up there as well.
Let me just reword my question if I did not put it appropriately. Earlier I talked about inorganic acquisition, whether that makes, apart from strategic necessity, whether it makes value creating financial sense. This one I'm asking whether in our organic business, is the desire or pressure to grow, will it come at the expense of profitable growth? In other words, we may end up chasing shadows without achieving concrete value creation. In a sense that even if we grow the top line at 15% or 18%, but if it is not always profits don't grow meaningfully in sync with it, then it may end up kind of wrong definition of the growth.
I would say both are important, the top line as well as the cash flow growth.
I agree with you. I think you're making a very good point. Revenue for the sake of revenue is not good if there is no bottom line, right? Then we are running a commodity business. It's a fine balance that we'll have to maintain. I think this question also got asked in the last quarterly call as well. Somebody asked me, "Will you actually chase these lowest price point that are happening in the market?" I think clearly answer is no. We will have to really very carefully maneuver this current market situation and find a bit of fine balance between revenue and bottom line. I think the point that you're making is absolutely correct.
Okay. Thank you, and all the very best.
Thank you. We take the next question from the line of Shalini Gupta from East India Securities. Please go ahead.
Good evening. Sir, you're facing so much price competition and so many strong players are entering the industry. I was just wondering if you considered setting up a diagnostic center in collaboration with hospitals, say Lilavati. I mean, Lilavati is what comes to mind, but I mean so many others like Lilavati or there are so many hospitals in Bombay, for example. I mean, you would get a captive set of patients. What is the downside of setting up such centers, and how easy is it to set up such centers?
No, it's a great idea. Thank you for giving us input. We call it a hospital lab management segment, and we continue to look for these opportunities. We'll probably refine this further and see how we gain extra sort of revenue lines from this side of segment, this side of business. Thank you for your input.
I just wanted to check how difficult is it to set up such centers? I mean, the person running the hospital may not want to.
Yes. Now let's put ourselves in the other side's shoes. If the margin from this business is very high, they are reluctant to give it to you because they want to capture everything with them. Second, pathology is not a very asset-heavy business, so barrier to entry is low. They actually want you to run their CPMR business, not pathology business. Second thing is even if they decide to give it to you also run a risk of receivables because 3, 4 months down the line, he won't pay you the money. It's not a very easy business. Having said that, I think this is definitely a large enterprise. Close to 35% of the industry is lying inside the hospitals. 37%.
Yeah, yeah. We can't ignore this segment, so we'll definitely keep looking at it. We'll have to do probably a lot of hygiene check before we sign up any contract with the hospitals.
Okay, you're open to this?
No, no, we do that. Yes. It's part of our business. Yes. Right now we have close to 40. Forty. Four-zero. Mm-hmm. We have 40 such centers inside the hospitals.
Okay.
Yeah, this is integral part of our business strategy. Shaleen Suchanit, if you know somebody in Lilavati Hospital, you can introduce them to us.
No, I don't know anybody, sir. I was just wondering because I happen to visit a competitor's lab in a hospital. It was a public hospital, so obviously it was not very clean and all, not the kind of thing you would expect when you go to, say, Suburban. The number of patients there is amazing. I believe you don't have to pay any referral fees to the doctors, and you don't have to pay for space. I was just wondering, why is not everybody doing this more aggressively? Because some of these gus don't pay up after six months.
Okay. All right, sir. Thank you so much.
All right.
Thank you, ma'am. We take the next question from the line of Mr. Sharleen Kumar from UBS. Please go ahead, sir.
Yeah. Thanks for the opportunity. Also we have noticed one thing in our analysis that, you know, the competition from the digital platforms is largely available discount. Basically, deep discounting is basically in five tests and then another five it drops, and then substantially it drops after that. Basically it's largely in top ten or maximum fifteen tests. Want to understand, like what kind of revenue proportion, if any, not for you, even if for your industry or organized player rather, you can give us, right? What kind of revenue proportion does this test account for you? Top ten, fifteen. Any sense, possible to predict?
Yeah, I think your observation is right. I've gone through your reports. They're very nicely written. It's basically just making the news. It's like you go to a shop 50% off, when you walk inside, you'll suddenly find those 50% off few items lying in the corner. It's the same thing happening here as well. For few tests, they have all kinds of prices. But overall portfolio of diagnostic if you look at, that's much wider. Offhand I probably may not have that number with me, but I think your report suggested 20%, right? Of these 10, 15 tests.
Yeah. Basically checking in from various participants.
Yeah. My input here is, I probably may not give you an exact answer on that, but my input here is there are a lot of tests which are hematology driven, and there is a manual component in those tests. Lot of tests which are machine driven, especially biochemistry, that's where the prices are lower. But wherever the human component is high in any test, you can't drop prices just like that, and they are not sustainable at all. For any of these companies to increase the scope of testing, they will have to start incurring those costs, which actually a full-blown company like us or any other similar competition would do that. At some point in time, at the end of the day, diagnostics is not about these 10 tests. Diagnostics is about diagnosing a disease.
You need to have entire repertoire of testing, rather than just about 10 to 15 tests. While this will definitely grow screening side of testing, this will also grow the overall market. We believe that if you screen 100 normal people, and 20 of them or 10 of them actually may fall into the funnel of medical testing, which essentially means the market is likely to grow faster.
Understood. Also, sir, intuitively, is it the right way to think that prescription-driven tests are unlikely to go to the platform? Because of multiple reasons, you know, you may not get a booking now or, you know, the patient is not sure about buying that test online, et cetera. That's one bit. Your view on that. Second, do you track, like how much of your testing is prescription driven and how much is non-prescription driven?
I think it'll be unfair to say that the medical thing will not go there. If some of them actually widen their test menu, of course, they can participate in this segment as well.
Mm-hmm.
I think one thing I wanna highlight is that this is not a business where, like a daily use item, it's not even monthly use item. I think last time I mentioned that average visit for a patient in our portfolio, combined together is not even one per year. You might just show a lot of trial generation. You do lot of these camps and promotion driven sales, but suddenly you will find yourself next month nobody is there. It's not very high frequent purchase item. For any company to show results, it is definitely two to three years of journey before they actually say, "Yes, we are, we have arrived." It will take lot of time to build healthcare brands.
They don't get built overnight, in my view.
Understood.
Plus, somebody has to sustain the flow of funds as well to sustain those kind of firms as well.
No, for sure. Just, you know, on the other expenses, you made a comment that there has been an investment in IT and technology and marketing. Can we get some sense of what kind of investment you are making in tech side?
On the investment, on the what side?
Marketing.
Marketing and tech, right? Yeah.
Yeah.
Marketing we did in this quarter. You know, like I mentioned, we promoted first very aggressively, so we were on press, radio, et cetera, I think six to eight weeks of the quarter. Second is part of a, you know, what you call market activation plan. On IT and digital, there is a lot of stuff around digital marketing, building in data lakes, investing behind data science, putting up the controls and control tower and running that for better service delivery on the front end. Some of those initiatives have obviously taken some bit of money, but I think they're also helping us get the top line in place.
Understood. Just last question. In presentation, INR 12 crore of notional depreciation towards Suburban. If, like, I can understand, what does it mean by notional depreciation? And it's not one-off, right? It will continue.
Shaleen, Ved Prakash Goel here. This is, you know, on intangibles where we have, you know, capitalized intangibles for Suburban.
Right.
That intangible, apart from goodwill, is we are writing over a period of 8-10 years.
Mm-hmm.
Roughly, this is INR 12 crore in a quarter, will continue for some time.
Understood. Yeah. Got it. All right. Thank you so much and best of luck.
Thank you.
Thank you, Shaleen.
Thank you, sir. We take the next question from the line of Sayan Mukherjee from Nomura. Please go ahead, sir.
Yeah, thanks for taking my question. Sir, on the, you know, the organic growth path, can you throw some light how should we think about, say, if you have been increasing your lab or patient service centers at a particular rate, will we see a step up there? If yes, you know, any geography you have in mind you want to sort of go deeper in north and east, and sort of look for acquisition in south. If you can just throw some light on your organic, you know, growth strategy that you're thinking over the next few years.
I think our organic strategy has to be capital efficient and that we improve our service levels, at the same time also not increase our overhead structure. In the past, we've been opening a lot of these satellite labs, but each lab brings in close to INR 1.5 crore of operating costs as well. We will look at judiciously the model of hub and spoke labs. I think we talked about this in earlier calls, where we increase the test menu in the region now. That does two things to us. One is it gives us ability to go to tier two, tier three towns, because otherwise to service tier two, tier three towns, we have to bring the samples back to Delhi, and that will affect the service.
We want to go closer to the markets by opening more hub labs and maybe reducing the number of satellite labs, but opening more wider test menu labs, which we call it hub labs. Improve our logistics network so that we are able to service the market. That's our strategy. I think your second question was priority in terms of markets. Clearly, I think the rest of North, which is UP, Bihar, Jharkhand, Odisha, even eastern part, are definitely growth markets for us. We want to really make sure that we aggressively increase our presence. Southern markets are giving good response to our organic strategy. We'll have to probably wait and watch whether it's sustainable. If that works, then we'll go south as well. Right now that is still open.
To start with north, rest of north will be number one priority for us.
Okay. My second question is around competition. Basically, you know, we are seeing new entrants in the sector. At one end you have the online players who may not have that sort of equity on the healthcare side, but then you have the pharma companies which are well-known name. They have the doctor connect and they're trying to drive the business through that route. They have the brand and they also sort of, you know, have the funding available from their domestic business. In a sense, what is the bigger threat to the industry for a player like Dr. Lal in your view?
I look at both opportunity as well as threat. I think opportunity I talked about. I think some of these organized competition coming into the market is good for the industry. It's good for the industry because, A, it creates a level playing field. So far we've been up against a lot of these small time players where they have virtually no overheads. Many of these companies that you mentioned will have to have overhead structure which is similar to ours. It's to my mind now we're going to play in a field which is level playing. That I think is a big upside to this. Second big upside is that a higher level of competition. I look at all this money which is being spent in the market is all marketing dollars.
I think on a standalone basis, I wouldn't have been able to spend that kind of money. The more activity that happens is we grow the market. That's another big positive. I think the only challenge is now, as you said, threat. Will we stand to lose to these guys? There may be a bit of market share shift that will happen depending on who has got strength in which market. I think that's where our team really will have to be smart enough to, A, run the business efficiently so we are able to compete with them in terms of our efficiency. Second is carefully pick and choose our battles in terms of geography. We believe we are very well placed in northern eastern part of market on the organic front, and that to my mind is roughly half of the country.
Also remember, we have a network of 5,000 collection centers and 270 labs and 10,000 pickup points. It's not built in just overnight one day. It has taken so much of time. From my personal experience, I can tell you that this is not a frequently purchased item where people keep coming month after month or week after week. To sustain one year business, I think all the new customers have to be acquired. It's gonna take, it's operationally going to be very challenging. To me, that actually is a bit of an insurance to us because operational excellence required in this business is huge. Remember, while we may be a secondary medical company, but inside we are a huge logistics company.
While you may have a doctor connected one end, but to run this operation, those skills are very, very different than at least running a manufacturing setup. Having said that, overall market, I believe will definitely grow.
Yeah. Thanks, sir.
Thank you, sir. We take the next question from the line of Shayantan Majhi from Credit Suisse. Please go ahead, sir.
Yeah, thank you for the opportunity. My question is, you know, how much of our total revenues do we get from routine tests, especially in the metro markets? The reason I'm asking is that the competition, the impact of competition would be more on routine tests and maybe the wellness packages. You know, how much do these comprise as a percentage of our revenue?
Definition is also.
I don't think we have readily the data available, and it's also very loosely defined.
Mm-hmm. Yeah, yeah.
I would actually say 21% of our Swasthfit contribution. If you add another 8-9%, close to 30-odd% would be the figure.
Okay. Thank you. Second question is that as per the past disclosure, North India total, I think, constitutes around, say, 65% of the total revenue. When Delhi NCR is 35%, the remaining 30%. Do we expect a double-digit growth over there? Delhi NCR, I understand we already have a high market share, so it will be high single digit. But for rest of North India, do we expect maybe, you know, teens growth?
Yes.
Yeah, yeah, absolutely. If we have 13, 14, 15% growth for the company and Delhi NCR is single digits, so obviously the balance has to be close to 18, 19% for rest of India.
Okay. This includes the rest of North India as well, right?
Okay. Yeah. I think maybe it's fair to assume rest of it because, yeah, I probably would tend to agree with you, rest of North India.
Okay. A couple of data-related questions. First is what is the Ind AS benefit that is there in reported EBITDA? Second is what is the ESOP you know run rate that will be there going forward? I understand we gave ESOP and CSR, but if we exclude CSR, what is the ESOP run rate that we will have?
In the past, it used to be INR 24-25 crore per annum. I think last, immediately last year it was little high because the large grant was given at a higher price, and that year the charge was higher. If you see, you know, the couple of years, it was in the range of INR 24-25 crore kind of charge.
In Ind AS impact.
Yeah. Ind AS impact, it is, you know, started 3 years, 4 years back. Pre Ind AS, we used to have 25%-26% kind of margin. After Ind AS, it, you know, revised to 26%-27%. About 1% or so has, you know, impact of Ind AS. That is all due to Ind AS.
Okay, thanks. For the ESOP, so we expect the run rate to be like INR 25 crore per year going ahead as well? Or would it be at a higher rate as we have right now?
It is year-on-year because depending on price on the day of grant. I think historically what we have seen is that it has gone as high as INR 32 crore last year. It was also one of the years, if I remember, was even INR 6 crore. I think the number that Ved is quoting is if you actually look at sort of where is the settled down number average for the year is our estimate is close to about 20, 23-25 crore.
Yeah.
Year-on-year basis might just be up and down.
Okay. Thank you so much for answering the questions.
There is also a bit of a reversal that happens as somebody resigns to.
Right. Right.
come back to the pool. It's a very dynamic number, but I think it's fair to assume that currently at INR 2,000 crore, give or take here in the top line, you have close to 1.2% of ESOP charge.
This is going to be sustainable for, like foreseeable, say next two, three years, right? This ESOP scheme will continue to. It's part of our regular business now. I mean, it's part of the
Yes. This is the kind of competition where we have to stay there.
Understood. Okay. Thanks. Thank you for answering questions.
Thank you, sir. We take the next question from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah, thanks for the opportunity. A couple of questions and clarifications. What I understood was 13%-15% base business growth ex acquisition is what you're guiding for. Would that be correct?
Yeah, I think that's the way it looks like as of now. Yeah. That's our best case estimate.
Okay. This quarter, 25% margin is with 12% of Suburban. This is despite higher costs on IT and some expansion and advertisement that you talked about. How do you think your margins—I mean, this is clearly the base level margins. Would you agree to that? How do you think over the year of financial 2023, this margin should settle?
Can you say this, please?
See, we were growing, our margins were, you know, pre-COVID level was in the similar range, 25-26% or around 26%. As far as, I think if we are able to grow mid-teens, I think we are able to maintain these margins.
I think the sweet spot for this business is about. I think if you are able to grow between 10% and 12%, my sense is it remains there. Assuming there is no pricing pressure, we should be able to maintain. Since the dynamics of the industry keep changing every now and then. I think if any business is able to deliver 10%-12% growth on an organic basis, we should be able to maintain these margins. This is why I currently say this.
What I understand is this IT related as well as this advertisement related expenses are here to stay on a quarterly basis.
Yeah, yeah, absolutely.
Yeah.
Yeah, we can't let the pressure down on brand awareness, so in this kind of intensity. I think they are here to stay for some quarters.
Okay. With improvement, some improvement in Suburban, which you are guiding, you know, over next couple of years, you're saying to sales to double. I think next year you're expecting sales to double, which.
Right now the challenges are of different nature because A, Suburban is a fairly routine company by design.
Mm-hmm.
We want to invest behind back end and increase our test menu. Hopefully we'll have some news to talk about launch of our lab in Mumbai next quarter. That will consume some cost. Obviously, whenever you do acquisition of this kind, there is a stability issue in the management team, management structure. Currently we are in that process of making sure that that is taken care of. I think Suburban is more company-owned, company-operated infra. It has to move towards franchisee-driven infra. So that also will take time. I think next at least 3-4 quarters, I want to make sure that we get the fundamentals right. Hopefully, if we get the process right, outcome has to be right. So that's the way we are looking at it.
FY 2023, I would give the team enough sort of breathing space rather than put pressure on profitability immediately.
All right. Is there any progress on the online alliances? I think last quarter you said that you might evaluate something specific for online alliances. Anything to talk about at the moment?
I think online alliances probably will do that, but I think they are also figuring out whether they want to do completely on their own or they want to partner with lot of players. I think there is a bit of a whether they are following aggregator model or they are doing their own sort of a business. I think it's a bit of a. I really won't say that the entire model has fallen in place. My personal view is to scale this business, you need partnership. I think to scale on your own multi-city model will actually be challenging. Let's see what happens this quarter, maybe next quarter, because the COVID dependency is virtually come down by 90%.
Yeah.
I think throw up new dynamics in the industry which we'll have to wait for another 3-4 months.
Fair enough. Lastly, on the pricing side, you know, there are some ads coming with 80, 90% discounts, and these are, I would say, routine tests. On a general basis, though you mentioned, you're not reacting or you've not raised or reduced prices, your, you know, action is on the advertisement and expanding the hub-and-spoke model. I mean, is there anything else that we are doing to keep the, you know, the volume intact or grow the volumes?
Yeah, I think one more thing that probably is likely to happen is that within the portfolio of routine tests versus specialized tests, one may look at price rationalization. Some of our high-end tests may be underpriced, and some of our routine tests may be overpriced. We'll do it in a manner that it doesn't jeopardize our overall margins for the business. We will look at case-by-case basis, those kind of things as well. I think directionally, in some ways it's already started happening because the contribution of Swasthfit is going up. In a way, realization per test on the routine tests is coming down. Some bit of it will have to be adjusted towards more specialized business. I think those things will fall in place.
That may be another additional stuff, which I would add to the list that you just mentioned.
For your clarification, Swasthfit would be wellness, right? Those would be mostly routine.
I actually won't call it wellness. I think it's probably a wrong term to use because wellness sounds as if the patient is not is completely healthy. I think it's upgrading of those two or three tests to a bundle test portfolio. I think it's a mix of illness and wellness together rather than only wellness.
Okay. You're saying prices there you could just a little bit rationalize and increase one with some of the specialized ones.
I don't mean rationalize, Nansi. I'm just saying realization per test, because Swasthfit has lot more number of tests in the package.
Okay.
What you and I look at normally is the revenue per patient, right? What is also important to look at, revenue per test.
Mm-hmm.
When you look at Swasthfit revenue per test, directionally it is lower than if you order individual tests.
How about looking at EBITDA per test or EBITDA per patient?
EBITDA per patient may be higher, but EBITDA per test may be still lower because your overall realization per test is going down.
Okay. Fair enough. Thank you. All the best.
Thank you very much, sir. We take the next question from the line of Dheeresh Bhatta from White Oak Capital Management. Please go ahead, sir.
Yeah. Thank you. Just trying to understand the non-COVID ex-Suburban patient growth. You said revenue growth was 15% like-for-like non-COVID ex-Suburban, and then you gave some numbers on realization, 652 and 707. That is like an 8% growth in realization per patient. That 15% revenue growth and 8% realization leaves like a 6-7% like-for-like patient growth. But you also talked about a 12% growth like-for-like. Can you just help me reconcile?
It has impact because in Suburban we have a little higher realization or even higher realization as compared to our own company. These patients, I include Suburban as well, which was not there in last year same quarter. Apart from what Bharath was mentioning about the mix and all.
This non-COVID-
INR 652 is obviously last year base is a clean realization number, right? 15% is a clean revenue growth like-for-like. INR 707, which is the realization this quarter, you're saying this is blended realization with Suburban. Can you help us with the, you know, like a clean realization ex-Suburban per patient, so we can-
Oh, okay. Understood. I think that's about 2% growth, right?
Our PP growth is 2.5%. Revenue per patient?
Revenue per patient, I don't have a number exactly like.
I have the RPP.
RPP, yeah.
RPP ex-Suburban.
Yeah. RPP ex-Suburban is...
We can come back. Separately you can, you know, connect with me.
Okay. I'll talk to you.
I think it picks up with basically the 707 figure is including Suburban business also.
Understood. This would not be whole lot different, right? Because you said last year we were closer to 690 or something. Even if this is, let's say, instead of 707 this is 690, you know, then also it's like a 6% realization growth. Patient growth on the like-to-like this thing is only 9%. Where's 684%?
684.
Yeah.
I think we
Eighty-four.
We'll come back. Sorry, I couldn't get your name. You are?
Dheeresh Bhatta from White Oak Capital Management. I know I'll again touch base.
Yeah, we'll touch base. Yeah, we'll touch base. Thank you.
Yeah. The other question I had was on, you know, this. Suburban you're saying realization per patient is good in Suburban. Gross profit is increasing with Suburban, so I'm assuming, you know, the gross margin is not an issue. The issue is you're saying the network is Coco instead of franchisee operated, and that is not properly utilized, and that you are going to transition to franchisee-owned. Is my understanding correct?
We do both. Because in any case Labster, even Dr. Lal PathLabs is also company-owned, company-operated. We will probably make the assets sweat more, especially existing ones. The network business which comes from franchisee, that's where our focus would be. Because I think Suburban traditionally has been focused on walking into the labs and they have been investing more in the lab itself. Which for me compared to a Lal PathLabs is likely. There is a scope to improve productivity there.
Okay. This will take time. There's no option to right-size it, like, properly because you can always add franchisee centers later, right? Labs. They were quite concentrated in a few cities, right? I'm assuming, you know.
That's what I kept saying that I don't want to have the pressure of quickly making this margin look very similar to industry margins or Dr. Lal PathLabs' margin. I think I want to make sure that our top line grows in these places and then only automatically our output-input ratio will improve if we increase our top line. Which we are fairly hopeful that we should be able to do that.
Okay, last question. What percentage of revenue is from aggregators? It shall be very small, but just to get a sense.
You heard that one?
Less than single digits.
Okay. Not
Single digit, which means it's 2.something%.
Okay. Thank you.
Thank you. We take the next question from the line of Nikhil Chaudhary from Press PMS. Please go ahead, sir.
Yeah. Hi, sir. Thank you for the opportunity. Sir, wanted to understand on the lab sharing arrangement that we may have with Suburban. Is it something that we are actually doing it or is it in plans that we'll be using our network, our lab network and taking the samples from the Suburban? Because I saw an ad of Suburban expanding in Indore also. Wanting to understand, instead of setting up Suburban lab, will we be utilizing our own labs for the Suburban patient also?
Yes, it makes sense. It's one company, right? We will definitely look at backend infrastructure synergies. I don't think it makes sense to put another lab for Suburban. We are not competing with each other.
Correct. Correct.
We'll figure a way out where one lab is able to service both the brands.
Understood. Sir, any thoughts on probably, like, a question to the earlier participant where probably due to the rising competition, ESOPs probably can help in retaining even mid-level guys. Because the competitive intensity is increasing and they may want to take some employees from us because we have been there in the industry for a long time. Any thoughts around that? Like, have you been evaluating or any other strategies that you are employing to probably retain the employees?
I think employees are smart enough to evaluate such opportunities. They actually, I've seen many of them don't fall for short-term.
Mm-hmm.
kind of raises in salary. They also know the sustainability of the whole idea. As many of them who've actually gone from us have been wanting to come back as well. I think some of them are really smart to figure out. They know the careers are 30, 40 years long. They're just not 2, 3 quarters.
Understood, sir.
Yeah.
Sir, last question probably. I asked it in earlier conference. Ads in paper, have you been evaluating? Because something probably has created noise has been the ads in the paper. Why can't we spend? Because we have cash on the balances, spend some probably ad on the front page and get some traction for Dr. Lal also. Just asking you guys, probably can have a thought around it to have the participation even in the T-twenty or IPL matches, which actually are good probably, so, the areas of getting customer attention. Just probably wanting your thoughts around that.
Maybe we can sit separately and discuss this. I think many of us, all of us have worked for FMCG company as well. This business is, by the way, still a medical business. I think very hyperlocal city base. IPL is going all over the place. Your presence is mainly in two or three or five cities. You end up spending a whole country. I think we can sit and discuss that. This business is not what you see a hoarding and you go and get yourself treated next day. It doesn't work like so. I think ultimately, in medicine, you are trying to solve a problem which is medical problem. It's a very need-based, and it's a three-way process. You still have to engage with the medical fraternity.
By the way, you also should know that in medicine, soliciting business this way is actually not a very appreciated format for these guys.
Understood. Understood, sir. Understood. Thank you so much, sir. That's it from my side. I wish you all the best.
Yeah. Thank you.
Thank you, sir. Ladies and gentlemen, that was the last question for the day. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for being with us on this call today. I wish you and your families remain safe and healthy. I would now request the moderator to close the call. Thank you.
Thank you. On behalf of Dr. Lal PathLabs, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.