Ladies and gentlemen, good day and welcome to the Dr. Lal PathLabs Q1 FY21 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. Nishid Solanki of CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and welcome to Dr. Lal PathLabs Q1 FY21 earnings conference call. Joining us today are 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. Before we commence the call, I would like to underline that some of the statements made on the call today could be forward-looking in nature, and the actual results may vary from these forward-looking statements. A detailed disclosure in this regard is available in the results presentation, which has been circulated to you earlier. I would now like to request Dr. Arvind Lal to share his perspectives with you. Thank you, and over to you, sir.
Thank you, Nishid. Good afternoon, ladies and gentlemen. I thank you all for joining us on today's call. I hope everyone is keeping safe amidst this pandemic COVID-19 situation. I will begin by sharing my thoughts on the performance of the quarter. As the world continues to deal with the impact of COVID-19 pandemic, day-to-day life has been affected severely, as have businesses and economies across the globe. Q1 FY21 for us was no different, as we commenced the year with several challenges and disruptions posed by the pandemic. It was a very difficult period with the lockdown being enforced in this quarter. Given the essential nature of our services, we were allowed to operate also in a constrained environment. Volumes momentum was significantly impacted due to patients' hesitance in stepping out of their houses also.
All this impacted our financial performance for the first quarter of this fiscal year. As a company, we have consciously taken steps to digitize the entire patient journey long before the COVID-19 pandemic hit us. We are confident that this will continue to give us an upper hand over the competition. I am sure you will appreciate our digital aspirations, where we have deeply integrated technology into our operations to provide our patients a seamless customer experience. As a trend, diagnostics draw greater attention post-pandemic, as people become more vigilant and sensitive to their health and wellness. This is expected to provide a boost to the healthcare and diagnostic industry over the medium to long term. We remain committed to offering our services responsibly during these unprecedented times, as well as creating value for all the stakeholders.
Further, I believe that all the initiatives undertaken in the recent past will help us gain significant market share and further elevate our position as the largest national diagnostics player in the country. With that, I would like to hand over the call to Dr. Om Prakash Manchanda to share his thoughts. Thank you.
Thank you, Dr. Lal. Good afternoon to everyone. As Dr. Lal mentioned earlier, we witnessed a difficult first quarter due to several restrictions in force due to COVID-19 pandemic that impacted our business adversely. Being an agile and proactive organization, we promptly implemented several initiatives to combat the impact of this pandemic on our operations. Apart from setting up a dedicated task force to address all COVID-19 related issues, we accelerated our emphasis on home collection and online test booking by leveraging our digital infrastructure. We are also working on initiatives to reduce the time spent and the contact with the patients whenever they visit any of our centers. This is going to help us bring back the patients. As a company, our focus remains on driving volumes and expanding our reach. Towards this end, we have worked tirelessly to increase our contribution from Rest of India.
As you may have seen, we've been acquiring select small and standalone labs in a calibrated manner in cities of West and South India. This is aligned with our strategy of expanding presence outside of Delhi NCR region. The labs that we acquire are of superior quality, an important part of our strategy for expansion in Rest of India market. We also strive to provide improved experience to our patients by leveraging technology that we have inculcated into our systems, thereby helping us provide seamless and convenient process. I'll reiterate our mission of providing accurate, quality, and timely diagnostic services to our patients in an easily accessible manner and at affordable prices. With that, I conclude my opening remarks and would now request Bharath to take you through the operational performance of the company.
Thank you, Om, and a very good afternoon to everyone on this call today. In Q1 FY21, our revenue for the quarter came in at INR 266 crores, and we served 3.5 million patients. It has been a challenging quarter with an overall revenue decline due to the national lockdown and consequent disruption in our operations. Through the quarter, our teams have focused on overcoming frequently changing town-level regulations to bring our market servicing back to normalcy. We have thus witnessed an encouraging recovery trend from April to May to June 2020. Some of it may, though, have been due to pent-up demand and some due to share gain. The actual demand will be visible going forward as we're still in an evolving situation, with regional and city-level lockdowns still continuing. With the unlock process currently underway, we expect this to sustain and gain further momentum.
Our Swasthfit bundle portfolio of tests continues its sales tempo, and in spite of the lockdown, we operationalized five new labs, including two in West Region. As you are aware, our three major labs, namely the National Reference Lab at Delhi, the Regional Reference Lab at Kolkata, and Central Lab in Indore, continue to conduct COVID-19 tests as per the government norms and provide near real-time updates to the authorities. We have significantly scaled up the testing for COVID-19 from the previous quarter. We are also working towards ramping up this capacity by adding a few more locations for the COVID RT-PCR test. This, coupled with antibody tests and panels, is going to enhance our COVID testing offerings. We are also re-looking at all our cost line items, as we believe that managing costs judiciously and maintaining high efficiency levels is going to be the need of the hour.
We have undertaken several initiatives to keep our costs under check while driving volumes, and the same is visible in our cost structure during Q1. I would like to conclude by saying that we will continue to do all that is required to serve the testing requirements of the country in these difficult times, in line with the vision of being the most trusted healthcare partner. I would now like to hand over to Ved to give an update on the financial performance.
Thank you, Bharath, and a very good afternoon to everyone present on this call. I will now share with you some of the financial highlights. Revenue for Q1 FY21 is at INR 266 crores as compared to INR 335.2 crores in the same quarter last year, a decline of 20.6%. This revenue for Q1 FY21 is from serving 3.5 million patients and 7.9 million tests. COVID-19 RT-PCR test revenue contributed 21% of overall revenue in Q1 FY21. Total number of COVID-19 RT-PCR tests conducted is 1.97 lakhs. Realization per patient for Q1 FY21 stood at INR 750 as against INR 685 in Q1 FY20. The higher RTP is primarily driven by COVID-19 RT-PCR testing. Normalized EBITDA for Q1 FY21 came at INR 54 crores as compared to INR 99 crores reported in the same quarter last year, a decline of 45.5%.
PBT for Q1 FY21 is at INR 38.1 crores as against INR 89.4 crores in the same quarter last year. PAT for Q1 FY21 is at INR 28.4 crores as against INR 59.1 crores in the same quarter last year. Basic EPS for Q1 FY21 is at INR 3.45 as against INR 7.41 in Q1 FY20. Cash, FDs, and investment in mutual funds stood at INR 759.8 crores as at June 30th, 2020, an addition of INR 16 crore in Q1 FY21. You know that this has been a challenging quarter for us. We have been able to reduce our DSO by keeping a close check on our receivables and collections. During the quarter, we have incurred a sum of INR 12.5 crores on CapEx.
That brings me to the conclusion of my opening remarks, and I will now request the moderator to open the forum for question and answer. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions 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 Chandramouli from Goldman Sachs. Please go ahead.
Hi, good evening, and thank you for taking my question. The first question is on the non-COVID business. If I do some rough back of the envelope math, looks like your non-COVID volumes and revenues are down roughly a third, maybe about 30% Y-o-Y. If you could just tell us how you're thinking about that based on the trends that you're seeing, what the exit rate was in June for the non-COVID business and I think you mentioned pent-up demand. The way you think about it, how much of pent-up demand do you think can come back from some of these volumes that are lost? That's my first question.
I think when this lockdown happened in the month of March, we were fairly clear in our mind that while a lot of time share of noise is on COVID, we were very conscious of the fact that we have to make sure our non-COVID business stays very intact. Non-COVID business was actually getting disrupted on account of two things. One is movements of patient was restricted, and second was intercity movement due to logistics also was disrupted. We put in a lot of effort starting April itself, and we saw a very smart recovery on non-COVID. I think you can do back of the envelope calculation. We are back about 90 odd percent of our last year running rate on non-COVID. The question one may ask is that, is it sustainable? You are absolutely right.
We are still unclear about whether June month saw a jump of non-COVID sales because of pent-up demand coming in. There's one more factor which some of you may not be fully aware. June is generally a lower month compared to any other month in the first half. The primary reason for that is, especially second half of June, a lot of people actually go out for vacation. A lot of medical fraternity also goes out on vacation. You have a situation in the industry where you may have a higher pent-up demand coming in June because of April, May lockdown, and also an advantage of lower base of last year. One has to actually be little careful before looking at whether this non-COVID sales of 90% is sustainable.
What we are seeing in the month of July, we thought probably this whole lockdown thing will settle down a bit. We are seeing now citywide, statewide disruptions still continue to happen. We probably will have to wait and watch as to how this non-COVID trend would go. If I were to actually put a sort of a guess around this number, I have a feeling that we should hover around this 90% mark for some time, maybe around September, October, when this whole fever season picks up, because this is also a time when a lot of vector-borne diseases tend to come, especially end of August, early September onwards and going till October. I think that's the time we probably should cross over this last year's run rate of non-COVID. That's particularly my sense.
Given volatility around environment and everything else, it's so difficult to put a number on this. If still I'm pushed to put a sort of a trajectory around non-COVID, I think around September onwards, we should cross this number from before . I may be wrong because I don't know how things unfold as we go forward.
Got it. That's very helpful. The second question is around realization. Again, if you do the math, it looks like the non-COVID realization per patient is around INR 636 for this quarter versus their typical range around INR 618. Is this because you've had more business from non-urban regions? Have you taken some action on price or is it purely mix?
I think there are three or four broad trends that are emerging in these times. One trend that we are seeing is a slight reduction in number of tests per patient. That may be because of two reasons. One is our geographical mix has changed very sharply. There was a time when Delhi actually was peaking up in terms of COVID cases, and Delhi also has lot of walk-in business falling into our labs, and people are very hesitant to come to crowded places. We have seen a sharp fall in our walk-in patients. There is a change in the channel mix. Lot of walk-in business actually has shifted to a collection center or a pickup point. We are also seeing a change in geographical mix, where Rest of India has done relatively better than, let's say, Delhi NCR.
I think net result has been a slight reduction in number of tests per patient, which has impacted our realization per patient as well.
Got it. Last question is just on the antibody tests and the RT-PCR tests that you are doing. Just want to understand with every antibody negative, I think it's mandated that there should be an RT-PCR test done. If you could just talk us through whether you need to set up more RT-PCR capacity as you do more and more antibody tests. That would be helpful.
I may want to correct you here. It's not to do with antibody negative. It's to do with the rapid antigen negative, and that too, if somebody is symptomatic. Only you have to do RT-PCR.
Sorry.
I hope I have made it clear. Antibody is a different group of tests. RT-PCR and rapid antigen test is one group of tests. Rapid antigen test has a little bit of a issue because it throws up false negatives. The advisory is that if you have a patient who is showing symptoms, but is also having rapid antigen test negative, then he or she has to go through RT-PCR test. That is the advisory.
If I may add to Chandramouli, the antibody tests are the classic test which should be done with an IgG test. What the government allowed was a mixture of an IgM plus an IgG test. An IgM tells you of recent infection, an IgG tells you of sustainability, surveillance, and immunity. Here it became a problem that if the combined test is positive and the patient is still having symptoms, then in that case also, he should go for the RT-PCR test. It is very confusing. In my opinion, the combined test of our antibodies should never have been introduced, but again, it was introduced. That's the way we look at it.
Yeah, I think your broad question was, with rapid antigen test, do you see RT-PCR tests going up, right?
That's right.
Right. Whether are we going to increase the capacity as well? I think two or three things that we are doing, as Bharath mentioned in his comments, that today RT-PCR testing, we are approved for Delhi, we are approved for Kolkata, and we are also approved for Indore. Now we are looking at three or four more locations for RT-PCR tests, and some of these locations especially are large sort of focus cities. We are looking at expanding our testing network as we go along, because we do believe that RT-PCR tests for COVID-19, we don't know where the volumes would be, but we do believe it will become part of our portfolio as we go along.
Got it. That's very helpful. Thank you very much, and all the best.
Thank you.
Thank you. The next question is from the line of Anmol Ganjoo from JM Financial. Please go ahead.
Yes, Anmol.
Yeah, hi. Thanks for taking the question. My question is around the COVID business. Are you seeing any trends where COVID business is driving certain parts of other business or anything you want to call out? How is that shaping up in terms of consumer behavior? Are people getting some additional tests done? We want to kind of just look at business couple of quarters down the line as on to. Is this leading to any other trends also?
I think, if I were to summarize few consumer trends that I see on because of COVID-19, number one is a bit of a psychological impact, which is a bit adverse in nature, that a lot of patients are hesitant to visit healthcare institution. I think all of us can relate to that. We have patient at home as well. I think there is a tendency not to actually see a doctor, unfortunately. People want to consume healthcare services as much as possible online, which in our case, everything can be done, but sample collection still needs to take place. That's one change that we are seeing, and that is impacting our channel mix. Which means the demand for home collection is on the rise, and demand for, let's say, walking into a large lab format is on decline.
Walking into a collection center is on the rise because it's a very small, little cabin, 100 sq ft, not too many people are there inside. They are more comfortable going into a neighborhood collection center rather than walking to a big lab. We are also seeing, I haven't picked the latest trends, but everybody knows that number of OPDs actually went down sharply. Because our business is directly linked to number of prescriptions generated. If number of prescriptions fall, and our business get impacted. Though we have self-testing, et cetera, but that percentage is not very large. Surprisingly, as a percentage of total business, in Swasthfit we did not see a change. While overall total has come down, but I was actually thinking that probably Swasthfit as a contribution to the total business would also come down. I didn't see that.
I think clearly one trend that I see that people, and I'll have to probably validate this hypothesis, people would definitely be careful or would want to do a screening or a health checkup going forward. Lot of being said about that comorbidity is a very big risk factor, and I think it would drive some kind of awareness amongst the masses to take care of especially non-communicable diseases like diabetes, et cetera. I have a feeling going forward that preventive health should do well. Right now there's a hesitation to visit healthcare institution. They only want to go only if it is extremely necessary.
Yeah, thank you. That's helpful. Just to follow up on that. Basically, going forward, we expect that channel mix to change in favor of pickups. In that case, the fact that we have an advantage in terms of a brand, does it continue to have the same impact?
Yeah. Sorry, please finish your question.
No, I'm done. I just wanted to understand if the fact that pickups are becoming a bigger part of the market, then our brand vis-à-vis some of the new startups with very low capital requirements, how does that position the market share split in that case? Does our brand continue to be an advantage? If case the market was to move in that direction, should we continue to hold on to share?
I think that's a good point. I should have mentioned this. There's another trend that I see that people are looking for a facility which gives them confidence, an assurance on safety. One of the fears all of us and everybody has is if you walk into either hospital or a lab, are you at risk of actually catching this infection? They really want to know from the brand that you are taking care of all the precautions, not only for employee safety but also for patient safety as well. I think to that extent, established brands will definitely have an advantage over not-so-established brands or the local brand, because they won't mind spending a little extra just to be assured of safety aspect. I think to that extent, established brand will always have a preference over a non-existent brand.
Just taking it a step further. In the pre-COVID times, what we had seen was that in our entrenched geographies like NCR, we were not growing meaningfully faster than the market. As a consequence of these two changes that you suggested are beginning to take place, do you think once things normalize, it should be easy for us to grow faster than the markets where otherwise you would have thought that we have achieved some kind of a saturation market share?
I think it will definitely be an advantage on rest of north markets like Punjab, Haryana, UP, and we are already seeing some positive trends in these places. As far as Delhi is concerned, I would look at this as a factor to hold on to our shares because our base is fairly large. I really won't put my aggressive bets on Delhi business, but I definitely put sort of a very positive comment on rest of north and other places. In fact, the other thing that has really happened for us is Kolkata reference lab actually has come very handy in these times. A lot of COVID-19 testing that took place there in eastern region has helped us to really build a very strong brand equity in that market. Hopefully going forward, we should see a positive impact of that as well, even in Northeast.
In some bit small way, we've also seen some positive impact in Indore as well. It's not our parent company, but through our PathLabs Unifiers, we acquired one business called Central Path Lab. It is also engaged in COVID-19 testing. I'm seeing that at city level, there is some positive benefit that's flowing due to COVID-19 testing to these setups.
Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.
Thank you, good evening, everyone. Just a question on the network. Om, what percentage is open right now in your clinical labs, PSCs, and pickup points?
Thanks, Sameer. Can I ask Bharath to elaborate?
Yes. Like Om mentioned, from April onwards, we put a lot of effort in getting our network operational. All our labs are operational except for barring one or two, on a city level basis, if one day some curfew or something comes. On our network, glad to say that all our collection centers are operational. In fact, that is also very good news. We're not seeing any more disturbance on network availability at this point of time. There are few logistics tools that's been a challenge, but to a large extent, we have overcome the supply chain issues.
Okay. A quick clarification to earlier comment that non-COVID business would be roughly 90% of last year base. On top of that, should we add the COVID-related revenues, and so therefore it could be on a total reported basis be higher than last year?
I think we were discussing June as a month, not as a quarter.
No, your comment that till September, October, you expect non-COVID to be 90% of last year.
Right. Whatever COVID, because COVID trajectory is very difficult to predict right now. As of now, we are talking at about 90% of last year's non-COVID. Over and above whatever COVID comes in will be add-on to that.
Okay. Just final one on COVID testing, sir. How are you sourcing the samples? Is it still being routed through government, or can you access asymptomatic or private people? What's the share of public versus private on what has been done cumulatively so far?
Good question. I was expecting this as the first question, actually. I think our contribution of COVID business in the first quarter is about 20 odd percent, 20%, 21%, of which 60% of the business actually came from government. It also did not come from the same government because it actually went like sometime it was coming from Assam government, sometime from Delhi, sometime from J&K. I think the important part is that this business is not a very sort of a sustainable business right now. We are also seeing government building up lot of testing capacity. The only 40% have actually come from a private stuff. Private business is largely a home collection business. Patients also don't want to walk into the lab to give COVID sample or neither we would encourage that because this has a huge negative impact on non-COVID.
Non-COVID guys are actually right now asking, "I hope that you guys are not collecting COVID here." We have assured them that our labs are not collecting, we only do it from home collection. The second source of COVID-19 business has been also hospitals, especially where COVID hospitals, where patients are admitted. There are, from a private point of view, which is a 40% of business largely coming from two streams, one is home collection and other one is hospitals.
Sir, are these very tightly screened that there should be people with contacts or symptoms, or can anyone ask for a COVID test now?
No, I think it's fairly clear. I think with the exception of probably Bombay, where without prescription, people can get tests done, but across the country, without prescription, we are not taking any sample at all.
That's-
Because I may have, according to the ICMR guidelines, you have to fit in into one of those guidelines. There are seven, eight of them. You need a doctor's prescription. It cannot be just ordered because somebody wants a test. At least in our part of the country, it was very strict. Thank you.
Perfect. That's very clear. I've got a few more. I'll get back in the queue. Thank you.
Sure.
Thank you. Before we take the next question, we would like to inform participants that in order that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we request you to rejoin the queue. The next question is from the line of Deepak Mehta, who is an Individual Investor. Please go ahead.
Hello. Good evening, sir. Thank you for taking my question. My question is. I will continue with the last question. You are seeing the business of COVID-19 tests coming from government recommendation and their reference. We might see the jump in the coronavirus test once the company and IT companies get opened. Maybe company tie up with your company or some other company for antibody test and all. Is there any possibility or is there any talk in similar line to this with corporates? Thank you.
Yeah. Thanks for your question. I think it's a Dr. Lal, you want to answer this?
Yeah, I just have a quick go ahead. Right now, the phase at which the COVID-19 pandemic is still in the early phase. Early phase means that we are having 50,000 people getting positive every day. See, that is the way India is going. It has not peaked yet. Once it goes into a plateau phase and starts coming down, the antibody test will start in real earnest. Right now, the antibody tests which are available are only being done in large numbers by the government in containment zones or those red kind of areas, et cetera. Right now, there's a lot of scope for RT-PCR, and of course, as we discussed earlier, the antigen testing, which is showing high rates of false negativity. Thank you.
Thank you. The next question is from the line of Prashant Kothari from Pictet. Please go ahead.
Yeah. Hi, good afternoon. Also on the antibody testing only. Are you already in touch with corporates who are looking to do antibody tests from their kind of staff? Because we've seen some data coming out of Thyrocare, who have done some large-level antibody testing. Is it a profitable opportunity to look forward to, maybe even if not now, in the next few months?
Why don't you take this question, Om Prakash?
Yeah, I'll try and answer this question, Dr. Lal.
Yeah. Okay.
I have a view here, which may be my personal view and the way I look at it, because jury is still out as to what is the role of antibody testing are in COVID, okay? First is, it is not a diagnostic test. We all should be very clear that it does not help you to confirm a diagnosis. Second is, let's paint a scenario. A lot of people are talking about it is a test which will help you to restart your workplace. Let's imagine a scenario, you have 1,000 people in your office and you do antibody testing on a particular day. Now, what happens if, let's say, 100 people are positive, and these positive people are IgG positive, because IgM test has not yet come.
100 people are IgG positive. Probably you will say, "Okay, these are those guys who actually had the infection." They have recovered, they can go inside the office. Those 900 who are negative, what does it mean? Are you telling them, you please turn positive, then only you come to office? If you are negative, you can also come. If you allow them also to come, antibody test actually has not served any purpose at all. You allow all 1,000 to come without even doing a test itself. Technically speaking, I think a lot of people are talking about this, that this can help you to start office. I'm still not very sure as to how does it help.
One thing it does actually, is that it helps you to do a sero-surveillance, that if you pick up randomly, let's say 10,000, 20,000 people in a particular zone, and then you say to what percentage of people are actually carrying antibodies. It tells you to what extent infection has spread in a lot. That's where I go to what Dr. Lal was saying. That stage is little far, because right now we don't have a large infection in the society.I think when it peaks up on a falling curve, I guess antibody tests will help. The other role of antibody would be, it's a general desire for all of us to know whether I actually have developed antibody or not. That situation may arise once you get vaccine. People would want to know whether antibodies have developed or not.
It is that kind of test value it has. It definitely does not have a diagnostic value. Going forward, can it become a very large test in our portfolio? It can, but one should also keep in mind that as antibody testing picks up, there is also a rapid antibody test which is likely to come. Rapid antibody test is like a point of care test, where it does not suit a centralized lab model. It will be freely available with a small little prick, you can actually do it yourself as well. Once you keep that in mind, as these antibody tests come in, there could be a rapid antibody also may come as a part of portfolio.
Yeah. If I may add, Deepak, what you have to watch out for is that when the antibody testing is coming in. Right now, as Om has explained, that it is not a diagnostic test. Once you talk about immunity, so the immunity which matters, as I said earlier, is an IgG test. Those people who test IgG positive, they are in the clear. They will not get this infection, and they are not to be put under surveillance. They can actually go and start their work. They are also good candidates to donate their plasma for plasma treatment. The guys who turn out to be IgG negative, they are the ones, especially in the elderly age group, et cetera, people with comorbidities, elderly, who are IgG negative, they will become the first candidates to be given the vaccines.
Once the vaccines are given, and the vaccines in India may be given once or after four or five months or three months, they even might give you a booster, and that will also create the IgG antibody. That is how the system works. Thank you.
If I may add, Dr. Lal, one more thing, that a lot of scientists are also advising that this IgG antibody positive does not mean one should have a false sense of confidence that they'll last forever, because the life of this immunity is not that long.
Yeah, that is a questionable kind of a thing. Usually, what we have seen from other viruses, that once the IgG antibody comes in, it stays for a long time. Out here, once those studies have been done extensively, we'll get the answer. I agree with you. I will even get tested like this. What do you say?
Yes. I think maybe just on a personal basis, a lot of us, even on this call, would want to get such a test done to at least feel more confident that it is kind of past us rather than ahead of us, the disease.
Yeah, why not? Absolutely, it will tell you whether you have come in contact with the virus. People who have come in contact with the virus, who actually you can say, within inverted commas, have been infected, but they may not have suffered. We only say that you have come in contact with the virus. You can actually develop an IgG antibody, which is good for you. You've heard of this herd immunity. Herd immunity means when more than 50% or 60% of a minimum population has been infected or they have come in contact, then the herd immunity also develops, which ultimately, which we have actually read in the papers now, is not what India can wait for. We have to act before that.
I think one answer probably all of you may be looking for is that, will antibody become a part of our portfolio? Answer is yes. What is the sizing of this opportunity will depend as to how this whole pandemic takes shape.
Thank you. Before we take the next question, a reminder to participants to please limit your questions to two per participant. The next question is from the line of Chetan Gindodia from AlfAccurate. Please go ahead.
Hello. Thank you for giving me the opportunity. My question is on the COVID test that was part of our portfolio from the start. It has now a sizable contribution to our revenue. In any case, if you can give what was the gross margin in this business, or how has COVID testing impacted the rest of our P%L? Thank you.
Well, actually, one is not able to put a stable margin structure around this test, as you may have picked up during our three months. The price level from INR 4,500 per test has now come down to INR 2,500, in some states even INR 2,000. I must say correspondingly, we've also reduced our costs very sharply as well. It is definitely not in the negative range. I think overall, one should say that the margins on this test are actually lower than our overall portfolio margins. To some extent it is EBITDA dilutive, but we are able to cover up a lot of our fixed costs as well.
Okay. Thank you.
Thank you. The next question is from the line of Hemant from Alder Capital. Please go ahead.
Yeah, hi. I have a specific question on the fees to collection centers. What I did notice was, in the last few years, this has been approximately 11%, and as of last year, it was around 13%. It's been gradually going up. What I'm really trying to understand is it something more to do with the mix change, as you had spoken a little bit earlier about more revenue coming in from collection centers? Or is it more to do with the fact that as we enter new markets, and because of competitive intensity, we need to share more with collection centers? Any insight on this will be helpful.
I think while maybe on a quarter-to-quarter basis, I may ask Ved to do that, but in general, on a macro-level conceptual plane, I think it is something to do with the business model. As we evolved out of Delhi, a lot of our sales used to come from our own infra. A lot of it used to be walking into our labs. Scalability in our model came when we actually got some network effect by opening a lot of collection centers. As the contribution of Delhi NCR is on a decline and contribution from Rest of India is on the rise, so a lot of our sales actually end up coming through franchisee collection centers. While the flow of the patients is very similar to what we would see in our own infra, because even collection center also will have two streams.
One is walk-in, another is B2B, which is pick up in and around that collection center. As the proportion of collection center moves up in the business, you will actually end up seeing a higher payout to collection centers. Going forward, I do believe that a proportion of sales coming from collection center network will tend to rise, and that's a great way to grow the business as well because it variabilizes your costs. In fact, we are learning this particular in this quarter when our walk-in business drops and a lot of our costs are locked in overheads in our labs. It's always good to see how we can variabilize our costs. I think franchisee model actually gives us that insurance, and it also augurs very well for us as we expand our footprint in Rest of India.
Directionally, this number will tend to rise as our contribution from collection center goes up. On a specific quarter-to-quarter change, I don't know. Yeah, I think directionally, that's the way it should look at it.
Referring to an annual trend, when I look at it from a financial year FY 2017 to 2020, that's gone up. Maybe I can ask the question another way around. As we enter new markets, let's say, on the eastern side, were the revenue shares to collection centers higher than what we had earlier paid in maybe similar markets?
You are right. In fact, as we compare Delhi NCR versus Rest of India, there may be slightly different revenue share, which is like Delhi has 20%. Outside Delhi NCR, it might be 20%, 25%. As Rest of India is growing faster and the contribution is also high, revenue is coming from Rest of India where realization is also lower than Delhi NCR. As a percentage of revenue, it tends to go up. That is where one has to see.
I think broadly speaking, since our throughput per collection center in Rest of India is slightly lower, just to keep the viability in mind. Also in Delhi NCR, we provide door-step pickup service, which doesn't happen in case of outstation CCs. We end up giving a slightly higher margin to them. Which is maybe to the extent of about 5%-6% higher than Delhi average.
Understood. One final question on the same point. As we look at business on a longer-term basis and with the current digitization drive that you've been having, would it be fair enough to assume that B2C will become a larger proportion of your revenues? I believe some time back you had said that B2C was 60% of your business. Can you give us some insights about how you see this trending along? Thanks.
See, it's a great question. A lot of people are now reaching out through online booking, et cetera. We are actually started using our franchisee network to do home collection because so far if I were doing 100 home collections, a lot of it actually was being serviced by us directly. Since the demand in the recent past actually has gone up multi-fold, and it's not a scalable idea that if I build my own team of home collection, because that's actually working against the whole philosophy of scaling up through franchisee network. We are looking at engaging with franchising quite a bit, but that engagement with franchisee has to be done through a technology, because we also want to control the entire experience of home collection.
Leaving it to lose, we may actually lose the control on the experience, because in our industry, the real brand experience actually is the contact of a phlebotomist with the patient. In some way, I don't want to dilute that. I really want to keep a very big supervision on that experience. We are taking help of a technology, and that's where I think this whole tech business is going to come very handy here, where we are able to integrate our franchisee network, where we have a somewhat a direct control on the entire brand experience that happens through home collection.
Got it. Thanks a lot.
Thank you.
Thank you. The next question is from the line of Sabyasachi Mukerji from Centrum PMS. Please go ahead.
Yes. Hi. Thanks for the opportunity. Couple of questions. First of all, if I look at the gross profit, the gross margins, I see that in this quarter, the cost of reagents has kind of gone up. What kind of steady state percentage we can work with, if you can guide?
I think it's a good observation. We also picked it up. There are two broad variables that have impacted this number. One is, since COVID tests, reagent cost is very high compared to what our normal portfolio cost is. That has contributed significantly to this number. The second reason also has been as the turnover fell, the scale of testing, especially in our satellite lab, has come down, and we have seen a significant rise in our costs there, consumption costs in our satellite lab infra. Going forward, I think it'll depend quite a bit on our COVID contribution to the portfolio. If I were to carve out non-COVID, I think we should come back to our normal 22%, right?
Yeah.
On COVID, we should actually mirror what we have always been doing. I think we'll have to just factor in COVID, because COVID consumption cost is much, much higher than what portfolio costs are.
Okay. Second thing on one of the previous participants actually asked, this is much more structural in nature. If we see kind of the change in the channel mix with collection center and pickup points revenue contribution going up, probably in the three, four years down the line, and walk-ins come down, do we really see any kind of a margin pressure going ahead?
Again, a great question. You're probably right, and I think the management team will have to be watchful as we go forward, because a lot of our fixed overhead is caught up in our lab infra. Our lab infra serves two purposes. One is, of course, of testing, which is on supply side. It also serves on fulfilling the walk-in demand, which is on the demand side. If the demand is going to switch to collection centers and pickup points, we'll have to re-look at the cost structure of this lab infra and also role of lab infra. I think that's a brilliant observation you have, and we'll have to be watchful on that. I don't want to take an knee-jerk reaction here, because it may just be very temporary in nature. Otherwise, we'll have to probably see how we provide the same brand experience on collection centers.
The good news is that our franchisee management has gone up many notches in the last three, four years. We are basically focused on providing the same brand experience as we provide in the lab. Coming back to pickup points, see, the good news is that one of the reason which I'm not sure right now, I can't say with that kind of confidence. If the patient insists that, "I want Dr. Lal's report. You can collect the sample, but make sure that you give me a Dr. Lal's report." That could be a great way of capturing that demand in any case. Patient might actually go to a neighborhood pickup point or a collection center, but still insisting for Dr. Lal PathLabs report because they trust in our brand. To my mind, I think that should be good enough.
That also could set up another trend of which we've been talking in the past, is that can these smaller players be aggregated through a collection center model? Let me not jump to that, but we'll have to probably wait and watch as to how landscape changes post this COVID. I buy your point of first one, where the cost structure with walk-in dropping in, we'll definitely need to be watchful on that.
Okay. Lastly, if you can squeeze in one more. If you look at kind of the July trends, how has been the share of e-prescription drove that, the 50% is actually kind of strong, is that the trend in Q1? How has the e-prescription based routine tests and how that traction is there in July in early times?
I think July is showing a bit of a stable trend. What we saw a rise in June, we are seeing a similar sort of a trend here, which is fairly stable. We are not seeing much fluctuation right now here.
Thank you. Before we take the next question, a reminder to participants to please limit your questions to two per participant. The next question is from the line of Harith Ahamed from Spark Capital. Please go ahead.
Hi. Good evening, everyone. Can you comment a bit about the COVID testing volumes that you're seeing currently in the month of July? Is there a per-day number of tests that you can share? Would also like to understand if antibody tests are a significant proportion of your overall COVID volumes.
On RT-PCR, as we mentioned, that 60% of the contribution is from the government. A lot of government business, by the way, comes as a spillover business. If they are suddenly flushed with lot of samples and they are not able to meet that requirement for that date, then they think of a private guy. I think one must know that government has built lot of capacity of testing of RT-PCR. Any business that comes from the government technically is a spillover. It's not a regular flow that one can depend on. I think only one can depend on is on a private side of business, which I mentioned, it is coming from either individuals calling up and asking for home collection, or it is coming from private hospitals. Which to my mind, will be a function of how this whole trajectory of infection takes place.
Your second question of antibody testing, it is not right now a very significant component of our testing. I think most of our testing is still RT-PCR. I would say 95% is RT-PCR in terms of value.
Is there a number per day? I mean, 3,000 to 4,000 RT-PCR tests that we are doing. Is there something like that?
I think we can do a math. We have actually said this number.
197,000 tests for Q1, which is 90 days. You just multiply. I think that's where it falls.
No, I was trying to understand if that has gone up significantly in July.
No.
Or the bit that-
No. I think there is a bit of a softness on that number, rather, I would say.
Okay. Could you also talk a bit about the cost that you're incurring for test on the testing kit, as well as there is a cost associated with PPE kits. How much would be the total cost per kit and including the PPE kit and a similar cost per test for the antibody test?
As I mentioned to you that, I think we haven't shared in so much of detail on this. Overall margins on RT-PCR tests are much less than our average portfolio margins. To that extent, while you may see a very high turnover contribution in the first quarter, but as far as the bottom line contribution is only to the extent of that it covers our fixed cost. It really doesn't contribute too much to our EBITDA margins. As far as antibody testing is concerned, right now the contribution of antibody is very small. Even in antibody as well, as Dr. Lal mentioned, one is IgG-based test, other is total. We believe from a medical point of view, IgG has much higher value. This total, we are a little unsure about as to what value it actually delivers.
Right now, I would actually close the comment by saying that antibody test as a contribution to total is not significantly higher for us.
Okay. That's all from my side. Thanks.
Thank you. The next question is from the line of Kunal Dhamesha from Systematix. Please go ahead.
Yeah. Hi. Thank you for taking my question. I have just one question. When we say the RT-PCR test is not EBITDA accretive, it's largely neutral or just covering the fixed cost. Is it the pool test that we are doing or the individual test that we were doing, and I think now the government has allowed pool testing. Can that change the economics of the test significantly? Thank you.
Let me briefly explain to you about this pool testing concept. The pool testing by ICMR was allowed only if the state government agrees to that. That's number one. It is not allowed across the country unless you have an approval from the state government. If I'm not mistaken, there are also guidelines on this. If the positivity is higher beyond a certain level, then pool testing cannot be done. 5%.
Okay.
In most places, in fact, there was a time when we did this for one state, where we had an approval from that state. The moment we saw positivity going beyond a particular level, then we said that this is not allowed, and so we stopped that. Right now, there's no pool testing happening in our system. It's all individual.
Okay. Thank you.
Thank you. The next question is from the line of Anubhav Aggarwal from Credit Suisse. Please go ahead.
Thank you. Good evening. One question, Om Prakash, you mentioned the non-COVID tests right now are 90% now. Just want to check, hospital utilizations are pretty less. What is the B2C trend? Does it imply that B2C portion is very much same as the prior year level?
Sorry, your voice is not very clear. Can you repeat the question?
Yeah. I was saying that on the non-COVID test, you mentioned that we are at 90% level of the last year.
Right.
We know that the hospital utilizations are right now not in normal level. Does it imply that for the B2C patient, effectively, we are operating at 100% of last year level that's why?
No. Actually, our B2C is much more adversely impacted. Okay. I think broadly, we've seen two changes. For our three dimensions, if I look at, one is geographical mix, second dimension is channel mix, and third dimension is test mix. We are not seeing a significant change in our test mix. Maybe a slight deviation towards higher end contribution has slightly gone up, but I really won't call it a very significant change in the test mix. What we've seen is two changes. One is geographical mix. Rest of India actually has done well compared to Delhi NCR. We have a two hypothesis there. We do believe that entire recovery may not be of our own patient base. We do believe that we are waiting for results of other companies. We do believe that we may actually have had a market share gain as well.
We do believe that we were very aggressive and our operational excellence was very high in our logistics. We'll have to wait and watch and do this analysis. We do believe that some of the gains that we are seeing on non-COVID, it may not be the entire recovery of our own base. It may be also a share gain as well. The other change that we are observing is the channel mix. The channel, especially the walk-in, and walk-in which actually comes from our own infra, because our own infra is a large walk-in format, where there are, on a daily basis, some labs actually have even 200, 300, 400 patients coming in. It's similar to a hospital kind of setup. That actually has taken a significant knock. A lot of it is actually moved into a home collection, we have recovered there.
Some of it also has gone into our collection centers, because collection centers also serve them as walk-in patients. The benefit there is that you don't have a large congregation of patients there. One collection center will have about eight to 10 patients or maybe 15 patients a day, compared to our own lab walk-ins, where it can actually go up to 200 as well. We are seeing patients' tendency to go into that area where there's less crowd. I'm sure I would love to hear from hospital guys. I have a feeling even in hospital, OPDs may have come down. They may actually have moved into a single doctor sort of OPD practice. That's a change that we are observing. I don't know whether I answered your question because I went all over the place.
No, I still have one doubt. Let's say if we were doing 100 patients last year, so when you say we are 90% of that level, I was thinking that we are doing around 90 patients now. That 90 number should include whether you're gaining market share or the previous patient that you're doing once. Is my understanding correct or is it different?
Let's say if I were doing 100 earlier, today I'm doing 90. One can say probably you actually recovered this entire 90 out of your own universe of 100. What I'm trying to say, it may not necessarily be true. I may have recovered 80 of my own, but 10 maybe those guys who were in any case not coming to me earlier, maybe going to competition, may have come to me now.
Sure. That is clear. When we look, let's say 90 we are doing now. I was saying the B2C portion would have grown, right? This 90 would be larger because let's say we were doing 60% B2C earlier, the B2C portion would have grown for us now.
No, because most of my growth actually has come from pickup points. These pickup points, I don't count them as B2C, I count them as a B2B.
Okay.
My B2C components are lab walk-ins, home collection, basically these two line items, right? Home collection has handsomely grown over last year, but the base is very small. What has declined sharply is the lab walk-ins. To that extent, I think my contribution of B2C would have actually gone down compared to what I was doing earlier.
Franchisee is more.
Franchisee collection center has gone up. Franchisee collection center also has both B2C and B2B, but that is not very directly monitored by us because what it comes out is a one CC line item.
Thank you.
We can probably catch up offline on this and explain.
We take the next question from the line of Kishore B., who is a retail investor. Please go ahead.
Yeah, hi. Thanks for the opportunity. I have a question on the patient database that we have. How do you see the patient database being utilized to generate the revenues on the top line?
No, we have not looked at that right now. Because patient database is highly confidential, we are so far very hesitant to share this information with anyone. Neither do we have any plans to do that right now.
Thank you. We'll be able to take one last question. We take the last question from the line of Ranvir Singh, who's an individual investor. Please go ahead. Mr. Ranvir Singh, you may go ahead with the question.
Yeah, hi. My first question is that in terms of, you have said that 90% of our revenue has recovered, but if we take out the inorganic part, which was done last year, what would be the same number in terms of the non-COVID business?
Okay. Yeah, I think that's a good point. What would that be?
About 1.8%.
Yeah, 0.8%. Maybe a very small number, maybe 0.8, 1% or so.
Okay. The second question would be that what are the operating cash flows for the first quarter and how have the payable days moved during the quarter?
Yeah. Ved?
I mentioned in my opening remarks, we are able to reduce our DSOs in spite of this COVID. In fact, DSO has reduced substantially, but there are some outstanding on account of COVID, largely which is from government, which may get delayed. Otherwise, DSOs are substantially reduced.
If I were to sum up, 60% of the business that comes from government business, there we have some outstanding, but it is not an issue. The regular flow of collection is happening. Relatively, our outstanding has gone up on that. If you look at on balance, I think we managed it fairly well.
On the question of cash surplus, we had about INR 38 crores of cash surplus on account of cash from operations in this quarter.
Okay. Also, our EBITDA margins are around 20%, and was there any cost initiatives also done to make sure that we don't incur the impact of COVID?
No, absolutely. Actually, a lot of effort had gone on cost side as well. There are two, three caution we had. We didn't want to take any knee-jerk reaction on unnecessarily cutting costs. One thing that we took care of our employees, so no cut on that front. There are two, three areas where we did have some savings. One was A&P, because business was not happening for at least one and a half, two months. Small areas like travel, of course, got cut for everybody because virtually there is no travel. What else? repairs and maintenance also, we had some saving. On balance, we were able to manage about INR eight, 10 crore of cost savings in the quarter. We were very cautious in not taking any knee-jerk reaction on unnecessarily cutting costs.
Thank you. We take the next question from Sameer Baisiwala from Morgan Stanley. Please go ahead.
Hi, thanks for the follow-up. Om, I'm just thinking long-term, what would be the target PSC count that you need to be a truly pan-India player?
From-
PSC 3,100 that you have right now.
Okay. Yeah, I think, if I go back to my FMCG experience of Hindustan Unilever, I think I would rather increase the throughput per PSC rather than looking at just the number of PSC count. I see this business is very local in nature. There are two parts to this business, as you and I have understood this. One is the testing piece. A lot of economies of scale has to come from testing, which is what our real strength is. It can be centralized. The challenge lies on the collection part of the business, which has to be more decentralized, closer to patients. Home collection is making it even worse, where virtually every guy wants a home collection to be done, and it's so customized. That piece actually needs to be handled by a franchisee network.
I would rather try to build economies of scale at a franchisee level, rather than fragmenting it. To my mind, aimlessly chasing this number of PSC may not be a great idea. Obviously, it's a fine balance between what is the kind of productivity I may want to have on PSC front. Broad thumb rule that we normally follow for our lab-to-PSC ratio, it is about one is to 19, 20. If I can maintain that ratio going forward, would be a great thing to happen.
Okay. Just a last one from my side. What happens if ICMR were to relax the guidelines for RT-PCR testing? If it's not mandatory to have a prescription or symptoms, can demand explode or not really?
I think you probably can answer this question for yourself. The fact of the matter is, every test which is done has to be reported. People are very cautious, and do they really want to get tests done? I don't think testing is constrained because you have a prescription requirement. Maybe you can ask this question in Bombay, because that's a great pilot city, because Bombay has taken away this requirement. I really don't know to what extent RT-PCR testing has gone up in Mumbai city. That will answer this question. I also would love to hear as to what really happens if the prescription condition goes away. My sense says it may not be.
Oh, okay. Sorry, one final one. When you look around the neighborhood labs, unorganized sector, what percentage you think is really up and running or which is not?
I think it's also a good question. The RT-PCR testing, and for the benefit of everybody, there are only a handful of labs. Antibody testing, I think lot of these unorganized setup will also do that. Please remember this, if antibody test takes off, it's not only advantage large labs, it advantage all labs. RT-PCR test only happens in large labs. If I were to take out my COVID and then look at non-COVID trajectory for our business, maybe about 8%, 10%, 15% down for them. Let's say if we are 90% of non-COVID, they would be about 70% of non-COVID. That's the kind of math probably one can do.
Sorry. What you're saying is for non-COVID business, unorganized sector is 70%-90% of the normal-
They may not have reached 90%, Sameer, probably it's not that they also would have recovered on non-COVID, is the point I'm trying to say.
Okay.
One can make a guess as to what that number would be. I don't have any sort of data point. I'll try and ask this question to my field team. My reading is that they definitely would have recovered, may not have reached 90% level, but maybe about 70% levels.
They are all open, operational, alive and kicking, sir.
Yes, because ultimately, beyond a point, healthcare you can't close. See, the healthcare got impacted due to lockdown.
Yeah.
Patient movement was not there. The moment patient movement starts, then obviously people have to see a doctor, then there's no other option. Only thing is that only essential part of healthcare is active. Non-essential, people are still delaying it.
Okay, great. Thank you so much.
Thank you.
Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.
Thank you everyone for being with us on this call today. I will now request the moderator to close the call. Please take care and stay safe.
Thank you very much. On behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us, ladies and gentlemen. You can now disconnect your lines.