Good day. Welcome to the Dr. Lal PathLabs Q1 FY22 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 call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishit Solanki from CDR India . Thank you. Over to you, sir.
Thank you. Good afternoon, everyone, and welcome to Dr. Lal PathLabs Q1 FY22 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, CEO, Mr. Ved Prakash Goel, CFO, and Mr. Rajat Kalra, Company Secretary and Head of Investor Relations. Let me share our 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 to you and is also available on the stock exchange website. I would now like to request Dr. Arvind Lal to share his perspectives with you. Thank you, and over to you, sir.
Thank you, Nishit. Good afternoon, everyone, and welcome to Dr. Lal PathLabs Q1 FY22 Earnings Conference Call. First quarter of fiscal 2022 was a challenging period due to impact of second wave of COVID-19 pandemic, which was more resilient this time with steep rise in case loads in a very short span of time. Increased pace of India's vaccination drive, paired with the entry of top vaccines manufactured by other countries, is helping India making headway against this virus, I should say, by all the countries, including India.
The country is seeing strong demand for healthcare and related services. Diagnostics, as an important cog in the overall healthcare system, is also seeing this demand, and Dr. Lal PathLabs has been a crucial player to satiate this. Our accurate, affordable, and accessible diagnostic services, along with efficient hub-and-spoke model, sets us apart from the competition. We are emerging as a frontrunner to fulfill the growing diagnostic needs of India. A major part, almost 2/3 of Q1 FY22, was severely impacted by the second wave of the pandemic.
Many states were forced into lockdown to contain the spread of this deadly virus. Having learned many lessons from the first wave, we were better prepared this time on crisis management. Fortunately, we are past that hurdle. A new challenge is expected to emerge in the form of the third wave. We hope it doesn't come. We have to be ready for it. That said, Dr. Lal PathLabs will always be there at the forefront to fulfill the demand in the country for quality diagnostics.
We continue to maintain our services with high level of efficiency without compromising on quality. We have made several efforts to ensure that neither COVID nor COVID segments get affected, and people receive top-quality services at affordable prices. The pandemic has been boosting the penetration of organized players in a highly fragmented diagnostic space across the country. We have remained focused on adding more and more quality collection centers and PSCs to enhance the reach of our hub-and-spoke model.
We are spreading rapidly across India and are establishing a firm presence in the western and southern India, where we lacked substantial presence earlier. Aided by the technologies employed, with sharp focus on online channels, we have continued home collection of samples and have been adapting to patients' needs effectively.
Offering our support and assistance to both patients as well as our employees remains of paramount importance to us, and all necessary measures have been taken to ensure their safety and well-being. We are vigorously driving vaccination for all our employees at company's cost to provide a safe and healthy environment to our patients and customers. Our expertise and dedication and scale have helped us navigate through this crisis and provide best healthcare services to patients in most difficult times.
I would like to extend my gratitude to our entire workforce for their relentless efforts on assisting all our patients. The COVID-19 pandemic is sure to change the healthcare industry's dynamics in India, and we will play a pivotal role in this transformation. With that, I would like to hand over the floor to Dr. Om Manchanda to share his thoughts. Thank you, and over to you, Om.
Thank you, Dr. Lal. Good afternoon, and thank you to everyone for joining our call today. I would like to discuss the industry and how we are positioned within that, and the way forward for us. Operationally, Q1 FY22 was a challenging quarter for us. These were indeed difficult times for our employees, physically, mentally, and emotionally.
I would like to take a moment here to sincerely thank them for their efforts. During this period, Dr. Lal PathLabs leaned on accumulated learning from the previous quarters to manage operations and customer service Lab testing operations and home collection services were made available seamlessly during this quarter. Our revenue figures in this quarter are strictly not comparable to the corresponding quarter of the previous year. The quarterly growth in Q1 FY22 has a combined favorable impact of lower base and significantly higher contribution from COVID and COVID-allied tests.
There were wide fluctuations in revenue figures, primarily driven by COVID and COVID-allied test demand patterns that varied week to week. We also noticed an unusual spike in a few new tests, unlike earlier quarters, and these tests were actually related to COVID illness. In order to provide a better understanding of these movements, we have not only provided monthly trends in sales, but also provided a split in terms of four groups in earnings presentations.
These groups are, number one, non-COVID. Group number two is COVID, consisting of RT-PCR and antibody tests. Group number three is Allied one, which is consisting of IL-6 and D-dimer. The group four, which has been added for the first time in this presentation, is COVID Allied two, that consists of three tests, CRP, ferritin, and LDH.
Fourth group is carved out for the first time since these tests experienced unusual spike in quarter one FY22. RT-PCR testing remains the gold standard for testing for COVID-19, and we have been able to keep up with the demand by increasing its availability across the country. As on date, we have 19 labs offering these tests. Despite restricted movements, our non-COVID segment has also seen an upside with the trends that were being formed in the second half of the previous fiscal year.
On strategic front, we continue to focus on widening our footprint, especially in south and west regions, both through organic and inorganic ways. This quarter, we have seen an interesting change in the dynamics of the diagnostic industry in India. We believe this is a very positive development for the sector, since our understanding suggests that this could further accelerate penetration of diagnostics, especially down the cost setup. These developments will lead to a faster pace of conversion from unorganized business to organized business, in our opinion.
The patient behavior is also undergoing a rapid change, where the sample collection is shifting from completely offline to online-offline model. The franchisee collection centers will play an important role in providing unique and differentiated Dr. Lal PathLabs brand experience. DLPL has been a company that has relied on both technology as well as physical infrastructure. The tech-enabled processes that are embedded into our operations will continue to support this franchisee network that will form the basis for our growth aspirations going forward.
With that, I conclude my opening remarks and would request Bharath to take you through all the operational performance of our company. Over to you, Bharath.
Thank you, Om. Good afternoon, everyone, and thanks for joining us on this call today. I will take you all through the operational highlights of our company. In the first quarter, the country bore the brunt of an unprecedented surge in COVID cases, and in this context is that one should look at the performance of this quarter. During the quarter, we were able to achieve the highest-ever quarterly revenue of INR 607 crore, serving 7.1 million patients, and 36% of the revenue contribution came from COVID portfolio, compared to 23% in previous quarter.
The overall revenue growth stood at 128%, led by a low base of Q1 last year and a high COVID contribution in this quarter. Serving 7.1 million patients was possible due to our growing pan-India network of labs and collection centers, including in Tier two, three, and four cities. We performed COVID RT-PCR tests at 19 labs across the country and COVID-allied tests in more than 50 labs in the country. Last quarter, we performed 11.4 lakh RT-PCR tests, which is more than double the number we did in Q4 FY21.
Revenue per patient increased from INR 7.16 in Q1 last year to INR 8.16 in Q1 current year, mainly due to high contribution from COVID-allied tests, along with increase in tests per patient in non-COVID segments, as well as some channel mix. SwasthFit, our point-of-care offering, super specialty portfolio including genomics division, continued strong growth momentum. Revenues from DLPL-generated home collection leads led to a revenue contribution of 13%. Almost half of the revenue came from COVID-allied tests. Home collection services were the need of the hour.
Our initiatives on digital technology, partner and people engagement programs really came to the fore. We continue our expansion into South and West market and are pleased to share that we have commenced pilot operations at our Bangalore reference lab during the quarter. We have also commenced operations at six satellite labs in Southern region, in cities namely Madurai, Pondicherry, Hubli, Kurnool, Karimnagar, and Kasaragod. In the Western region, we have started operations of the satellite lab in Borivali and Vashi, and the Mumbai reference lab work is also in progress.
On the digital front, we have revamped and relaunched a feature-rich patient app, and more such initiatives are in the pipeline. I would also like to take a moment and thank the entire DLPL team, who have tirelessly delivered human service during these times in spite of personal challenges. With that, I would like to invite Ved to take you all through the financial highlights for the quarter under review. Thank you, and over to you, Ved.
Thank you, Bharath. Good afternoon, everyone, thanks for being on this call today. Before sharing financial highlights of Q1 FY 2022, I would like you to note that Q1 FY 2022 is not strictly comparable to Q1 FY 2021 due to nationwide lockdown in Q1 last year and significant contribution of COVID and COVID-allied tests in this quarter. I'm now sharing some of the important financial highlights. Revenue for Q1 FY 2022 is INR 607 crores as compared to INR 266 crores in last year's same quarter, a growth of 128%.
Before going further, I take a moment to explain the COVID portfolio. Revenue from COVID RT-PCR and antibody tests in Q1 FY 2022 is INR 105 crores, which contributes to 17% of total revenue. As mentioned by Dr. Om earlier, we had seen unprecedented demand in some other tests. That is CRP, ferritin, and LDH, which we have classified as COVID-allied two, in addition to COVID-allied one, that is IL-6 and D-dimer earlier. Revenue from COVID-allied one is INR 74 crores and COVID-allied two is INR 42 crores, a contribution of 19% and 7% of total revenue respectively.
Therefore, total COVID portfolio revenue in this quarter is INR 221 crores, which is 36% of total revenue. Revenue realization per patient for Q1 FY22 is INR 860 as against INR 760 for Q1 FY21. The higher realization is aided by COVID-allied tests, geographic mix, channel mix, and higher samples per patient for non-COVID business. Normalized EBITDA after eliminating the impact of stock-based compensation and CSR expense in Q1 FY22 is INR 199 crores as compared to INR 54 crores reported in Q1 FY21. PBT for Q1 FY22 is INR 179 crores as against INR 38 crores in Q1 FY21.
Tax for Q1 FY 2022 is INR 134 crores as against INR 28 crores in Q1 FY 2021. Basic EPS for Q1 FY 2022 is INR 15.87 per share versus INR 3.45 in the same quarter last year. Cash and cash equivalents at the end of June 30th 2021 is INR 1,153 crores. We are pleased to share with you that board of directors of the company have approved an interim dividend of INR 60%, that is INR 6 per share of INR 10 each. In spite of COVID-19 wave challenges, we have continuously serviced our patients through improved availability, test menu expansion, automation, and digitization of our processes.
This enabled us to improve overall efficiency and productivity and provide superior experience to our customers. That brings me to the conclusion of my opening remarks. I would now 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. Anyone who wishes to ask a question may press star and one on their touch-tone 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sriraam Rathi from ICICI Securities. Please go ahead.
Yeah. Thank you for the opportunity, congratulations on great set of numbers. Firstly, is it possible to share the number of patients and number of tests for the non-COVID business? That would be really helpful.
For non-COVID, right?
Yeah, non-COVID.
Always, I will share some numbers. I must qualify with that we don't have something called non-COVID patient and a COVID patient. At times they all get mixed up after a patient is diagnosed as COVID.
A lot of tests are also coming from the non-COVID portfolio as well. Having said that, our numbers are for non...
Okay.
Yes. COVID is about INR 2.34 million, and non-COVID is INR 5.91 million, adding up to INR 7.05 million.
Okay. Got it. That's clear, sir.
Right. Secondly, I just wanted to understand, like Q1 FY 2022, for non-COVID business, is it fair to assume that it was quite normal, or there has been some impact? If I look at, let's say even two years ago, like Q1 FY 2020, which was a normal quarter. The non-COVID revenue has grown at around 7%-7.5% CAGR in Q1 FY 2022. Was there still some impact because of the lockdown and all this happened during Q1 FY 2022?
Yeah, I think so. Non-COVID in Q1, my sense is it's really subdued because especially later half of April and first half of May, suddenly there were a lot of restrictions on movements, et cetera. If you notice the month-wide split that we have given, if you see our earnings presentation, so 133, 116, and then 137. Right, you see these three numbers?
Yes.
Usually, if I notice earlier trends, and I've seen the last 15, 16 years, May has never been lower than April. First, May actually has 31 days, so you get one day extra sale as well. June actually is one of the lowest months amongst all the three months. Technically speaking, I think I see a huge sort of a softness in non-COVID number in May. That primarily happened because we were at its peak in terms of COVID wave that time. I would say that overall, on balance, non-COVID business, though it's doing well from our perspective, it could have been higher if it was a normal quarter.
Okay, that really helps me, sir. Sir, lastly, in your opening remarks, you mentioned that you see that there could be possibility of faster shift of unorganized market to organized market. Can that lead to the higher growth for companies like us? We generally look at 14%-15% growth on annual basis. It will go up from these kind of levels for the non-COVID business.
I think the reason I say unorganized to organized shift will be higher, I think there are three, four variables that are operating right now. Let's just wait it out as to how it pans out in future. One is a lot of technology, especially consumer, is trying to consume this diagnostic nowadays online. I think some of these smaller players may find it really difficult to operate in that format, so they may want to align with us. That's one level of shift which may happen. Second level of shift which I foresee is that with the growing competition, there could be a lot of pressure on manpower as well.
If the salary starts going up, it will put further pressure on the profitability of some of these smaller guys. I find that unorganized player, it's not that they'll get reduced in terms of numbers. I think there's new formats of partnership may just emerge between larger players and smaller players, is what I see when I make this comment between unorganized to organized.
Okay, got it. Thank you, sir. I'll turn that picture.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Good evening, thank you for taking my question. Dr. Lal and team, just wanted your perspective first on the two major developments that happened, or rather developments that happened from an M&A perspective. You need to comment specifically on what's happening there. One is the PharmEasy deal was announced, at least the founder stake. We also had a Hitech deal getting called off. Just from an M&A perspective, what's happening? Are valuation multiples now getting to another level, especially with more diagnostic IPOs as well? Just what are your thoughts on the M&A for this space?
I may not have a specific comment on these deals, but broadly, in general, I can definitely say that when we speak with a lot of these unlisted players, they have expectations of listed multiples. When you, at times, sit down across the table, you find that there is a bit of valuation expectation mismatch as to what one is expecting and one actually where we feel it should be.
I think broadly speaking, given this volatility in overall trends in sales, and that's why we have tried to be as clear as possible in our earnings presentation so that everyone has an idea how these numbers are panning out on month-on-month basis, and also split between COVID and non-COVID. I think this non-COVID and COVID mix-up is actually creating a bit of understanding issue. I think once this whole thing settles down, my reading is in the next few quarters, we should be back to a normal sort of way of functioning.
Just following up on this. I'm not only talking from an M&A perspective, but also from the disruption that, say, some aggregators who are entering the space would bring in. Do you foresee, I'm just looking at your realization, INR 860 versus this one, which even if I do non-COVID realizations, I think they are up right year-over-year. Just trying to see, could there be heightened pricing competition, aggregators? I know we talked about this in the past from a profitability perspective, but how are you thinking about how you will be pricing your products going forward?
I think that's a good question. First, is the industry moving in the direction of digital? I don't know whether to use the word disruption or not, definitely it's becoming tech-enabled, I would say. There's no doubt about that. We have been investing in this area aggressively in the past, our spends further have gone up, and we will continue to invest in this area. As a team, we are prepared to actually take the whole organization in this direction of making it tech-enabled.
The reason it's becoming tech-enabled is because the consumer behavior is changing, where it was completely offline, now it's a combination of both online and offline. I think it's important to note that the customer journey starts online, it falls on offline. There is a collection part, which you can't substitute with online. I'll take a little bit of time on explaining this whole home collection or collection as an operational process in the entire value chain. It's not only important from a customer experience perspective, it's also extremely important from a quality perspective.
You must have heard from Dr. Lal saying in the past that 70% of errors in diagnostics actually happen in pre-analytical phase. This phase is so important, and that's actually one of the reasons why normally we don't scale up that fast, because if you scale too fast, you actually compromise on this step, and that actually can affect the core of this brand, which is related to accuracy of results. To my mind, there are two pillars on which this business can get differentiated.
One is, of course, the service side of it, which at times most of us tend to feel the digital, these consumer apps actually provide a better service. We are equally prepared, and we have recently launched our app, which is also as good as anybody else can think of, especially from a digital company. The most important part of this business is the medical side of it. At the end of the day, you must know that value-wise, diagnostics is about 3% or 5%, but from a patient perspective, the value is worth 70%. 70% of the decisions are based on diagnostics.
There won't be any customer who is willing to compromise on the quality. We believe that our brand is actually so strong in terms of medical value compared to anybody else, and I think that will definitely work in our favor. To sum it up, definitely consumer behavior is moving online and plus offline, and we believe that we are fully equipped to take on that. Coming to these changes, how it will affect the market, I have earlier said also that I believe this will definitely accelerate the growth because more dollars will be spent on promotions.
As we rightly mentioned, there could be a price competition as well, which is perfectly fine because you've seen the results. As the revenue grows, this business has a huge operating leverage, so we should be able to manage it. We haven't taken a price increase for the last almost five, six years, but we've been delivering the results financially as per the expectation. On balance, I think higher growth should be able to compensate for whatever competition we see on pricing.
Correct. Last question is on the West and the South strategy. You're largely going to commercialize through the regional reference labs. Just can you give us some outlook in terms of how you are approaching this market? These are not your strong or home markets, right? What could be differentiated here, and how could you actually take on some of the incumbents?
South and West, both organic and inorganic routes will continue. We have this PathLab Unifier where we acquired labs, and on organic front, we are putting these two reference labs. One is already in the pilot stage in Bengaluru, and Mumbai is already a work in process. We will continue to focus on both organic and inorganic.
Thank you, sir, and all the best.
Thank you. The next question is from the line of Vishal Biraia from Aviva Insurance. Please go ahead.
Hello. How has the cost of collections changed in the last few months?
Cost of?
Collections. From the home collections.
Sorry, I didn't get it. Are you asking about revenue or collections?
How has the cost of collections changed in the last few quarters?
On home collections specifically, you are asking?
Yes, sir.
We don't disclose this separately. There is some bit because the cost, one is pure collection cost, which is logistics and power cost, but there are other light costs also, which is not specifically contributed or mentioned.
I think as Ved rightly said, we normally don't track this way, but since you asked this question, I'm just thinking aloud. I think you gain somewhere, you lose somewhere. I think where you lose is productivity of phlebotomist, because if it's a walk-in, the same phlebotomist can collect 20, 30, 40 samples, but through home collection, it comes down to about 8- 10 per day. That's where you lose. Where you gain is that you don't have real estate costs. You don't have other maintenance costs. I think net-net, my sense is it will [Inaudible] actually. I don't think there will be increase in cost.
All right. Thank you very much.
Line of Pooja Bhatia from Morgan Stanley. Please go ahead.
Thank you. Greetings, everyone. Just wanted to get your perspective on the cash deployment strategy, since we now have a sizable chunk of more than INR 1,000 crores. Any exciting inorganic opportunities your way?
Our strategy for cash utilization will continue to be what we have mentioned in the past, which is three-pronged. We will continue to pay dividend, which we have been doing. We will also continue to invest behind technology, and technology would go both in the areas of medical, because we buy a lot of high-end instruments, and we are investing behind IT, and also new infrastructure that we normally put about 15-20 labs every year. Third is, of course, we will continue to look at inorganic opportunities. That's our strategic strategy, and we will keep on exploring those options.
Om, what is the kind of investment that we've already done in the tech initiatives that the company has taken?
Bharat, you want to take this question?
Sure. Thank you, Om. On the tech side, there are two, three sides we look at tech. One is, like Om mentioned, on the consumer side, and second is on the whole area of medical side. On the consumer side, we just talked about getting the new app in place. There is a lot of other work happening to get a truly phygital experience going on, because like Om mentioned, that there is a physical angle also to this business. How do you get to the new phygital experience is some program which we are running to get that shaped up.
There is also work happening on the medical side in exploring collaborations on AI/ML usage in medical science. That is the second area where digital technologies can really play a role. There's also a lot of work which is happening around logistics and so on, in terms of how do we get a lot of optimization, prediction, et cetera, going around. We are actually implanting digital across every single element of our business, be it partner management, be it logistics, be it lab operations, or on the consumer side.
Is it possible for you to quantify?
Pooja, we haven't separately shared this number in the past. I think directionally, I would want to say that we are significantly upping the investment in this area. We'll probably, going forward, see if it makes sense to separately highlight that.
As a capital allocation, Pooja, every year we are spending about INR 40 crore-INR 50 crore. It may be a little more going forward, but not substantially.
There are two more areas which in case you want to know a little more, I think we have two softwares, LIMS and ERP.
Yeah.
We have these two big softwares. They are also up for renewal or whatever new version. That's another area where the investment will go.
Understood. Very helpful. I'll get back in the queue.
Thank you.
Thank you. The next question is from the line of Nikhil Mathur from Ambit Capital. Please go ahead.
Hi, good evening, everyone. Dr. My question is building on the tech side of the tech investment that you are currently undertaking. If I look at the user experience that was talked about, trying to enhance that, and an app has been launched as well. Can you share some more details, what kind of a user experience are you looking forward to that a customer can get from this medical service, which is online?
Can it be like that you get to know your phlebotomist, you can track your sample, how it is flowing in the entire system, you get better understanding of what the path is, and also you can store that data on the app so that it is easy to capture that data in future. What kind of a user experience are you encompassing from the app, if you can share some details on that?
I think I'll ask Bharath to talk about this. I must tell everybody on this call, I know that there are various types of customer base we have. I think one set of customers are all of us, including me and all of us on this call. I was doing some analysis, 60% of our customer base is about the age group of 40, 45, and they come from all kinds of socioeconomic classes. Everybody is not an app literate or digital literate. You must keep that in mind that every customer that we serve is not very app friendly. I'll give this to Bharath to talk about what are the features we have on our app.
Thank you, Om. From an app perspective, today we offer the facility. One is the home collection channel, which we have a lot of features built on the app. For example, today you can book a test completely, pay through multiple payment gateways, and get a confirmed slot for a home collection operation. We can also track a phlebotomist, who's going to come to you, et cetera. We are also setting up a real-time control tower in the background, which will enable us to track whether a phlebotomist is reaching, and then put a backup plan in case something really isn't working on that count.
There is a lot of initiative which we can do on this count. A couple of more projects which we are doing, which are, like I mentioned, on the physical side. I may not be in a position to reveal them exactly at this stage because they are competitive by nature. Once we launch them, we'll definitely share the details with you.
You can also see all your old reports on the app.
Okay. Sure.
And, can I just make a question?
Sure.
Now if you're seeing that many of the health tech guys are getting aggressive on the diagnostic side of the broader outpatient market and healthcare, do you anticipate certain risks, perhaps on the pricing, perhaps maybe the phlebotomist pool is kind of limited in the wider country, and that can lead to some sort of a fight for these phlebotomist pool and a system-wide higher employee cost? Any particular risk do you see if many of the existing business players are actually getting aggressive in the diagnostic space?
Yeah, I think it's a good question. I must tell you that it's not that we haven't faced low-price competition in the past. We have had players who actually sell these tests at 1/3 the price. We have also tried on our own also in some markets as pilot. Just because your price is lower, doesn't mean customer is going to come to you because there is something more, because people are looking for value. Pricing is an important variable, but it is not the only variable. That we must keep in mind. What was the second part of your question?
Whether there's a limited phlebotomist pool in the country, and if there's a fight for that pool, would that lead to some elevated cost?
That's a great question. I do believe that competition for quality manpower will go up, not only for phlebotomists, but even for management as well. I think we are going to see some aggressive people trying to poach employees from other companies. I think that's an important part of it. Let's see how it pans out but we are acutely aware about that sort of a disruption.
Just one question, Om. In case you are able to build founders' appetite, whatever the company is envisaging, would you still need to do an M&A? Is M&A really one of the largest levers to drive consolidation or growth from a company standpoint over the next three to five years?
I think so, because as I mentioned earlier, creating this medical brand is not that simple. Just because you are a tech enabler, you are a digital company, doesn't mean that patients will come to you. There is a power of a brand which has been for many years in that city. I think M&A will still continue to make sense, M&A offer good quality processes, governance, and I think more important, the profile of the customer base. A higher B2C component is what is very important. The short answer is M&As will continue to make sense according to me, especially in those areas where our presence is weaker.
Sure. Thank you so much .
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hi. Thanks for taking my question. On the business in the quarter, the non-COVID business, how close to the normalized business were we this quarter? Was it meaningfully impacted by the COVID this quarter?
I think it was impacted by COVID. The number that we've shown here is 380 something. 386, right? Yeah. As I mentioned earlier, May was quite soft, and I would have expected at least some more number there. If I add normalized on that, I think it's more or less in line with what I would have expected for the quarter. Hopefully in Q2, it should actually improve as we go along. To answer your question, we did see a bit of softness on non-COVID this quarter, primarily in the month of May.
June would be a revenge, let's say, sort of a reasonable normal month for the business from a revenue run rate perspective.
Normally, actually, June is not a very high month. I know for different reasons. Some last two years, everything has gone upside down. Generally, June is a vacation month. Most medical professionals tend to go on leave, and prescriptions come down. I know since I track pharma, I probably would see that as well. June generally is not a very high month. It actually starts picking up from July onwards.
Okay. Secondly, on the non-COVID realization, we saw a spike which came through in the initial few quarters. Has it, I think, realization on non-COVID business now stabilized or is still at the elevated levels?
There is still a lot of volatility on non-COVID realization, and it's primarily happening because of, as infection is very high in the system, you tend to see higher number of tests being prescribed because you're visiting doctors frequently and you have a lot of complications, et cetera. I think we are still not able to see a stable trend. There's a very high volatility on revenue per patient, primarily due to higher tests being ordered per patient. I think it's not giving us very clear trend.
This morning, we were doing this exercise, is varying from 5%-12%. These are wild fluctuations that are happening. I really won't like to comment right now on this because of this factor.
One number that you gave in the stats to one of earlier questions was the number of non-COVID patients you have served were at 5.9 million for this quarter.
Yeah, something like that.
5.9 million.
5.9 million, yeah.
Lastly, on a more broader level, you talked about setting up your reference labs in Bangalore and Mumbai and starting work around that. In the last several years, organized diagnostic companies have been very strong in their own specific regions, and I guess that's the way it has really played out so far. With some of the moves that some of you guys are making in terms of trying to enter into territories where some of the incumbents are most strong in, what's your own sense on how does the incumbent respond to these initiatives?
I think if you look at one quarter or one year, it sounds like that. If you look at our journey of last 15 years, as we were in 2005, nearly 90% was Delhi NCR. Today, Delhi NCR is just about 27%, 28%. We have actually gone out of Delhi NCR and expanded ourselves in rest of India. The trick here is that you don't spread yourself too thin. There is a cluster approach that one needs to follow, and that's what we do.
Thank you.
Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.
Thanks for taking the question, sir. This is just one question on the financials. Since there's an impact of COVID, if you look at from a Quarter One FY 2020 perspective, what is your assessment, sir, for the non-COVID business as things normalize? How would be the EBITDA margin looking? We were doing margin, let's say, around lower than the current levels, let's say 27%-28%. We are at 30%+, 31%. How should we think about margin as COVID volumes subside in the subsequent quarters?
I think it's an excellent question. All the time, we just keep looking at answers for this question in our data. We keep separating the effect of COVID out of it because we believe that it's an event which is coming, and there's a baseline, and there are spikes in this. The thing is that because of COVID restrictions, movements, et cetera, non-COVID is also little soft. My gut says that we should come back to trajectory which used to be in pre-COVID times on the revenue side. On the margin side, maybe Ved Prakash Goel can comment on that. What do you think?
Yeah. We are getting operating leverage, Mukherjee, because whatever coming additional, say, very high operating leverage which we are getting because of nature of our fixed overheads. As we are now focusing rest of India, which is growing faster, we also looking non-COVID, their pre-COVID level, which was indicated trajectory of 25%, 26% normalized EBITDA margin. I think we are able to maintain that going forward also. This is something unusual. These kind of high margins.
I think the point he's making is that there's still some leverage in this business because as the business is shifting through franchisee collection centers, I think our real estate costs are going to come down. Scale is going to give us little more benefit on cost per test. I think we should be able to manage the margins going forward as well.
Okay, thanks. Sir, just on a business perspective, just to understand the mix, let's say quarterly, you're doing INR 400 crores of revenues. One segmentation I was looking at, how much you're generating online through your platform or maybe through your other online platforms. Second, is there any top 10 tests are disproportionately high proportion of your revenues? If you can give some color on the test concentration and online, offline mix of the non-COVID portfolio.
Yeah. Earlier we used to track business in three distinct segments. One was walk-in, Second was through our franchising, and third used to be our pickup points, which are direct pickup points where we go and pick up the samples. For last couple of years , we have now started tracking home collection separately. Since you are asking about online sales, this online actually has different component because one could be that somebody who has booked online, who has paid online and asked for a home collection, and the report is also delivered online.
That's, I think, the ultimate online experience. We also believe that there is segment that somebody can book the test online but may not pay. The patient may prefer to come to our lab, give the sample, and pay there. That is also another online component.
Third online could be that somebody just called up on phone because as I mentioned to you, everybody is not comfortable with the app. They just call up and book a test and ask for home collection. That could also be considered as online. I think there are various types of groups here, but we are all putting it in one group called home collection. That is what we've now started tracking. From now onwards, we will have four groups, home collection, walk-ins, franchisee, and pickup points.
Okay.
Let me also tell you that franchisee also do their home collections. At times it's difficult to know what their number is, but there is a LPL-led leads, LPL-generated leads are also forwarded to our franchises, so that we put in home collections also.
The breakup, if you can give, do you have numbers like that breakup across these four segments?
Broadly, I think we have already indicated that close to 12%, 13% of our business is coming from home collection. Further split, I think at this stage we are not in a position to provide. As we refine these numbers, we'll share with you going forward.
Okay. Thanks. Sir, just one last question. I think this was asked earlier about competition and the transactions that we have seen from PharmEasy buying out Thyrocare, for instance. Now, we had seen competition before. Now the issue is the players who are coming in, and there are other online players as you know who are also getting aggressive. First they have deep pockets with lot of funding, and they are really trying to acquire customers and trying to give a very holistic outpatient experience, which includes consulting, diagnostics, and pharmacy.
That's the value proposition with a lot of funding and a decent brand as well. Don't you think this environment is very different from the kind of competition that we have seen in the past, and to that extent it's a new challenge we are facing at this point?
I think so. I think we agree. Yes. We can't write it off. It's a new challenge. It's a challenge, as you rightly said, horizontally, they are actually full stack in terms of medicine, in terms of consulting, in terms of diagnostics. Within diagnostics, I think there are two very important, it's offline and online. That also is there. Our response right now is that we actually increase our online capability so that this stack is taken care of, which is vertical stack in terms of offline capability we already have. Online, we believe we have made significant progress, and we will continue to move with times.
In terms of horizontal part, which is medicine, et cetera, right now, that is not on the card. As you rightly said, it's a new landscape. We have to be aware about it. We'll keep watching the whole thing as it goes.
Sir, is it also possible that, let's say any of the other online players, just like Thyrocare was bought out or partnered with, is it possible for Dr. Lal, given the ground presence and infrastructure that Dr. Lal already has, is that something which you think is a decent possibility?
We have franchisees. We have 3,500+ franchisees. We have close to nearly 10,000 pickup points. I don't know the exact number. We work with partners. We believe that partners really add a lot of value, and I think that's how this whole fragmented market, one can scale up, and that has been the formula. I think what we have also ensured that we track end-to-end customer experience. As Bharath mentioned, that we are developing an oversight where the customer experience is fully tracked through our control towers. We also work with partners as anybody else.
Okay, sir. Thank you.
Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.
Yeah. Thanks for the opportunity. Thanks for all the support during these testing times. Breakup of revenues has helped in getting a better picture of understanding what is happening. That is helpful. Thanks for that. If I look at the COVID revenues, we have seen a 3.5% increase almost on a sequential as well as on a year-on-year basis. What we understand is second wave was far more urban-centric rather than rural. Have these revenues come from major of the metro cities? Is that correct understanding?
First of all, thank you, Prakash. We try to do the best we could in these times. Number two is that, like we mentioned in the opening comment, Delhi NCR did really well for us this quarter because of concentrated geography. We also got lot of samples from interiors of India, across let us say UP, Punjab, et cetera. It was fairly. We also started root testing in 19 labs for RT-PCR, about 50 labs for a allied test. It was a broad-based kind of numbers which came through on the COVID as well as on the non-COVID side. That's not the strict urban or rural India, but a very broad-based source of revenue for us.
Maybe because you're saying North did well, so North contribution would have increased as compared to what it was before.
Marginally, because the rest of India business has become really resilient now. They have their own labs, infrastructure, et cetera. They also did really well this time.
Okay. If I look at the presentation this time around, D-dimer, IL-6 were much higher. Is that because of the severity of the COVID which we saw in the second wave as compared to first wave? Is that right understanding?
This Dr. Lal will answer.
Yeah, Prakash, it's a good question. It is now fairly well accepted that this second wave was much more severe than the first wave because the Delta virus was at play. In many reports, you would have also read that the infectivity cycle or the rate severity was almost 50% more than the first wave. When you suffer more or the patient suffers more, so the body also inside is showing different changes. If you know, and you obviously heard this term, known as cytokine storm, et cetera. More and more the body reacts to the inflammatory changes, and those tests are the ones which went up in the first phase.
By the nature of the first phase, which was basically the Wuhan virus, the original virus. Second phase was the British virus, and the third phase is this Indian virus, which is Delta, which is the severest of all. We don't know. The only thing which I can say for the future is that because the vaccination now is picking up, it is quite possible that the severity of infection may become less. We keep our fingers crossed.
Okay. Assuming, Dr. Lal, that kind of a scenario, obviously some of these tests will subside in terms of what kind of trajectory we had seen because of the mutant and the higher variant of the virus.
Yeah, of course. In fact, keeping that in mind, we gave a month's split, so it gives you an idea....
Yeah. That really helps. Appreciate that. Sequentially, if I look at the margin trajectory, there has been a 280 basis points kind of improvement in the EBITDA margin. Is it fair to say COVID and non-COVID business both have seen a margin improvement due to the operating scale which we've seen? Earlier, the COVID kind of business was much lower in terms of margins. Is that also right to think that COVID?
Actually, COVID tests are much more centralized in nature, so relative overheads are less. As the revenue grows, you suddenly see a huge operating leverage giving us a benefit. I think that is what has happened in this, because proportionately our overheads have not grown the way revenue grew in these two months.
Right.
We were all overstretched. Every one of us was working 24/ 7, which on a longer term basis is not sustainable, right? Just that huge stretch was there in the system.
Right. Lastly, for increased patient volume, I'm guessing because large part of the quarter was pretty severe, home collections would have been pretty buoyant. Have we scaled up the team or the work which we were doing on the franchisee phlebo integration and training, did that help scale us volumes? Did we outsource some of these collections? How did we manage? If you think of it, there has been quite a rapid scale in terms of the patients and the number of tests.
Yeah, I think Bharath will be right to speak on this.
Yes, Prakash, you're right. Two, three things happened. One is that given the intensity of the wave which struck us, the productivity per se also increased. There is one factor of the number of collections. The day stretched for longer period of time that Dr. Lal mentioned that people are really literally working 24 hours. The collections went late in the evening, et cetera. Number two is that we had opened up COVID dedicated centers.
By the way, this COVID testing is non-stopping. There's no time pressure per se, right?
Yes.
Okay.
Yeah. That is really what drives the productivity because you can keep taking samples till late in the evening, in the night also, it doesn't really matter. Number two is that we had opened a lot of COVID dedicated centers wherein we are able to take care of lot of patients going through, not necessarily through home collection, from an overall volume perspective. We have opened these centers all across the country, so that we are able to get lot of samples, get the efficiency of operations going on and serve as many people as possible.
The third part is that our franchisee partners really stood up along with us in serving the nation at this point of time. Lot of tech enablement was done for them to kind of get the leads from us and go to the patient's house and collect samples or even manage their day-to-day business via the integrated portals we have now in place.
Yeah. Okay. Some of the base work also was a critical factor in terms of the integration and managing the scale.
Yeah. This was not a single day affair that we stood up and did all this.
Yeah, April-May throughput was so high.
Yeah. That's what I was trying to understand. Great. I think this is helpful. Thanks and all the best, guys. Thank you so much.
Thank you, Prakash.
Thank you. The next question is from the line of Shaleen Kumar from UBS. Please go ahead.
Yeah. Thank you so much. Thank you so much for the opportunity. Sir, a bunch of question. If I look at the ICMR data, my COVID test is not coming out. They are hovering around same level of 1.82 million per day. Are they more in a Tier two, Tier three city, where we have a limited presence or probably it's our number? Second, just want to understand from you on the psyche of the patient as well as doctor, given we are in the flu season, right? How the psyche is working now, are doctor able to identify that this is a normal flu and not a COVID?
Is it because of what we have gone through such a brutal second wave, nobody wants to take a chance? It means that COVID is there with us, or at least in our memory, it's going to stay with us for some time.
I think on the first question, I really won't have too much of color on ICMR data, but clearly we are seeing a declining trend. There are two, three reasons where the tests are coming. One is the travel-related testing, which to me it is still happening. The other is illness-related testing. That actually has sharply come down. Third is geographically, where your presence is stronger, if the incidence is lower, then the test is down. I think right now, if I recollect, maybe some states in South Kerala is showing higher in Kerala, Maharashtra maybe those four states will have a little bit of higher testing.
In general, we have seen it's completely related to incidence of COVID. Your second question in terms of flu, where the doctors were able to differentiate, I don't think flu season has yet started to that extent, which normally happens. Maybe Dr. Lal would want to say.
Yeah. See, right now, any fever, which is even flu, but the doctor would first say that let me first rule out COVID. What is obvious in front of you and even now, you remember when we said that it has not gone, I mean, the three stages come, et cetera. Now the third wave, that now you can't differentiate from where you got it. At that point of time, the first thing which has to be ruled out is a COVID infection. Irrespective of the fact whether you are having flu, after all, COVID virus is also an influenza virus.
The doctors are very sharp on this, and especially when there is teleconsultation, the doctor will definitely say that, "Please get your COVID test done." For the patient, it's very good because he just picks up the phone or whatever, computer, and he calls the person home. COVID testing, by and large, more than 90% has been done at home collection. This is the first thing, and people have been pleasantly or unpleasantly surprised, I should say, that they never thought it would be COVID, but turned out to be COVID. That's the way the disease is.
Right. Dr. Lal, do you think, at least for some time, this trend is likely to sustain, people just want to rule out COVID, it become a part of the normal diagnostic?
It will become like an endemic. You must have heard this word from pandemic to endemic. Singapore has already announced this, that they no longer think it's worldwide and pandemic, that kind of a big thing. It will become like the other viruses, which you yourself have mentioned, like an influenza virus, like the HIV, the HCV, HPV. They'll keep on simmering in the background, and whenever the patient has to be I mean, for a few years, this will definitely happen, that the first test which will be asked for will be an RT-PCR.
I must also inform you at the same time that there are expert groups all over the world, Harvard T.H. Chan School of Public Health. They've gone, even they are predicting that now the testing will move to the home. It will be self-testing on a rapid antigen test, which has now become very common. Moreover, it will also happen every week. Imagine that since the virus is going to stay with you, people are also getting used to it.
Every week, they are saying you should get or you yourself should do the test. We don't know when it is going to end. In my opinion, it is very much like the S curve or like a sine curve in trigonometry. It goes up and goes down. The moment it goes down, people relax, the unlocking happens, and it comes back again. It is a seesaw kind of a battle.
I think Shaleen, the way to look at it is that there will certainly be a baseline still keep happening over every month. There will be spikes. What we have seen in this. That's the way to look at it. It's like a shifting sand. Sometimes RT-PCR, antigen, and your home diagnostics, new technology will keep coming. One will have to keep an eye on this as to how it's moving. In terms of testing, there will be some baseline testing which will happen monthly basis, both driven by illness and also maybe travel related. That's the way I would look at it.
Understood. Thank you. Thank you so much, sir. That is it from my side.
Thank you. The next question is from the line of Kunal Randeria from Edelweiss. Please go ahead.
Good evening, sir. My first question was on Swasthfit. Sir, do you expect as the world normalizes, India normalizes to grow faster than what it used to grow at? If you can give some sense on how much the realization would be higher on Swasthfit, what is the rate of your business?
Swasthfit will be about, let's say, 20 odd % higher than the rest of the business. That is a normal trend we have seen in the past.
Right. Growth expecting, do you expect it to grow much faster than what your business is growing at?
Swasthfit portfolio has actually been growing faster than the portfolio or overall numbers since the time we launched it. We continue to expect that it will grow at a very healthy pace even in the times to come, for two, three reasons. One is that there's a growing awareness of health, and preventive testing will pick up. Number two is that it offers a very good value for people who do routine testing for either a specific condition or whatever prescription says for. It's just a combination of tests which they can use for better information. Yes, we will continue to see a good trajectory in source mix.
Sure. Sir, just one more question on the recovery of your base business. Is it fair to understand it's broad-based? I mean, are you growing sort of recurring faster in the traditional areas like North, where your brand is especially strong, is the growth faster over there? Is it around the country you're probably growing at the same rate?
I think it's growing faster in the rest of India as well, so not only just north alone. I think the first response will be broad-based. Given the base is slightly lower in the other parts of the country, I think we have seen higher growth rates in rest of India.
Right. Sir, just trying to get your opinion on one more thing. After this PharmEasy kind of acquisition of PharmEasy, do you think going forward there could be another business model where, let's say, a few pharmacies partner exclusively with a diagnostics company? Is that something which you believe is possible rather than acquiring it outright?
Yeah, of course. I think that's the way I look at it. All the eCommerce players, they generate leads, right? They are aggregators. To my mind, they have to partner with people like us. That's all needs to be done. If they are aggregating pharmacists, the manufacturers, or pharmaceutical company at the back end, I think the same way they should aggregate diagnostic companies also. Because in the front end, they own the customer.
I think it will definitely be a great help to us in those markets where our physical infrastructure is less. To my mind, it's a combination of both offline and online has to go together. It's a partnership model, to my mind, that works best for everyone.
Sure. Am I to understand that you'll be open to a partnership where you are sort of the exclusive partner? I mean, if I go to an aggregator, small like, you know, I'll probably only find Dr. Lal over there....
Yeah, we do so. We don't say no to them. We work with them. We work with many of them today also. They work with us today. Because on their side, they go and ask for Dr. Lal, because if they don't have Dr. Lal, they don't get customers. They also want the traffic. I think we have to co-exist.
Sure. Sir, how much of your business will be coming from them currently?
It's not that significant right now. We probably are not in a position to share as well. To my mind, we are very clear that going forward, we will partner with them. Basically, commercially it should suit our arrangement. I think everything else should work.
Got it. Thank you very much. All the best.
Thank you. The next question is from the line of Subham R from WestBridge Capital. Please go ahead.
Yeah. First of all, congratulations on a great set of numbers. My question was, could you just give us a realization on both the non-COVID and COVID side of things? Is there continued pricing pressure on the COVID test still, or is that now stable?
On this COVID, we have given the realization. If you remember, it was started from INR 3,500 or so. Nowadays, it's hovering around INR 750 or so. Continuously, I mean, this is the average of COVID RTPCR antibody. If you see going forward, there are some states even have lower price, which is as low as INR 450 or INR 500. On a standalone basis, I don't think realization of this RTPCR is going to stay here. Along with the RTPCR, what we have seen and what we are doing is getting all other tests also, and that is where the leverage is coming.
Along with this COVID testing, there are few other tests which are coming, and that's where might be this realization on overall basis is where we have hovering around INR 700 or INR 750.
I think broad question which is there on everybody's mind that COVID pricing trend actually has seen a sharp downward curve, right? I also must say that the costs also correspondingly actually has seen the downward curve as well. It's not that prices have come down and then you've lost out on profitability. Prices are also coming down, so are costs. Has it stabilized? I think we are nearing that zone. It's little bit on a decline side, but last couple of months, we are seeing a stable trend in terms of realization on COVID side.
The point which Ved is trying to make is that when we get a request for a COVID or COVID-related test, along with that, there are a few more tests which are ordered. That's how our leverage sets in and we are able to steer through.
Got it. No, that is super helpful. Just one last question from my side is that any guidance on the COVID-related tests going forward? Like how is July trending? Is it more in line with June or has it declined further from June levels? If you could give any guidance for the next quarter in terms of COVID-related tests.
I don't think we would want to give any guidance on the COVID test because it's highly unpredictable. I don't know really what happens. Precisely keeping that in mind, we gave you a split between April, May, June, so you can clearly make out as to how the trend would be.
Thank you. Those are my questions.
Thank you. The next question is from the line of Rahul Agarwal from InCred Capital. Please go ahead.
Hi, good evening. Thank you so much for the opportunity. I missed most of the call, sorry if I'm repeating any question. I just had one question, Dr. Om. Essentially, given the way this COVID is moving, obviously the earlier thought was that it might taper off earlier, but it's not happening. Obviously, that's bringing a lot of cash flow and a lot of higher volumes and good numbers across all diagnostic chains. Just wanted to pick your brain as we enter into next 12 months and fiscal 2023, 2024, obviously the base is getting heavy, right? Because of COVID.
Would you agree that non-COVID volumes, as the feeling is that the healthcare spends and overall awareness is going to be much higher because of this COVID pandemic in India and globally? Will non-COVID be able to offset the higher base and still grow on those numbers into 2022, 2023, 2024 going ahead? That is the only question I had. Thank you.
It's a great question. That we'll have to probably watch and see how it goes, but our efforts are continuing in terms of widening our footprint, so we are not letting that effort go down. For South and West is a big gap area, and I'm doing some analysis, and first time I see the West has contributed in double digits for us this quarter. We will continue to widen our footprint, and we believe that will definitely help us build non-COVID base. COVID actually has been helpful as well for us entering into new markets. We will continue to expand our footprint because market is very large.
Got it. One booking question I had. The new regional reference lab is supposed to come in Bombay. Is it already done? Is it open?
No, we have started our Bengaluru operations. Mumbai work is in process because I think there are certain licensing requirements. Once that is in place, then we will start our work.
May I know the location, please, in Mumbai?
Right now, since I have those licenses in place, because I think with this, what do you call it, commercial.....
Change of use.
Change of use license. Unless that is in our hand, we can't say this is the location.
Okay. Perfect. Thank you so much for answering. All the best.
Thank you.
Thank you very much. That was the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you everyone for being on this call today, and I wish all the best, and you and your family be safe and healthy. Thank you.
Thank you. Goodbye.
Thank you very much. On behalf of Dr. Lal PathLabs Limited, that concludes the conference. Thank you for joining us. You may now disconnect your lines.