Ladies and gentlemen, good day, and welcome to the Dr. Lal PathLabs Q2 FY 2021 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 then zero on your touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Siddharth Ranganekar from CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and welcome to Dr. Lal PathLabs Limited Q2 and H1 FY 2021 earnings conference call. We are joined today by senior management members, including Honorary Brigadier Dr. Arvind Lal, Executive Chairman, Dr. Om Prakash Manchanda, Managing Director, Mr. Bharath Uppiliappan, CEO, Mr. Ved Prakash Goel, CFO, and Mr. Rajat Kalra, Company Secretary and Head Investor Relations. I would like to share our 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 more detailed statement in this regard is available in the results presentation, which has been circulated to you all here and is also available on the stock exchange websites. I would now like to request Dr. Arvind Lal to share his perspectives with you. Thank you, and over to you, sir.
Thank you, Siddharth. Good afternoon, ladies and gentlemen, and thank you all for joining us on Dr. Lal PathLabs Q2 and H1 FY 2021 earnings conference call. I hope all of you are safe and in good health. I will commence by sharing my views on the emerging trends, initiatives undertaken by us, and some color on our performance. The COVID-19 pandemic has been fairly prolonged, not only affecting the daily lives of people, but also impacting the businesses and economies across the globe. Q2 saw the lockdown being lifted in a phased manner, and accordingly, we witnessed substantial recovery, where our business growth almost returned back to pre-COVID levels. While patients are still hesitant to access medical facilities, sales have started recovering as the number of walk-in patients have been increasing gradually.
Being a leader in India diagnostics industry, we have given utmost importance and taken numerous initiatives to strengthen our digital infrastructure to ensure that we provide best-in-class quality and customer service to all our patients. We have made significant inroads in simplifying our processes through use of technology and bringing in innovation to patient care. All these efforts have paid off and have given us an edge over our competition. As I stated previous team calls, the pandemic has made people more vigilant towards their health and well-being, and this would boost spending on preventive healthcare checkups. The company remains well-placed to capture this opportunity and gain market share. All in all, we stay focused on our core values and remain an undisputed market leader for providing accessible, affordable, timely, and quality healthcare diagnostics, applying insights and cutting-edge technology to create value for all our stakeholders.
With that, I would like to hand over the call to Dr. Om Manchanda to share his thoughts. Thank you very much.
Thank you, Dr. Lal, and good afternoon to everyone. Today, I'll share with you some macro observations about the operations and role of strategic initiatives we have taken to emerge stronger from this pandemic. Healthcare services across the board are normalizing with nearly the entire country having opened up, and that will anchor the pattern in diagnostics in the coming months. Having said that, we feel COVID-19-related testing will continue to contribute to our revenue for at least couple of quarters, depending on how pandemic pans out. RT-PCR is the gold standard test in the diagnosis of COVID-19, and in line with nationwide scale-up in number of tests conducted, we've also augmented the number of labs that offer this test. We are currently doing COVID-19 tests at nine labs.
This is part of our long-term investment in infrastructure, which later can be used for other specialized testing as the COVID-19 testing volume dries up. As we mentioned on the previous call, we have taken steps towards minimizing the time spent in contact with the patients during walk-ins. While the walk-in volumes are gradually increasing in most of our regions, some still remain slow in this aspect, especially Delhi NCR. This is primarily because people are still skeptical about visiting medical facilities, especially labs due to the fear of contracting COVID-19. In terms of relative performance, the patient service centers and the pickup points are doing much better. As Dr. Lal mentioned earlier, we've been working towards further leveraging technology to provide a more seamless and quality experience to patients. I'm pleased to share with you that we have deployed artificial intelligence-based algorithms in our histopathology department.
We remain strongly committed to enhancing our patient journey, keeping high service parameters as a key differentiator. Our expansion strategy remains on track as we gain traction in key regions of west and south of India by acquiring standalone labs in a calibrated manner. We only acquire labs which are of superior quality, and this is an important aspect of our aim to expand and solidify our presence outside Delhi NCR region. Higher growth in rest of India has helped us to reduce our dependency further on Delhi NCR. With that, I conclude my opening remarks and would now request Bharath to take you through the operating performance of the company.
Thank you, Dr. Rohan. Very good afternoon to everyone present on the call today. Revenues of Q2 FY21 came in at INR 431.9 crores, recording a robust growth of 18.2% over Q2 last year. Our non-COVID business in Q2 FY21 has reached 98% compared to last year levels, and 17% of this quarter's total revenue was contributed by COVID-19 test. We served 5.4 million patients during Q2 and 8.9 million patients in the first half of FY21. To provide focused attention to both COVID and non-COVID businesses, we have internally formed separate operating teams and processes to drive both the businesses, and they have been working tirelessly. As a result of which Dr. Lal PathLabs has seen sharp recovery in the non-COVID business, including in our super specialty and SwasthFit portfolio.
We have been scaling up the COVID-19 testing at our three major labs at Delhi, Kolkata, and Indore. Further, we have ramped up capacity for these tests by adding six more labs at Pune, Bengaluru, Patna, Mumbai, Guwahati, and Bangladesh. Overall, we performed 3.08 lakh COVID-19 RT-PCR tests in Q2, which is significantly higher than the 1.97 lakh tests in Q1. Better offerings within COVID-19 portfolio, coupled with the commencement of on-demand testing, supported the performance momentum in the COVID business. During the quarter, we also continued to progress well on our key priorities to drive future growth and capabilities. To conclude, I would like to add that we remain committed to our vision and core values and serve the diagnostic needs of the country in the most efficient way possible.
I would like to hand over to Ved to give an update on the financial performance.
Thank you, Bharath. Good afternoon, everyone, and thank you for being on this call today. I will now share with you some of the key financial highlights. Revenue for Q2 FY21 is at INR 431.9 crores as compared to INR 365.6 crores in last year same quarter, a growth of 18.2%. This includes revenue of INR 74 crores from COVID RT-PCR and antibody testing in Q2 FY21. Revenue realization per patient for Q2 FY21 is higher at INR 803 as against INR 687 for Q2 FY20. The higher revenue realization was aided by the COVID testing.
Normalized after eliminating the impact of stock-based compensation, CSR expense in Q2 FY21 stood at INR 134.7 crores as compared to INR 113.5 crores reported in Q2 FY20, a growth of 18.7%. PBT for Q2 FY21 is at INR 116.6 crores as against INR 102.3 crores in Q2 FY20, a growth of 14%. PAT for Q2 FY21 is at INR 87.1 crores as against INR 81 crores in Q2 FY20, a growth of 7.5%. The growth of PAT is lower due to higher base of Q2 FY20, which had the benefit of reduction in income tax rates for Q1 FY20 as well.
Basic EPS for Q2 FY21 is INR 10.34 per share versus INR 9.77 in the same quarter last year. Cash, FDs, and investment in mutual fund as at the end of Q2 FY21 is at INR 894.1 crores. Trade receivable at the end of Q2 FY21 is at INR 63.3 crores. Let me take a pause and spend a minute here. In this difficult environment, we are able to keep our DSO under control. In spite of government outstanding on account of COVID testing, which is approx INR 9 crores today, our DSO on credit sale has reduced from 34 days to 31 days. We are able to collect our money on time, and we are happy to share that we are well within our control of receivables.
I am happy to share that the board of directors of the company have approved an interim dividend of INR 6 per equity shares of INR 10 each. The company's wholly owned subsidiary, PathLabs Unifiers Private Limited, has entered into a binding term sheet to acquire 100% business in Bindesh Diagnostic Laboratory in Jamnagar and 70% stake in ChanRe Diagnostic Services Private Limited in Bengaluru. That brings me to the conclusion of my opening remarks. I would now request the moderator to open the forum for Q&A. Thank you.
Thank you very much. Ladies and gentlemen, 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 handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. I would also like to remind all participants, please limit your question to two per participant. You may rejoin the question queue if you have a follow-up. The first question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.
Hi, good evening. Thank you for taking my question. The first question is on the non-COVID testing trend. As you know, overall COVID revenue is RTPCR. It seems to indicate that average realization per non-COVID patient is around INR 700 or thereabouts. Compared to the pre-COVID run rate of about INR 680. If you could just give us some color on what is driving this improvement in the non-COVID realization and how sustainable some of these factors could be.
Yeah, thanks. This is a good question. We also went deeper into this analysis, and our analysis is suggesting two reasons. Number one, relative contribution of high-end tests has gone up, and there are certain COVID-associated high-end tests also we are seeing a higher contribution, which has a slightly higher realization that has contributed to overall increase in realization per patient on non-COVID. Second minor factor is that relative contribution of home collection has gone up, and we have seen in general, even in the past also, our realization per patient for home visits is higher than any other streams of revenue.
Got it. That's helpful. Second question is again on the COVID testing that you mentioned. If you could just share with us a split of what the antibody revenues were and what the RTPCR revenues are.
Abit?
We have INR 74 crore of total revenue in this quarter, out of which around INR 11 and a half crore is from antibody. Rest is.
Sorry.
Sorry.
No.
It's INR 6.2 crore of revenue from antibody.
Yeah. 6.2 is from antibodies. Balance is from RTPCR. While we are on this subject, I want to tell you that we look at antibody test more as a sero surveillance test. From a medical point of view, it does not have a diagnostic value.
Got it. That's helpful. Just my last question is on the volume trend. The non-COVID seems to be down only 2% YOY for the quarter, so it's pretty good recovery there. What are the trends you are seeing on non-COVID volumes maybe in the month of September, and is that trend sustaining into October month?
Volume recovery is slightly on the lower side compared to value recovery, because we have seen some higher revenue per patient. Directionally, I can say that we are now fairly in the trajectory where we don't have to really worry about whether we are below last year. We are hoping that this quarter will turn out to be even better than the previous quarter as far as non-COVID is concerned. Right now, because we are not in a position to judge because we are in the middle of festive season, and we do believe that some fluctuations happen. I think if I take a slightly longer-term view, my sense is that whole impact of COVID on non-COVID business is behind us.
Got it. Thank you very much. All the best.
Thank you. The next question is from the line of Prakash Kapadia from Anived Portfolio Managers. Please go ahead.
Yeah, thanks for the opportunity. I have two questions. On the acquisition front, do we think this string of pearls acquisition strategy would continue in near term, or now we are ready for some larger acquisitions, especially in west and south, where there is handful of room for us to grow market share? That's the first question. Secondly, post-COVID, are we seeing national and regional players growing at a much faster pace than what the industry is growing, and how are the trends? If you could comment on that would be helpful.
Yeah. Thanks, Prakash. To your first question, in order of priority, larger M&A will always be number 1 priority. We would definitely want to go after regional players of some size and scale, because we do know that smaller acquisitions have its own limitations. Number 1 preference will be to go after the larger ones. These smaller ones, right now, we are seeing a role of entry into some new markets, new clusters. If you study the pattern of our M&As, we have tried to create clusters and then grow in those areas. As we've always been stating that south and west is our number 1 priority, we are looking at opportunities which will give us some entry into these markets. That's the reason behind that. Second is in terms of growth rates for regional players versus national player. I think your question is very valid.
My reading is that regional players' growth rates, especially for those people who are doing RTPCR testing, would be much higher, not because they are doing much higher turnover than us, but just because their base is so low. If somebody is doing, let's say, INR 10 crore a month, then that guy may see INR 10 crore of RTPCR testing in that month. Suddenly, you will see the growth being 100%. I have a sense that some of these large city-based players might have seen a higher percentage growth in the last four, five months, and that actually could be a reason for some of these guys to hold on for any kind of conversation on inorganic growth.
That's helpful. I'll join back with you.
Thank you.
Thank you. The next question is from the line of Shaleen Kumar from UBS. Please go ahead.
Yeah, hi. Thank you so much for the opportunity, congratulations to the management for a very good set of numbers. Just doing a broad math, if my calculations are right, your RTPCR average would be around 2,900, given I did a rough math, 2,800, something like that.
Realization?
Yeah. Technically INR 6 crore is giving. Antibody, how much are you charging, INR 1,000 or what?
For the quarter.
For the quarter, okay.
See, we have two kinds of antibodies. One is IgG, where our MRP is about INR 1,400, right?
Okay.
Yeah. I'll give you, because sometimes this weighted average of various states might be low. Our average realization on COVID RTPCR for last quarter is INR 2,216, and COVID antibody is INR 936.
Dr. Lal, obviously there is a drop in the realization. The price restriction has happened. How do you think the volume and the business contribution from this COVID-19? Is it going to go down, same level, any sense, let's say?
Okay, let's talk about volume. I think it's anybody's guess as to how it'll pan out over a period of time. I think it's very difficult to judge. As far as the pricing is concerned, all of us know that pricing is only going one way. I think the good news is that so is the cost as well. Even costs also have come down very sharply. I think the way we are managing this whole transition of falling prices is to manage our portfolio better. It's not that prices are uniform across all states. We are trying to look at the states where our realization is higher. We're trying to balance our portfolio. We also feel that in some cases where if you can centralize the collection at some physical collection point rather than home visit, that's another way of balancing it.
Third is, of course, doing a sort of repertory testing where we look at other tests being ordered along with RTPCR. In some ways, we are trying to manage the situation because we have to balance all stakeholders, right? Public, government, investors, our own sort of P&L. I think so far we've been able to manage it reasonably well.
Broadly, what could be your weighted average price given the prices right now, broad sense?
Unfortunately, it is changing mostly every week. I don't know I can suggest. I think in some states now, I think it's hovering around INR 1,500.
Correct. INR 1,500.
Yeah, I think that's a weighted average sort of a thing. In some states, the prices have gone down even to below INR 1,000 also.
Yes. Okay. Obviously you did 3 lakhs INR in a quarter, but any sense of monthly numbers? Is there an increasing trajectory from July to September and further in October?
I think if you look at pattern in terms of trajectory, April, May, June saw a very high sort of orders coming from government. We saw a sharp dip from the government because they also had opened up a lot of capacity themselves. The business moved to private side. Within private also, we saw two trajectories. One, when they opened up, what do you call that, on-demand testing. We saw that also moving up, and then now it varies depending on how this whole thing is moving up and down. Relatively, if you ask me, today there's no constraint on testing, per se. Anybody can ask for a test. At least that constraint is removed. Pricing is, I think from a patient point of view, it's quite favorable. I don't think one can call this is an unaffordable price range.
I think that constraint is removed. Now the only variable which is left, which can influence the demand, is how this whole pandemic takes shape, depending on third wave, second wave, whatever that is happening, and which is very difficult for us to predict. Everybody knows what's really going on. We do believe that at least current quarter and for few more months, this will continue.
Understood. I agree with you. Dr. Lal, want to pick your mind on the acquisitions you have done. I clearly understand what you said, larger doctors than these, and they should be seen as an entry point or something like that. When you acquire, the acquisitions which you have done, what did you like about it? Any quantitative comments are really helpful.
What I like about this is the following. If you go back five years back when we went public and we said that there are two focal cities we are identifying to create some kind of hubs in south and west. One was Pune. Another was Bengaluru. Our intent has been to really see if we can create a sweet spot in terms of minimum size of turnover in these two cities. We are nearing that sweet spot. If you look at earlier acquisition, we did something in south, what is west Maharashtra?
West Maharashtra.
South and west Maharashtra. That really gave us good dividends. This Bengaluru acquisition is keeping that in mind. This particular lab that we have acquired, actually, if you're familiar with Bengaluru, there are two Bengaluru's in one city. One is the old traditional part of it, other is the new Whitefield side. Our current business is more drifted towards Whitefield and north, this side of the town, where a lot of North Indian population, cosmopolitan sort of profile, where the brand awareness is fairly good. Traditional part is where we were weak. We were just trying to fill that, we have better strength.
Sure. Same is the case with Bengaluru?
Mr. Kumar, I'm so sorry to interrupt. May I please request you to rejoin the question queue for your follow-up?
Sure.
Thank you. The next question is from the line of Nikhil Mathur from Ambit Capital. Please go ahead.
Yeah. Hi, good afternoon, everyone. Sir, my question is on the home collection part of the business. Can you share some numbers as to what was your proportion of sales that was generated from home collection prior to COVID, and what it would be today?
Home collection numbers from April have moved up close to 16x, the way we look at it, from April. Because in April, May, what we were doing was predominantly government business. Now what we do is, in terms of a lot of private business and hospital pickup, et cetera. Our business has pivoted about 16x on the home collection side for COVID in particular.
Okay. A question flowing up on this would be, with home collection rising so rapidly, do you have to pivot your business model structurally in the coming two, three years? I think at least for the next few months at least, if not for a good one to two years, patients might still be skeptical in going to your Patient Service Centers or walking into a lab. Do you think this is a structural change that will emerge from a more longer-term perspective?
I think so. I think it's fairly clear that COVID has disrupted many businesses where doorstep services have become the new norm. I think your reading is right, that home collection as a component of this total business will keep growing. We'll have to obviously make changes accordingly.
Okay. The changes, I must mention that the changes that would probably have to be made is possibly hiring more phlebotomists who can do home collection services and all. Would that be a dampener to your better margins in the more near to medium-term? You might have to shut down certain Patient Service Centers that are not contributing positively to your EBITDA, and then you have to ramp up at the same time the home collection infrastructure that you want to have. Would that exert a good amount of drag on your margins?
I think it's an interesting conversation to have. I'm not sure about, while margins is one side of it's also going to be very challenging operationally for the companies to manage this part of the business because you're technically adding one more leg to logistics. Home collection is less controlled because ultimately that's a brand experience. Otherwise, patient has no idea what's really going on in the lab. The real experience is when you collect the blood sample. I think there are many aspects that will undergo a change. On the sort of margin side, I am not unduly worried about that. I think that's still manageable because we are a growing company and we can figure that out. I think operational challenges are going to be much, much more than financial challenges, is what I foresee.
In that challenge lies an opportunity also, if company does a better job, why not?
Okay. Sure. Thanks a lot.
Thank you. The next question is from the line of Sabyasachi Mukherjee from Centrum PMS. Please go ahead. Sabyasachi Mukherjee, may you please go ahead with your question. As there's no response from the current participant, we take the next question from the line of Rahul Aggarwal from Incred Capital. Please go ahead.
Yeah. Hi, good evening, congratulations for excellent recovery in the non-COVID business as well as on the acquisition. Two couple of questions. One is, on the COVID side, essentially, you mentioned that antibody is sero surveillance and has no diagnostic value. In general, I would imagine the expectation was higher number of tests and revenue you would have done for antibody this quarter. Is that assumption correct that intentionally you are doing lower antibody tests? What we are seeing in the competition side is essentially people are indulging into a lot of corporate business on antibody end, and it's basically adding on the top line as well on EBITDA. Any thoughts on antibody specifically?
See, I'm not sure about this corporate side of it. I know I've also heard this narrative. My reading is when antibody tests were launched, a lot of people thought that this antibody test is actually going to be a magic bullet in terms of whether to start a workplace or not. When we went into some kind of algorithm, we found that virtually it is not giving any value to even corporates also to when to start, when not to start. I don't think it's actually that kind of sort of hype around this test, what it was when it was launched sometime in July, August. It's not that we are actually trying to contain it, but we are definitely not trying to mislead the market. We are actually just going with the flow.
If it's ordered by the patient or doctor, we are doing it. It's not that we are containing it, but we don't want to aggressively promote it because we believe it's not a diagnostic test.
Got it. Second observation on the cost side, essentially, the other expenditure has actually been completely flat, versus obviously the top line has gone up because of COVID as well as non-COVID recovery. Any specific thoughts? Are we going to see the run rate being similar going forward? I mean, is there a particular step taken or is it one-off in the first half of the year, and it might recover in second half? Any thoughts please?
You're talking about cost side of business?
Yes, cost side. On the OpEx side, essentially-
Yeah
it's been completely flat.
Yeah, I think it's a good point. See, when this whole thing had hit us in the month of April, we realized that it's important for our non-COVID business to come back. That time still we had anticipated that pricing is not going to be under our control, and it's going to go only one way down. We started focusing on non-COVID, and that's why you are seeing that our recovery is definitely in line with what we expected, and we formed two teams that time. There are certain natural savings that have flown into our P&L because travel is virtually zero now. There are rental renegotiations that have been done.
Printing.
Huh?
Printing and stationery.
Printing and stationery has come down because a lot of now all it is digital. There are some savings that are really one-off, I would say. Some savings have become part of a new normal as well, and that's one of the reason why we've been able to manage it. Despite all that, actually, I am really looking at this particular event of COVID-19. Given the market size is very large, it's a fragmented industry, our market shares are low. Is there any opportunity for us to grow and expand our footprint? I think right now we are focused quite a bit on that, as Bharath mentioned that our number of testing centers from COVID, what it was three earlier, it's come to now nine, and there are a couple of more also in pipeline. We can't really tell right now till it happens.
We look at this is going to help us in building those cluster heads or the hubs that we're talking about. Right now, we are focused to see how we increase our market share in non-COVID business on back of this COVID.
Perfect. Got it. One smaller one, if I may. Purely looking from your balance sheet, you are adding much more cash every quarter versus what you're spending even on OpEx or acquisitions. Any thoughts of utilization of this INR 900 crores? Looks like based on your commentary, even the larger regional guys will obviously got a near-term backlog because of COVID-19, and hence they won't sell. What really happens with this money? That's my last question. Thank you so much.
I think as I mentioned to you, that south and west will continue to remain our priority. Given the current state of market, we will look at combination of both. Can we step up our organic efforts plus these tuck-ins that we have done, these acquisitions? We'll try and build these clusters as we go along. We'll definitely look at those funds to see how we can accelerate the growth further.
Thank you. The next question is from the line of Gaurav Kumar from Kotak Securities. Please go ahead.
Hi, thanks for taking my question. On the non-COVID business, you mentioned that there are certain COVID biomarker tests such as IL-6, D-dimer, which would also have come. Can you give us a sense on the non-COVID recovery excluding these, in the second quarter? On these lines, just as the positivity declines, even as testing might remain high, how do you see these tests moving forward?
I think that's a good point, and we actually wanted to highlight this as well because there are COVID-associated tests which are part of non-COVID, and we were a little unsure should we club it with the COVID test because those tests are also ordered for some other conditions as well. I think roughly about How much, Shifra?
95.
If we remove those tests, our non-COVID would be what? 95% compared to 98% is what we just mentioned.
Okay. Thank you.
Just remember that this delta that I'm talking about may not be entirely because of COVID, because these tests normally get ordered for something else as well. Materially, they are getting ordered because of COVID.
Right. Thanks for this. The second question is on the regional labs. Before COVID, there were some regional labs which I think were up for acquisition. Now with them also participating in RT-PCR testing, do you think this event has actually given them a new lifeline, and they might not come up for acquisition now and this whole space is gone in terms of acquisition targets for some time?
If you are owner of one of those labs, what will be your reaction?
Yeah. Obviously, you benefit from the recent wave of COVID.
Yeah, that is what is happening. I guess there'll be a bit of a pause till dust settles down.
Yeah.
Or else the demand is very high. Let's just see how it goes. You are right. Overall, some of these city-based players have seen a huge surge in their top line. Initially, there was a bit of a panic, now there's excitement. Let's just see how it goes. I think overall things should settle down because they would soon realize that this is not a sustainable opportunity, right? It's just a short-term.
Thank you. That's very helpful.
Thank you. The next question is from the line of Vishal Biraia from Aviva Insurance. Please go ahead.
Hello. Thank you for the opportunity. My question is on the specialized and the high-end tests that we conduct. What will be the contribution of these tests and how different would be the margins of these things, tests like these oncopathology, genomics and something like this also? Internally, when you look at non-COVID, how do you distinguish between internally as to the specialized high-end tests and the regular tests? Some perspective you can give.
Yeah. I think the answer to the first question, I may not be in a position to give today because we normally don't disclose that share. Secondly, it's also not that easy to pinpoint a number because various players have different kind of definition of what is high-end, what is not high-end. Second question on margins, I think I can comment on that. In general, we have seen that most high-end tests have lower gross margins compared to routine tests. These high-end tests tend to come from healthcare institutions like hospitals or smaller labs, one has noticed that the fixed cost component incurred towards high-end tests is much lower than routine. On gross margin level, many of these tests have lower margin compared to routine, but when we go down to operating margin or EBITDA level, they tend to mimic the routine testing.
Your third question was how do you define high-end or what is not high-end. I think in the past our definition of high-end tests has been a sample that travels to Delhi for our big reference lab for testing. Normally we classify that as a high-end test. What is happening is that even high-end tests are also traveling closer to the market now. As we opened up lab in Kolkata, we are also further widening our test menu now. For example, this RTPCR test is technically a high-end test because it was being done only in the central lab. As we are talking today, we are now doing it in nine labs. It's actually become a more decentralized test than one centralized test. Entire molecular department in the country is becoming more like a routine department now.
If I look at all the labs close to, I think two, 3,000 labs are doing this test. With time, I have a sense that infectious diseases testing is becoming more routine in nature than what it was about a year back. Overall, I think that's a sense we get that high-end tests are also going closer to the market now with the widening of test menu.
Thank you very much for this.
Thank you. The next question is from the line of Harit Shah from Salon Asset Management. Please go ahead.
Hi, management. I just wanted to ask, your non-core realizations have actually gone higher. If I just calculate, I think they are higher by 10% quarter-on-quarter. Is that a figure which you think is sustainable?
I don't think it's 10% higher. I think this question got asked earlier also. Let me repeat this. There are two reasons behind this. There are certain COVID-associated tests, IL-6 and D-dimer, have contributed to a higher realization for overall portfolio. That's number one. Number two is that as the contribution of home collection has gone up in the overall scheme of things, we have seen home collection realization per patient is the highest amongst all revenue streams compared to walk-ins, compared to pickup points and collection centers. These are two reasons why it has gone up.
Home collection normally tends to have a higher component of preventive health checkup also, which is when you go to somebody's house, people say, Okay, fine, why don't I get my entire health checkup done? We have seen Swasthfit has started contributing slightly higher than what it contributed last quarter.
What will be the share of home collections of the total tests?
Actually, the problem is the base actually is changing very sharply, so I don't know whether that's the right sort of a representative figure. I'm little cautious in putting a number because that should not get embedded in everyone's mind that that's our home collection number. If I were to take a sort of average figure around about, it's about nine odd % of our revenue is home collection.
Okay.
That used to be about four or five, I think, right?
Around six.
Around 5%, 6% has gone up to 9%, 10% of the revenue.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Thank you so much. Good evening, everyone. Sir, quick question is on, how is the business recovered NCR versus ROI?
I thought this question would come first. The news that I have, it's split between ROI and Delhi NCR. Our Delhi NCR recovery is slower compared to rest of India. In fact, rest of India growth is very high, and that's in line with our strategy also because we've been wanting to widen our footprint. Delhi NCR is recovering slower. One of the reasons for that is because our walk-in is adversely impacted due to COVID, and walk-in contribution in Delhi NCR is higher compared to rest of India. That also is the reason for this.
Would you say the ROI is more than 100% YOY and Delhi is under 85% or so?
In ROI, I think we have seen some growth actually.
Yeah.
Yeah. We have seen growth over last year. If I were to just look at quarter-over-quarter basis. Sorry, year-over-year basis, there's a growth in rest of it.
Okay. Great. Second question is on your network expansion, which is both clinical lab and PSC. How are you seeing now FY 2021? Normally you would grow by 8%-10%. This is a break year or how are you thinking about it?
On the infra, right? PSC.
Yes.
Earlier also I mentioned that I don't want to focus on number of centers going forward, one of the changes that I'm seeing in our business is that, our collection side of business is getting further fragmented. You understand what I mean? If I were to do home collection, let's say our franchisees also were to do home collection, you are further fragmenting it. I think somebody just asked that if the home collection business is going to grow, will your cost structure be impacted adversely as well. One of the things, I know very clearly in my mind, is that if we were to do home collections directly, that is not going to be a scalable idea. We have to work through our franchisee to cater to home collection.
We will have to figure out how do we really look at economics of our franchisee as well. In that, my reading is that we also will have to think of how do we create a leverage at his point. If one franchisee, one collection center may not be just a viable idea. We will have to probably look at how do we create a multi-unit franchising. In that case, I really don't want to get stuck with the number of franchisees. I may want to actually look at number of franchisee, but not franchisee units, because that could be as many as the other guy can afford it. I would want to actually look at number of franchisee per se, rather than franchisee units. Having said that, to answer your question, we are seeing growth in these numbers. Bharath, can you explain?
We don't share it at this point.
Okay. Quarterly numbers we don't share. We normally share it at the end of the year, but directionally, there has been growth in our infrastructure.
Okay, great. Thanks. Very helpful. One final question is, for the two acquisitions, I know they are small ones. What's the valuation? Is it more or less in line with what you've been doing, 3-5 times sales or different from that?
It's lesser than that. It's about 2X?
Yeah.
I think about 2x of sales.
Okay, got it.
Yeah.
Thank you.
Thank you. The next question is from the line of Alok Dalal from CLSA. Please go ahead.
Yes. Good evening. Just to carry forward Sameer's question. Can you split sales between rest of India and Delhi NCR for the quarter?
For Delhi NCR contribution is about 35% and rest of India is 65%.
35, 65. Om, you mentioned contribution had increased. How much is that now?
It used to hover around 15 odd % of our portfolio. 15%, I'm taking COVID out of this calculation, okay? That distorts the ratio. If I take out COVID, and on non-COVID business, it used to hover around 15. This quarter we have done 17.
17. 17?
Yes.
Okay. Second question is, I'm referring to your slide 21 and 22. These refer to genomics and histopathology test. Om, how are you guys planning to go about this? How does this play out, let's say over a two, three-year cycle?
I think it's, since you all cover pharma as well, there comes a time in the business when you start looking at segmentation. I think we usually use the term high-end tests, right? We strongly believe now the time has come for us to look at high-end also into multiple segments. Clearly, within high-end, and also look at from a disease state perspective as you look at therapy from pharma side. Let's say oncopathology is one such segment. We also looked at from the supply side as well, because there's genetics part, there's gene sequencing, et cetera. We are trying to segment this business from both demand side like oncopathology and also from a supply side, let's say the genomics as a platform. I think the broad idea is to see if we can look at segmentation and drive focus.
Because many of these tests are also, they are not direct to consumer. They are basically through doctors and specialist physicians, et cetera. There are teams that we are putting around these clusters so that we can give higher focus to try these tests. On the histopathology side, I think there's so much of discussion going around on AI and machine learning and things like that. This whole telepathology is one such area where we have invested, and we are trying to create some kind of, where slides or images can be beamed to our central lab. We can create a network of our histopathology centers across the country.
Okay, that's it from my side. Thank you for taking my question.
Thank you all.
Thank you. The next question is from the line of Kunal Randeria from Edelweiss. Please go ahead.
Hello, good afternoon. Just continuing on the recovery in the non-COVID business. Has the recovery been broad-based? I mean, B2C and B2B performed, recovered in sync?
No, it's not broad-based. Actually, recovery is not that high in our walk-in business. Actually, it's the slowest. It's much higher in our pickup as well as collection centers. Our hypothesis is that we probably have recovered both, not only recovery of our own customers, we probably may have gained some shares as well in some markets. Short answer is not broad-based. Walk-in is the least, everywhere else is higher.
These trends continue in October also?
I don't comment on month-on-month. Directionally, let's say if I were to pan out for next three, four quarters, I think clearly one message that I'm getting is that home collection is here to stay, we'll have a look at our whole operating model, financial model around home collection, number one. Number two is, the service side of business has to be now with partners. We'll have to look at our franchisee relations, et cetera, how it goes. As the prices or margins come under pressure for smaller labs, I don't have much data in terms of what's really happening on smaller labs, because I think we talked about some of the city-based larger players, only those guys who are doing RT-PCR tests. I don't know what's really happening, what are the pains for smaller labs which are not doing RT-PCR.
If our non-COVID recovery is, of course, we manage it better, but my sense is general industry non-COVID recovery is not that high. It's maybe around 60%, 65%. We'll have to probably look at what are the pressure points for the smaller labs. Assuming there are pressure points for them on the profitability terms, I have a feeling that they may end up doing a higher level of outsourcing than what they were doing in the past. That's a new opportunity which will present itself in times to come. I think those are the broad changes that I see in the industry post-COVID.
That's helpful, sir. My second question is slightly longer-term in nature. You clearly outlined that South and West are your focus growth areas going forward. Perhaps maybe these regions have slightly lower realizations or maybe franchisee revenue share might be a bit higher. You think this could maybe impact your margin in the next couple of years?
See, when I say South and West focus area, it's not that simple that overnight my contribution from South and West will go up. If it was that simple, we would have done it by now. I think it's a bit of a pipeline. As you look at product pipeline, I think these are all geographical pipeline. I think our main growth engines will still continue to be the rest of North and East region. These are all clusters with sort of a few islands that we are creating in South. To my mind, it's not going to be a one quarter wonder or two quarter. It will be a sort of a three to five-year plan. That's the way I look at it. Overnight, I'm not seeing any impact on the margin structure as one would see it. I think it's a broad direction.
It has taken almost four to five years for us to really stabilize ourselves in East of India. If you recall, in 2015, 2016 or 2017, we used to talk about our reference lab in Kolkata. Now, since that is in our pocket, and hopefully it will continue to grow for us in next eight to 10 years, we believe the time has come for us to South and West was not a focus, just increasing the level of attention. That's all we are doing now.
Thank you. The next question is from the line of Neha Manpuria from JP Morgan. Please go ahead.
Thank you for taking my question. Sir, I just had one question. With your comment on walk-ins slowing, the fact that home health care will probably pick up in some shape and form, the fact that probably patients don't want to travel too far to access a collection center. How do we therefore manage the entire presence of home health care versus expansion of collection centers?
This home health, it's not that whole entire business is going to get replaced. Even walk-in also, if I would look at month-on-month, there is an improvement in walk-in trends also. People are coming back to labs for giving blood samples, but relatively this segment has not recovered as fast as one would have liked it to be. This particular segment is still below last year. Some of it has shifted to home health, home testing, and some of it is also shifted to our neighborhood collection centers. To my mind, home visits or requests for home collection will continue to come directly to the company as well as to our collection centers. I think the way to look at it is the following, that we are actually two brands in one. One is our medical brand, which is all about testing, accurate report.
Come what may, you may give sample to anybody, but you want to have a Dr. Lal's report in your hand because you trust that report. That's one part of the brand. The other part of the brand is service brand. The service brand we have been trying to cater in multiple ways. We are doing home collections. We are doing our walk-in business. We are doing through collection centers. My reading is going forward, lot of this business will shift towards collection centers. Collection centers are nothing but neighborhood outlets where the crowd is not that much. On an average, 10 to 15 people come every day compared to, let's say, our big labs where close to 200, 300 people come every day. People are now more comfortable in going into neighborhood centers.
At the most, some of them are, if they are worried about contracting COVID-19, they may request home collection from the same franchisee itself.
Okay.
Going forward, one should see as to how we are looking at our franchisee infrastructure, because the entire thing will revolve around that particular center that we have closer to the market. That is the way I would look at it.
Sir, if I were to ask you this way. In Delhi NCR, which was largely walk-in, I'm assuming we would have seen a shift to the neighborhood collection center or home healthcare there, more specifically. Is the margin profile of the volume that comes through that route different from what would have actually come through a walk-in? Does that make sense, or that is not the way we should be looking at it?
Yes, you are right. The margin profile on let's say walk-in is very different, let's say, margin profile from our collection center, because we do share our revenue also with collection center, right?
Fact of the matter is that every year we expand our walk-in capacity, so we stop investing behind that area. We redeploy our staff to other segments where the traction is more. All that, what we have done in the last six months. That's how actually it's all about managing the entire commercials around each segment. As you rightly said, the margin profile of walk-in is definitely higher compared to other segments. I think we've managed it reasonably well so far. We do recognize that is one area which needs to be carefully looked at.
Understood, sir. This helps me. Thank you so much.
Thank you. Before we take the next question, a reminder to the participants, please limit your question to one per participant. You may come back in the question queue if you have a follow-up, as we have people waiting for their turn. The next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.
Hi. Thanks for the human testing. Looking at the gross profit for the quarter of around 75%, and then back calculating the gross margin for COVID testing, and that comes to around 60%. Have these margins surprised positively? I am referring to the gross margins on the COVID testing front. Previously you had given a fairly conservative commentary on COVID testing and margins from that business. Could you give some outlook on the margins from COVID testing, given realizations have been coming down across states, but at the same time, consumable costs have also come down.
How did you get this margin?
Anything on the testing costs and direct?
I think relatively, when we started COVID, nobody had an idea as to what the real costs are, because this is a new test. We were all doing it on standard costing. We continuously saw a fall in our. Earlier we were using one PPE kit for every patient, and we were overcautious. Our home collection fellows were not willing to go and collect samples. We were paying them incentives, and all that we've been through. As the prices started coming down, we started looking at how to reduce costs, and I think even government also has helped because some custom duties went down, some other kit prices went down.
I think relatively, if I were to say now that. Since our non-COVID business had fallen and we had a huge sort of a fixed cost structure on our back, we were loading that as well. In fact, that time itself we realized that we will be better off if we can quickly recover on non-COVID. At least we don't have pressure of loading our fixed component of cost onto COVID. Now we are looking at COVID as, let's say, like a contribution margin and maybe a few additional costs on the overhead side. I'm not looking at on quarter-to-quarter basis. We are looking at an exit rate basis. Right now, our realization on COVID has been hovering around INR 1,400, INR 1,500. I don't know how it's going to go forward, because if one state drops the price, then this can fall further as well.
I think the good news is that we are not losing money on this. That's all I can say. We are able to manage on the contribution side fairly reasonably well. As I mentioned, couple of initiatives like portfolio margins, portfolio management. State-wise, prices are different, so we are trying to put more focus where the realization is a little higher. I think overall, I don't have a negative commentary on that we are bleeding or it's affecting our this thing, but we are just fairly trying to balance all stakeholders in this.
The current contribution you said is around INR 1,400?
Realization.
Realization.
Realization per patient, yeah.
Thank you. The next question is from the line of Tushar from Motilal Oswal AMC. Please go ahead.
Tushar here. Sir, when you say COVID volume, it is largely RTPCR testing and the antigen test, right?
For us, it's primarily RTPCR test, yeah.
The associated tests, for example, the CRP test and the D-dimer test, that will come into your non-COVID revenue, sir?
Yeah. We have actually clubbed that in non-COVID. Because some of those tests also get prescribed for other disease state as well. We just want, for the sake of comparison, we have taken COVID RTPCR and antibody. IL-6 D-dimer, those tests we have clubbed it in non-COVID. Just for the sake of clarity, our non-COVID business is 98% of last year. If I take out these associated tests, then our non-COVID is 95% of last year.
Got it. Yeah, that's very good. Thank you.
Thank you. The next question is from the line of Nikhil Chaudhary from Kris PMS. Please go ahead.
Yeah, sir. Thank you for the opportunity. Congratulations on a decent set of numbers. Sir, I joined the call a bit late. Apologies if this is a repeat. If my understanding is correct, the realization is shot up probably due to the COVID testing. Am I correct?
Overall, at company level, yes.
Okay. My second question was, with respect to the acquisitions that we make, generally, is there a threshold limit that we look at, like probably a top line that we look at, we would not want to go below that top line when we make an acquisition from an economic point of view?
I think we look at role that acquisition is going to play. First is, it should help us in entry into new market. Number two, it should further help us to build a critical mass in that city. It has to fit in overall scheme of things. We are not looking at purely from a turnover perspective. We also look at profile of promoter. We also look at profile of business. This Jamnagar, I think, that we have done, it's a small acquisition. It's a market where Gujarat, our presence is very low, but it's a very nice high walk-in kind of lab. We thought it's a good sort of entry strategy into that part of the state. There are multiple factors on which we consider this, but underlying principle is higher the turnover, better it is, because it's much easier then to integrate.
Okay. Lastly, on the competitive intensity side, understanding that the smaller players have also probably got a lifeline due to the COVID testing. Other than that, on the non-COVID testing, is there a pricing pressure visible? Like probably they would want to undercut and gain some share. Just trying to get a sense on that.
Actually, I would say all smaller players are not doing COVID testing. COVID testing is done by, let's say, 1,000, 1,500 labs. These are mid-size, city-based labs. I think they have got sort of a lifeline. Many smaller labs which are not doing RTPCR testing, they, I have a feeling, must be under a bit of pressure. That's very large number, and that's one area for us to really see as to how we can partner with these guys.
Thank you. The next question is from the line of Sabyasachi Mukherjee from Centrum PMS. Please go ahead.
Yes, hi. Thanks for the opportunity. Most of my questions have been answered. I have just one question. You mentioned that you have been investing on artificial intelligence, and we have seen Dr. Lal investing in IT infrastructure and all. There was a recent article on the newspaper a few weeks ago about a data breach on COVID patients left unsecured on cloud server. Your thoughts and what really actually happened, and how do you ensure such things don't happen in future?
This was actually not related to COVID. It was actually one of our applications on home collection. It was not a medical data, it was only a sort of booking data. There was a sort of misconfiguration from our end. I think that slip was there, and we immediately corrected it.
Thank you.
Thank you. The next question is from the line of Shanti Patel from Shanti Patel Investment. Please go ahead.
Good evening, sir. My question is, as far as the market share in organized sector is concerned, where we stand today? Who is our main competitor, if you can tell?
From an organized perspective, roughly, because there's no sort of a ongoing data track that is available on a monthly basis or a quarterly basis, but one estimate suggests that organized market is about 15-odd %. Of a market, let's say about total market is estimated to be about INR 60,000 crore. Half of it is radiology, so pathology is about INR 30,000 crore. 15% of that would be INR 4,500 crore. Within the organized sector, let's say if I would look at ballpark figure of INR 1,500 odd crore, close to 30% of our organized shares would be with us. If I look at larger market of INR 30,000 crore in pathology, we are just about 4%-5%. There are two data points.
Who is our main competitor, if you can say?
I really won't call it a competitor. I think what the emergence of organized player has come out of unorganized sector. These 100,000 labs which are there in the market, which we call unorganized, we have to find ways and means of seeing that how can we coexist. These guys can play a very important role of collection side of business. We guys can play a big role on the testing side of business. I think that's the way this whole ecosystem has to evolve, because for one company to do entire collection across the country is not feasible. We'll have to probably figure a way out as to how do we work with unorganized space, to cater to the market needs.
Thank you. The next question is from the line of Sriraam Rathi from ICICI Securities. Please go ahead.
Yes, thanks a lot. Just one question on the COVID testing. Out of all total revenue, what kind of business coming from government and the regard to that only, I think currently a lot of clinical trials are happening in India on the RT-PCR side. What proportion of that will be done by government and what is it approximately?
Sorry, I don't think I heard it correctly, but I think what you're saying, what is the proportion of government business in our sales, right?
Yeah. Right.
It's a very small number now in Q2, which is just about nine, 10%. In Q1 it was significantly higher.
52
52%, 55%, which has come down to nine or 10%.
Nine or 10%. Sir, out of the total tests which are happening, can get tests per day, how much would be done by government, and how much of that will be with the private players?
Actually, I've not kept track of that number. Sorry, I don't have any color on that right now.
Okay. No problem. Thank you.
No, I'll try and check that and come back to you if I get some data on this.
Sure. Definitely. That will be helpful.
Thank you. The next question is from the line of Nitin Aggarwal from IDFC Securities. Please go ahead.
Hi. Sir, just following on earlier question, which was there. Sir, when you sort of back calculate the revenue per non-COVID test, has it meaningfully gone up beyond INR 700 this quarter? Is there anything which is driving it? Per patient, rather, INR 700 per patient.
Yeah, I think this question has been asked multiple times. This non-COVID revenue per patient has gone up for two reasons. One is our home collection revenue or home visit revenue is relatively higher than any other segment revenue. Since home collection contribution has gone up, that has helped our revenue go up. Number two is there are certain increase in high-end tests, primarily on account of COVID-19-related tests like D-dimer, IL-6, et cetera. That also has contributed to a non-COVID patient revenue per patient going up. Overall, as a company, revenue per patient has gone up because of COVID testing being so high, RT-PCR.
Sir, this ex-COVID piece of INR 700 thereabouts per patient, should we sort of given there the dynamics are that home stay is going to be more and more relevant part of our offering? Should it stay up on these levels? Is that a fair assumption to make?
I think it's too early for us to comment on this, I think directionally, my reading is that home collection as a percentage of revenue will be higher than what we have had in the past. If we are able to sustain this revenue per patient, what you're saying is right. It should stay there.
Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.
Thank you, everyone, for being with us on this call today. Wish you all a very happy Diwali in advance. Please stay safe and take care. I now would like to request the moderator to close this call. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of Dr. Lal PathLabs, that concludes this conference. Thank you all for joining. You may now disconnect your lines.