Ladies and gentlemen, good day and welcome to Dr. Lal PathLabs Q3 FY25 earnings conference call for investors and analysts. 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 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.
Thank you. Good afternoon, everyone, and welcome to Dr. Lal PathLabs Q3 FY25 earnings conference call. Today, we are joined by senior members of the management team, including Honorary Brigadier Dr. Arvind Lal, Executive Chairman; Dr. Om Prakash Manchanda, Managing Director; Mr. Shankha Banerjee, CEO; and Mr. Ved Prakash Goel, Group CFO and CEO, International Business. I would like to share a standard disclaimer. Some of the statements made on today's conference call could be forward-looking in nature, and the actual results could vary from these forward-looking statements. A detailed statement in this regard is available in the results presentation, which has been circulated to you and also available on the stock exchange website. I would now like to invite Dr. Arvind Lal to share his perspective. Thank you, and over to you, sir.
Thank you very much. Good afternoon, everyone, and thank you for joining us on today's call to discuss our Q3 FY25 results. I would like to begin by sharing my thoughts on the dynamics of the diagnostic sector in India and give you an overview of the key initiatives we are rolling out. The Government of India has committed to increasing the public health spend to 2.5% of GDP from the current approximately 1.8%. The need to strengthen primary and secondary healthcare infrastructure, especially in rural areas and in cities classified as Tier 3 and beyond, has never been more pressing. At the same time, we are also witnessing a rise in non-communicable diseases, also called NCDs or lifestyle diseases, and these include diabetes, hypertension, cardiac diseases, strokes, cancers, kidney, liver, and lung diseases, and obesity.
NCDs account for nearly 65% of deaths in the country and a financial loss of about 2% of GDP every year. Therefore, it is imperative that both the government and the private healthcare work together to control the rise of these NCDs, starting with timely screening and preventive management. Creating accessible testing capabilities, which often serve as the first steps in delivering healthcare, has become increasingly crucial, as was also seen during the COVID pandemic. In this context, Dr. Lal PathLabs' network plays a key role in enhancing healthcare accessibility in an affordable and reliable manner, particularly in underserved regions. The awareness around preventive diagnostics is also growing. We are in a position to facilitate timely screening and early detection, enabling proactive healthcare management and improving overall health outcomes for all.
Our ongoing investments in digital infrastructure have given us the flexibility to efficiently deliver services to a wider customer base. We were the pioneers in leveraging AI-driven diagnostic modules with the introduction of our AI-enabled tests for breast cancer and prostate cancer many years ago. Genomics, where we have made significant investments and established our center for excellence called GeneEvolve, serves as another platform that expands our diagnostic capabilities to have a laser focus on genetics and personalized medicine. It is these innovative and cutting-edge diagnostic solutions that have made us the numero uno in diagnostics in India and the most preferred testing partner for both patients and doctors. Our operations continue to scale up according to our predefined strategy, backed by over 75 years of experience. As a leader in healthcare, it is our goal to provide timely, efficient, quality care to everyone in the country.
With that, I would like to hand over to Dr. Om Manchanda. Over to you, Om.
Thank you, Dr. Lal, and a warm welcome to all the participants on this call today. Last time, I spoke about bundled packages in our series of efforts in Western India. This time, I want to share about how we navigated our business without the price increase and still delivered better than last year's revenue and EBITDA margin in the first nine months of the current year. The first initiative that we took was a very sharp focus on geographical and test mix that delivered higher realization per patient as well as better margin. For example, Delhi NCR, a region with better margin profile, has delivered double-digit growth in line with the national average. This has happened after many years of single-digit growth in this region. The second has been Swasthfit contribution continues to rise and has delivered higher realization per patient.
This is as a part of our stated strategy. The second initiative has been that we are expanding lab and collection center infrastructure in Tier 2 and Tier 3 towns. The third initiative has been relentless focus on the productivity initiatives. And lastly, a very sharp focus on franchisee collection centers that helps us to increase width as well as depth of the reach. The contribution from franchisee collection centers now has gone up to nearly 45%. With that, I would now hand it over to Shankha for his thoughts. Thank you.
Thank you, Dr. Om. I extend a warm welcome to all participants joining us on the call today. I will present the key business and operational achievements. We maintained a strong performance trajectory in the third quarter of the fiscal year 2025, delivering 10.7% growth in revenues. The growth is delivered through sample volume growth and mix improvement and does not have any price increase benefit. I'm pleased to share with you that Delhi NCR recorded double-digit revenue growth for the second successive quarter. Let me share some of the key operating statistics. Sample volumes stood at 20.6 million in Q3, a growth of 10.3% year-on-year, while patient volumes came in at 6.9 million and increased by 3.8% over the same period last year. Revenue per patient for Q3 FY2025 stands at INR 861, a growth of 6.7% compared to Q3 FY2024.
This growth in revenue per patient is on account of mixed management initiatives on geography, channel, and product. We are accelerating our reach in the underserved markets with the planned opening of 15-20 new labs in this financial year. We continue to expand our reach into Tier 3 and Tier 4 markets and have started strengthening our presence in the core regions as well. We are now making investments in new infrastructure in metro and Tier 1 cities also. Our bundled test program, Swasthfit, continues to contribute favorably to the overall performance with a robust growth of 27.2% in Q3 FY25. Building on positive results, we are developing a wider range of bundled packages and expanding our market penetration beyond the traditional Tier 1 and Tier 2 markets to address the growing demand. While it's still early days, the response thus far has been encouraging.
Our future growth will be driven by a combination of strengthening our operations in core metro and Tier 1 cities, penetration in Tier 3 and Tier 4 in north and east, and building clusters in south and west. We are committed to maintaining the highest standards of diagnostic quality and accuracy while expanding our service offerings to include high-end and super specialty tests. Our robust digital infrastructure will enhance the patient's experience by providing seamless access and customized solutions. With that, I would now like to invite Ved Prakash Goel, who will take you through the financial performance. Over to you, Ved.
Thank you, Shankha. Good evening, everyone, and a warm welcome. I will be sharing the key financial highlights for Q3 FY25 and year till date. Revenue for Q3 FY25 came in at INR 597 crore compared to INR 539 crore in the same quarter last year, reflecting a growth of 10.7%. YTD FY25 revenue stands at INR 1,859 crore against INR 1,681 crore in the same period last year, a growth of 10.6%. Revenue per patient for Q3 FY25 is INR 861 against INR 807 in Q3 FY24, mainly due to test and geography mix. Test per patient for Q3 FY25 is 2.97 versus 2.79 in Q3 last year, a growth of 6.3%. EBITDA for Q3 FY25 came in at INR 154 crore compared to INR 141 crore in Q3 FY24, registering a growth of 9.6% with an EBITDA margin of 25.8%. YTD FY25 EBITDA stands at INR
527 crore versus Rs. 465 crore in last year's same period, with a growth of 13.3% and an EBITDA margin of 28%. EBIT for Q3 FY25 came in at Rs. 138 crore versus Rs. 116 crore in last year's same period, registering a growth of 19.4%. PAT for Q3 FY25 came in at Rs. 98 crore compared to Rs. 82 crore in the same period last quarter last year, registering a growth of 19.3% with a PAT margin of 16.4%. For YTD FY25, PAT stands at Rs. 337 crore against Rs. 277 crore in the same period last year, with a margin of 18.1%. EPS for Q3 FY25 is Rs. 11.6 as against Rs. 9.8 in the same period last year, and YTD FY25 EPS stands at Rs. 39.9 against Rs. 32.9 last year's same period, registering a growth of 18.7% and 21.4%, respectively.
Net cash as of 31st December 2024 is INR 1,123 crore. At last, I'm pleased to share that the Board of Directors of our company has approved a third interim dividend of INR 6 per share, taking the total dividend for the current year till date to INR 18 per share. With this, I conclude my opening remarks, and I would now request the moderator to open the forum for Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We'll take a first question from the line of Saion Mukherjee from Nomura Securities. Please go ahead.
Yeah, hi. Good evening and thanks for taking my question. Just some P&L numbers, I just wanted to get some color. So we have seen consistent improvement in gross margin despite no price increase. So if you can take us through the dynamics in terms of volumes, Swasthfit mix, and you have raw material prices, currency, et cetera. So how should we think about gross margins going forward? And the second one was on employee expense. What I noticed, it's been growing in mid-teens, higher than the revenue growth for the past few quarters. What's driving this and how should this grow going forward in your view? Thank you.
Hi. This is Ved. I think just to correct, gross margin in this quarter compared to last year's same quarter has not improved. Basically, these gross margins are slightly lower than last year's same quarter. Second, in terms of employee costs, yes, definitely there is an increase because we have started investing in new infra, and we hired about roughly 100 people in our sales and marketing team as well. So that is the impact where we are investing in the business for future growth.
So I think I just want to add, this is Om, and I want to add what Ved just mentioned. I think in the last sort of one or two years post-COVID, there has been a sudden jump in gross margins. And mainly because of the COVID testing decline, our margins improved, and we also invested a lot behind technology initiatives, which helped us to improve productivity. But I would say that these margins, one should assume more or less stable at this number rather than any improvement further going forward. As far as employee costs are concerned, as Ved mentioned, we are now relooking at our organic infra, and not only just in terms of lab, but also adding manpower in our business, which is a combination of both these two.
Okay. I f I can ask one more, just on depreciation and tax rate, I mean, we see depreciation amortization numbers kind of quite flattish or even declining. So any reason there? Y ou are still on the old tax rate, and any plans to move into the new tax rate, and what should we expect in terms of effective tax rate in the years ahead?
So our effective tax rate, I mean, applicable tax rate is 25%. If you see the standalone, the tax rate is similar to that effective rate. But in control, we are charging some depreciation on account of impairment of intangibles. So where we are not getting any tax benefit right now. So that's where the effective tax rate is about 29% in control. But in future, I don't think there is any change we have on these applicable tax rates.
Okay. A ny comment on depreciation amortization number?
These are similar because there is not much CapEx which is done in terms of newer investment. These will be coming in the future. So right now, depreciation is more and less in the same thing.
Getting offset.
Yeah.
But you were adding labs, right? I mean, I understand your organic infrastructure you are adding. So what would have expected?
This is offsetting against the depreciation we are charging against the new addition.
Okay.
Saion?
Thank you. Yeah, thank you, Amna.
Next question is from the line of Karthik Chellappa from Indus Capital Advisors, Hong Kong Limited. Please go ahead.
Yeah. Thank you for the opportunity. So two questions from my side. First is, if I look at Swasthfit, that contribution to overall revenue has remained at about 23%-25% in the last four quarters. What is our medium-term aspiration in terms of, let's say, revenue composition, and what needs to happen for us to take it to a higher level? That's my first question.
Karthik, hi. This is Shankha here. If you see every quarter versus the same quarter last year, you will see that it's a plus 3% to 2.5, 3% contribution over. T hat's been a trend that we have seen through the last two, three-year period, that the contribution remains kind of flat between quarter four to quarter three, and then again in quarter four, it jumps. So all the actions that we are taking, you will likely see some benefit of that accruing to us in quarter four, and the baseline will shift again for the next three quarters. So the growth rate, if you see on Swasthfit, and if you also compare the contribution versus same quarter last year, you will see the delta.
Got it. Which means that going into next year, this ratio, at least on a year-on-year basis, will continue to improve. Is that how I should interpret it?
Yeah, that's really the plan.
Okay. Great. My second question, sir, is if I look at Suburban, this quarter at about 9.2%, that revenue is soft relative to both our overall revenue growth as well as Suburban's nine-month revenue growth as well. So what would explain this relative weakness in Suburban this quarter, and what is the plan or, let's say, aspiration for FY26?
So I think we've been saying all along that in our business, quarter to quarter may not be the right metric to look at growth rates. I think what we are saying is that the growth trajectory on Suburban definitely is moving in the right direction. There is obviously some quarter there can be a slight up, some quarter there could be a slight down, but overall, that trajectory will improve. O bviously, going forward, our plans are to grow even faster than what we are seeing now.
I also want to add, this is Om, I want to add one more point. Actually, while the questions get asked on Suburban, but we are looking at West as a region for our total business. So we have three verticals there. One is Suburban. Other is Dr. Lal PathLabs' parent business.
Third, also we have done with smaller acquisition under the vehicle called PathLabs Unifier. Our front-end team now is common for all the three, and we really don't evaluate them whether it has to be Suburban or parent as long as overall business grows because there's a huge sort of network advantage we get one over the other. O bviously, there is a latent sort of brand equity for Dr. Lal PathLabs. I was looking at the number. Actually, West region growth rate is even higher than our national average for not only for the quarter, even on YTD basis as well. So while we have also seen some bit of an uptick on the parent business as well in this geography. So that network of Suburban is also helping us in a positive way to get our Dr. Lal PathLabs business growing as well.
Got it. Okay. Thank you very much for the detailed responses, sir. Wish you and the team all the very best. That's all from me.
Thank you.
Thank you.
Thank you. We'll take a next question from the line of Rishi Mody from Marcellus Investment Managers. Please go ahead.
Hi. Am I audible?
Rishi, can you use your handset mode, please?
Just a second. Is this better?
Yes. Please go ahead.
Yeah. So Om, I heard your comment on the gross margin where you said that large part of the gross margin expansion is done in some ways because COVID is going away and hence the normal business having higher gross margins, and the others, the initiatives that you all have taken at your end. One thing I wanted to understand, right? Today, there's an industry in the domestic reagents business which is coming up, which is at a lower pricing than the international players. So are we not planning to increase that mix or we're going to pass on the benefits that we get from those and hence lower pricing our test pricing? Or I'm just trying to understand why wouldn't gross margin expansion take place if we incrementally keep using domestic players' reagents?
Maybe Ved can comment on the domestic part of it, but I also want to highlight because most of these reagents are imported and dollars are becoming expensive. While we are still holding on to this, I don't know what the response of our vendors is going forward, but that pressure also is going to come not only for us but for the entire industry. But as of now, we are just holding on to these prices. So there are headwinds on the reagent cost. On the domestic versus international, maybe Ved want to comment?
Yeah. Rishi, I think as Om said, these are mostly reagents which we are directly not imported but imported material. However, having said that, we have started using some of the consumables which are local Indian manufactured. And there we are definitely getting some leverage and benefit. But if you see the last two, three years, consumption cost, it has reduced substantially because of mix which we are changing from 22.5% to now roughly 22.5%, 22.9% this quarter. So that is where, wherever we have opportunity, we are doing that. But at the same time, there is an inflationary pressure which is coming, and that's where I don't think in future we should build any further improvement in the gross margin. Okay. All right. So dollar depreciation primarily in the near term will lead to pressures there. Second, I wanted to understand on the Swasthfit piece, right?
So when I look at the contribution from Q1, the contribution has come down to 23%, while YOY is still up. I'm just trying to understand, is there something which is missing here? This contribution has not historically dropped as a percentage of revenue ever since in the last three years at least that we have the data for. It's kept on decently well over a year, kept on growing on a QOQ basis as well. So is 25 the peak or what's happening here if you can give some color?
I think the data that I have in front of me, what I've seen is that Q3 generally is a soft quarter. 23% once you see it as to what was the contribution last year in the same quarter, that number is 20%. Our sort of assessment is that Q4 actually peaks because of a lot of people actually go for health packages because there's reimbursement. I think there's a tax.
Tax advantage.
Tax advantage they get. So it peaks in Q4, and then somewhere stabilizes after that in Q1 as well. But then it softens in Q2 and Q3, and again it peaks in Q4. So I think 23 is not a representative figure for the year, but it's only a figure for the quarter.
Okay. Yeah, and I think the trend is similar last year. So it's not as if every quarter last year was growing over the previous quarter. If you see, the trend last year was exactly the same.
They're out of.
Contribution.
Contribution. Even last year, the quarter-on-quarter contribution was highest in Q1, then it dropped in Q2, dropped in Q3, again peaked in Q4. So I think that is the trend we have seen for the last two years and the same trend continuing this year.
Or other way to look at it is that keep contribution aside, Swasthfit this quarter has grown by 27% over last year, same quarter.
Right. Okay. So I think last time you mentioned this can go much beyond the 25%-30% mark. So is that still the case? You're still maintaining that, right?
Directionally, I think industry is showing those trends, and I haven't collated other companies' data, but I think one should probably look at the trends in other companies as well where the market is the data is available publicly. But my own gut says that directionally it's moving towards bundling and will keep growing. So now I don't know what that number is, but definitely if 50%-60% of disease incidence is coming out of NCDs, I think NCDs are that segment is prone to bundling because they're all metabolic disorders, they're all clubbed together, and they're all falling in the domain of preventive testing, etc. It's only the infectious or communicable diseases you can't bundle. You don't need to go for a malaria testing if you don't have fever, right? But you can still go for a lipid profile and kidney function test, etc.
So I think if you were to ask me as to where it can go, it is reflective of total NCD burden in our society.
Okay. Understood. Finally, for Ved, just a couple of numbers I wanted your help with. So Suburban EBITDA margin for the quarter versus the same quarter last year, if you could help me with. O n the tax piece, I'm seeing like a 28%-29% tax rate for several quarters now. Just wanted to understand what's the reason for this elevated tax rate. Maybe I have missed it if you mentioned it in the past.
So, Ved here, Rishi. So, tax, as I mentioned earlier also, that if you see standalone, there is absolutely around 24-25%, which is the applicable rate. But on control, there are some adjustment, maybe some depreciation intangibles where we are not getting any tax, and then dividend adjustment, which is intercompany removal of those. So for that, it is reflecting a higher tax rate, but normal tax rate is 25%.
Okay. So this tax amount that we are showing in the P&L is actual amount that we are paying, not just the P&L amount?
Yeah.
Okay, and if you could help me with the EBITDA margin for Suburban for the quarter versus the same quarter last year?
So it is lower, but again, on a yearly basis, I think margins for Suburban will be in the range of 15%-16% because Q3 revenue has dropped as well as the margins.
Okay. So if I take H1, we would have done about 17%-18% EBITDA margins. You're saying nine months is at 15%-16%. So this quarter, the EBITDA margin would be around 10%-12%. Is that right?
Yeah. 12-13%.
Yeah. Because higher fixed cost component is so high, it's very sensitive to volume fluctuations.
Right.
Revenue fluctuation.
L ast year, you're saying it's declined versus last year. So last year, we would have been in the 15% range if I'm not wrong.
Oh, declined versus last quarter?
Last quarter.
Last quarter? Last year, the margin profile would be the same? Same quarter?
From last year, there is an improvement. Year on year, it is improved.
Okay. Okay.
Q3 FY24, EBITDA margin for Suburban was 11.5%. Now it's 12.3.
Okay. Got it. Thank you. Thank you. That's it from my end.
Thank you.
Ladies and gentlemen, in order to ensure that the management is able to answer queries from all participants, kindly restrict your questions to two at a time. You may join back the queue for follow-up questions. We'll take the next question from the line of Prakash Kapadia from Spark PMS. Please go ahead.
Yeah. Thanks. Two questions from my end. Any comments on how are smaller players in the industry doing? Any specific trends we would have witnessed in terms of consolidation or regional players' performance that would help? S econdly, any price increases on the annual because some of the larger players are contemplating price increases. So those are my questions.
So let me answer the second question first. Yes. I know that many players have been thinking of taking price increase. Some of them have already taken as well. I think internally, our view is that we want to get our volume growth going up. T he good news is that this year, we have seen significant improvement versus last year. W e believe our strategy of holding on to the prices and still managing revenue growth in line with our internal budget as well as over last year, we think our strategy is working. And without dilution of margins, we want to hold on to this for some time and see if we can get our volume growth up. That's our current view. We will probably review this going forward maybe six, nine months later, but as of now, we don't plan to take any price increase.
Second is coming to the smaller players as to how it is. I think there is some sort of stability and calmness in this whole industry right now because a couple of years back, because of the deep discounting and aggressive pricing by some of the players, were really uneasy times for the industry. Overall, it is stabilizing. I don't see too much of sort of a stress in the smaller labs, but I also don't see too many new labs coming up, so I think it's a stable time, I would say, and if some people are taking price increase, it does help smaller labs as well. One must know that because it gives them sort of a leeway to take price increase even locally also, so I think it is going to be a stable time for smaller labs going forward for some time.
Okay. L astly, Doctor, in this context of what you just mentioned, is it possible directionally we should grow faster than some of the other players given that we are spreading geographically? We've been one of the earlier players in tier three, four cities. So when do some of these initiatives fructify and lead to still higher sales growth for us?
Yeah. I think you're right. But the challenges also are based equally large because at such base, let's say give or take INR 2,500 crore base, you should grow 10%. You technically have to add INR 250 crore of extra business every year. That's the kind of broad math one has. G rowing it organically in the same market sometimes becomes challenging, and the newer markets are slow to respond. So I think I probably would say what you're saying is right because we also want to make sure that it's sustainable growth. M y personal experience is 1%-2% slower growth is still fine, but as long as you are structurally building it up for long term, go slowly, slowly build your infrastructure because the reason for people to come back again and again is quality and trust.
At no point in time, our expansion should compromise on that because at times in a hurry to get extra that 1%, one may compromise on those aspects. So I think it's a more process-driven business. Make sure that you build it brick by brick is what probably helps. And we are seeing that actually in the market. And one of the factors, in fact, Delhi NCR, you've not talked about this, and for the last two quarters, our growth rates are pretty good. I actually would say some of the labs users which went to some of the new competition have started coming back to us, which is sort of a proof to at least.
That's very positive.
Yeah. So I don't know if it's working that way, but it's just a hypothesis I have. I want to see for next two, three quarters. But I probably would say that it has to be really it's a process-driven business. Go steady, slow, slow, build it up, and it stays with you.
Understood. Understood. Thank you. All the best.
Thank you.
We'll take our next question from the line of Karan Vora from Goldman Sachs. Please go ahead.
Yeah. Thank you for taking my question. Also, my first question is with respect to the patient service center and lab ratio. Also, when we mention that we are trying to improve productivities and efficiencies, what are the metrics we kind of look at? Do we look at revenue per lab or revenue per patient service center or patient service center per lab? Which are the right metrics? And what is the ideal metric you would like to have over a medium term?
So I think clearly this particular metric of ratio between lab and collection center is very important because throughput through a collection center is definitely more efficient than throughput through a lab. Not only from a cost perspective, but also giving higher market access because you are spreading your infrastructure closer to the customer. The second area has been area of overall fixed block that we have. How does it compare in terms of cost per test or basically that ratio? W e have seen simple things like printing and stationery. If you reduce the physical paper use, that itself gives you a lot of benefit. The second area could be if you franchise more collection center, your rental cost and the percentage of revenue actually is coming down because your own infra is high street infra. You end up paying more rent.
Now I think GST impact is also there, right, on that?
Yeah.
I f it moves closer to collection center, it's really that kind of cost structure is not there in their hands. So some of these small, small initiatives, they all add it up, and that's how we get the benefit.
Got it. So right now, I think our patient service center to lab ratio is around 20, 21 times. So what is the ideal number you would look at? I s it different between a Tier 1 and, say, a Tier 2 or Tier 3 city?
Yeah. Tier 1, definitely this number would be higher because you are operating in a small geography. We go deeper, then obviously it will be much lower. Your average number, I don't know where it can stop. There was a time when we were managed to seven also, and I've seen the journey from seven to now 2021. I think this is technically competing with turnaround time as well because more collection centers you have, they are far away from lab. Your turnaround time actually gets sacrificed. So I think it's a very dynamic number. I don't know whether we have a target in our mind. As long as overall sort of a cost overhead, we just keep an eye on that.
I don't think we just decide a target and go after that number because at some point in time, like this year, we are trying to expand more collection centers. So this ratio may go off as well, but it's a very dynamic number. So I don't think we have a number in our mind to achieve.
Okay. Okay. Got it.
The higher the number, the better it is for us.
Helpful. So my second question is with respect to the competition in Delhi NCR region from hospitals. So are you seeing the competition kind of increase on a year-on-year basis, or you think it is more or less in line with what you are expecting?
It's more or less in line with what we expect, but I think last time also we spoke about, there are hospitals, especially the ones which have ambition to become bigger and get listed. They are the ones who are trying to look at retail pathology. But at least in our sales meetings, we don't really get to hear from them that hospital is a very big threat, but definitely it's a competition which is here to stay. There is no doubt about that. T here is a large enough market. In fact, I personally always have believed that organized competition helps all of us because technically you are taking the market away from unorganized players. W hich is what we are seeing the market has started responding now better, and bundling is the effect of aggressive competition activity around bundle packages.
So overall, I have a feeling that these people will help the market to grow on an organized play. Shift from unorganized to organized will move further.
Okay, so are they pricing in line with what we are pricing, or are they more price competitive? Do they price higher? How is their pricing?
They cannot afford to compete with us in pricing because they have to match their internal hospital pricing as well. So I think hospital guys will never be aggressive on pricing. They can be aggressive on building infra, but my sense is they will not go into deep cut the pricing.
Got it. M y last question is with respect to the kind of region-wide growth. So I think we mentioned that West and Delhi NCR have actually grown faster. So which kind of maybe implies that East and South have kind of grown below average? So what has happened there? O n a normalized, say, medium-term growth perspective, which regions do you think can be above corporate average, and which regions would be below?
So I think the difference is not very stark. When I probably mentioned about West region growing faster, it doesn't mean the East has grown very slow. I would actually say if I were to pick one region which probably requires focus is South for us. I think all other regions in front of me, I have the numbers more or less in line with national average, one or two percentage higher or lower. But I think one region which probably requires focus for us is South. So this is going to be a focus area in this financial year.
Okay. So even from a medium-term standpoint, more or less the growth should be split equally, more or less, across regions?
Yes. Yes. So it's a very uniform growth. So it does help us to see that we are not dependent on one region for the growth. It is uniform across India.
When we look at the margins, do you think the margins across regions are similar? Or if there's a rank order, maybe Delhi and NCR would be the highest, but what others would be higher than corporate average, and what others would be lower? I'm not asking for this particular quarter, but in general, on a normalized basis.
Ranking is, I think, it's no brainer. Delhi NCR is the highest. Then come rest of North, and then East and West. Any concentrated geography will always have for us, yeah. No, not for industry.
Okay. W here would corporate average stand? So corporate average would be better than rest of North, or?
Sorry, you're going too detailed. Maybe we can share offline. I don't have the.
Okay. No worries. This is helpful. Yeah. Thank you.
Thank you.
Thank you. We'll take our next question from the line of Saurabh Kapadia from Sundaram Mutual Fund. Please go ahead.
Yeah. Thanks for the opportunity. So initially, you mentioned about making investment in infra and tier one.
Yes. Yes. That mode, please.
So you mentioned about making investment in infra and tier one. So is it a lab investment, or it will be more of a marketing infra?
Yeah, so we are looking at lab and marketing both.
What could be the content of investment?
What will be?
What would be the investment content?
No, no. I think that's more in terms of number of labs that we'll look at. So we are starting to look at new infrastructure in metro and Tier 1 in terms of labs.
Okay. S econdly, with this governance getting completely more dependent, so the result you mentioned is reduction in administrative overhead. So what kind of cost saving could be post this merger of Suburban?
Sorry, we couldn't really get the question.
Not very clear. You're not very audible.
Hello? Yeah. So I'm saying with the voluntary liquidation of Suburban, we mentioned there would be reduction in the overhead cost. So what kind of cost saving we could see post that?
So this is administrative and legal and compliance costs primarily, which can be saved because right now there are multiple entities. Now it will be one. So there are certain costs which we can save on account of these things.
Any number to it?
It's not very substantial, but yeah, there is definitely. There will be some saving.
Okay. Yeah. Thank you.
Thank you. We'll take our next question from the line of Anshul Agrawal from Emkay. Please go ahead.
Hi. Thank you for the opportunity.
Anshul, please use your handset mode. Your audio is not clear.
Is this better?
Yeah. We can hear you. Go ahead, please.
Okay, so if you could just help me with the number of labs we have already added in the nine months ended for this current year.
So we are well on track. We have said 15-20 labs. We are well on track to achieve that by end of the year.
Okay. So I have a follow-up question on that. Has the Delhi region grown on the back of network expansion, or would this be a sort of an SSG kind of growth that we have witnessed over the last two quarters?
So primarily, it is SSG kind of growth as of now. Yeah. So whatever we are seeing in the last two quarters is still primarily SSG.
Got it. Thank you so much. That's it from my end.
Thank you.
Thank you. We'll take our next question from the line of Punit Pujara from Helios Capital. Please go ahead.
Yes. Thank you for the opportunity. My first question is for Dr. Om . So you mentioned that the new labs have stopped coming in, but has that resulted in, let's say, lower valuation in the existing labs? I'm asking this because you have INR 1,100 crore of cash, and I think it makes sense to follow the road strategy. Yeah. That would be my first question.
Market in new labs?
Labs in the market. So I said about labs being stable, right? Stable environment.
Okay. Stable environment. I essentially meant that we tend to see a lot of new labs being launched by smaller players. So especially in the unorganized space, I don't see a lot of new players coming and putting up new labs. That's what I meant by that. But there is an aggression. There is a competition from the organized sector because those players are putting up new labs. But what I meant was unorganized sector.
I see. T he second is clearly you are focusing a lot on growth. So are there any adjacent areas that you are exploring to further accelerate the current rate of growth? So we are currently looking at a few options, but I think there are too immature right now to talk about. But yeah, I mean, over a slightly longer term horizon, there could be some adjacencies.
Yeah. Adjacencies for us essentially is looking at higher-end tests. I n the area of genomics, and Dr. Lal mentioned about him, his comments about GeneEvolve, and it's in the area of autoimmune disorders. So there is a lot of effort going behind promoting higher-end tests. So that actually grows on the back of the network that we have expanded. I think that's the way we look at adjacencies. S econd area is in terms of basic radiology, especially ultrasound and X-ray. W e have a large number of labs where we have these services. That's another area of adjacencies. So that's the way we look at it.
Thank you.
Thank you. We'll take our next question from the line of Sumit Gupta from Centrum. Please go ahead.
Hi. Am I audible?
Yes.
Yes. Yes.
Hi. Thank you for the opportunity. So sir, as you plan to expand geographically across the region, so what is the patient volume growth that you expect going forward over the next three to four years?
This year, last year, I think we ended full year at about 2.7%. I think right now, YTD, we are about 4.4%. Give or take, let's say we are in the range of 4.5%-5% is what I think we are expecting patient volume. Our endeavor is to improve that as we go forward. I think we are not taking any specific target on it, but the idea is to, with the new infrastructure collection, network expansion, etc., we can reach and access larger patient pools and therefore grow better in terms of patient volumes going ahead.
Okay. I n those areas, also, you plan to expand through volume growth to Suburban? Sorry, Swasthfit?
Swasthfit is just one product which plays more prominently in maybe metro, tier one, and some tier two cities. Yeah. So infra growth and Swasthfit are two different axes for growth. They need not be overlapping. They, at a certain level, could be complementary to each other.
So I want to pick up this question on volume. We, first of all, look at volume, both these metrics together. It's not only patient growth, but also sample growth. Because what we are seeing as the contribution of Swasthift is moving up, there is a slight decline that we see on the patient growth because frequency of visits. Actually, technically, these are patient visits. They are not unique patients. So we are seeing the frequency is dropping, and that's why you see slightly slower or lower patient volume growth. So we want to see both together, and we want to see both growing as we move forward.
Understood, sir. S ir, you also allocated revenue contribution from franchisee-based collection center was 45%. So overall, how has the trend been, and how do you expect it to go forward?
I get a sense it's now stabilizing here because in addition to this, we have pickup points, which is nearly about another 20%-25%.
Walk-in home collection.
The rest of it will remain as a walk-in and home collection, which we normally call a retail business, which is our own infra. So I would say it is probably stabilizing at this number.
Okay. S ir, lastly, on the CapEx, so how much CapEx was there in nine months after 25, and what is your guidance for the next year?
In nine months, roughly, we have made a CapEx of around 30 crores. As Shankha mentioned, we are planning to open, let's say, 15-16 labs in this year. So maybe this is coming in the later part of this year, so Q3 and Q4. And going forward, on an ongoing basis, CapEx as a maintenance CapEx is about 60-70 crores per year, excluding any major investment in any other venture.
Understood, sir. Thank you.
Thanks.
Thank you. We'll take our next question from the line of Abdulkader Puranwala from ICICI Securities. Please go ahead.
Yeah. Hi. Thank you for the opportunity. Just a follow-up on what the previous participant was talking about. So I mean, if I see your Swasthfit revenues, they are growing much faster, and I think that is a broader trend for the last couple of quarters. W e have been talking about network expansion into tier two, tier three markets. Well, that has worked quite well. But in terms of the overall growth, that tends to end up to single digit. So just also wanted to understand on the volume front, how is the volume growth being in the Swasthfit versus the residual part of your portfolio? Is there any material difference as compared to how your revenues are getting shaped?
Swasthfit volume? We don't have that data in front of us. We have it?
Not in any way.
We don't have that number in front of us. But overall, volume growth for the business is about.
YTD is 4.4%.
YTD is 4.4%. But we can come back to you offline. You're answering right from ICICI Securities?
Yes. Yes, sir.
Yeah. We'll come back to you.
Second is again along similar lines. While historically, we have seen that bundled test is something which has always attracted a large competition, say, from online or from other channels. If you could share your thought process about carefully selecting this as one of your growth engines for the near future, despite a threat of competition any day coming into it.
I don't think I answered your question.
When you're saying bundle testing can attract competition, and why is it a growth lever?
So I think the bundle testing is a phenomenon which is now across the industry. I think to a certain extent, the promotions done by the online competitors have even spurred this demand overall. So it may not necessarily be one eating into the other. Rather, it has helped building the category much faster.
Okay. Got it. Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We'll take our next question from the line of Yogesh Soni from InCred Equities. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Just wanted to understand what has been the West region contribution in last year, and also wanted to understand your plans on expansion into West and Southern regions? Thank you.
So West region contribution is now nearly 15% all put together, which is similar to what we do in the East. So East and West are now equally balanced now. And West is going up from 14%-15% is what I see.
Okay. Got it. S ir, what endeavors are we making to expand into these two regions, West and South?
South, obviously, is a region for us to focus. As we did, as we have always stated, that these new regions, we look at both organic and inorganic. W e'll continue to put those efforts in these markets, and while on these calls, we can talk about South, but South itself is very big. You have a cluster of Bangalore. You have a cluster of Chennai, Hyderabad. S o we look at cluster by cluster and then grow our business. We will definitely focus much more in South this year than what we've done in the past.
Okay. Thank you. Got it.
Thank you.
Thank you. We'll take our next question from the line of Pradnya Ganar from UTI AMC. Please go ahead.
Yeah. Hello, sir. Good evening. Sir, my question is on the M&A strategy, so while you indicated that M&A, you'd look at it to expand into new geography, but can you also look at M&A to add new capabilities? I mean, are there any kind of testing capabilities that you would want to add and for which you might want to evaluate M&A?
Yeah. That's a good question. Actually, when we look at some of these businesses, and I would say there's a routine testing, which I think every one of us does. Then there are a lot of these high-end tests that are done in India. M any of them are actually nobody has these test instruments. These instruments are actually available off the shelf. So you don't need to go and acquire. Let's say Illumina is one machine for genetic testing, which costs nearly about INR 8-10 crore. So you just go and buy this machine, and you add these tests. You don't need to go and acquire any company. The effort really needs to be put on the sales and marketing side and then acquiring some of these tests.
Because technically, these technologies come from outside, available on the shelf, and you just go and buy this equipment, and you are adding those capabilities. I think the real effort is on the front-end side to grow the business.
Right. So currently, what would be your mix of specialized and semi-specialized tests?
What's the number?
So there is no industry standard definition of specialized. But the way we look at our business, the way we define specialized, that portfolio for us is about 22% right now.
All right. Yeah. That was all from me.
Thank you.
Thank you. We'll take our next question from the line of Prasanth Nair from Ambit Capital. Please go ahead.
Yeah. Thank you. Good evening, everyone. I just wanted to reconfirm the volume growth number for the nine months. Did you mention 4.5% or in that range?
Yeah. YTD. Patient volume, YTD, 4.4.
Okay. I s there a test volume number that you can share?
Yeah. 9.5%.
9.5%.
So when you mentioned.
Prashanth, this is for this number that I'm mentioning to you, 4.4% volume and 9.5% sample growth is for nine months.
Right. Got it. So when you mentioned you want to take volume growth higher, that's the internal thought process. Where do you think you would want to settle? I mean, is it like 100, 200 basis points higher, or can you reach a higher number than that?
Yeah. Okay. Don't hold me for that number, but I would say that if you go back in time before COVID, our average volume growth used to be in the range of about eight or 10 CAGR.
Thank you.
Right, and then we saw a phase where the sample growth was not much during that period. Then we went into a phase where the sample growth picked up and the volume growth declined, and we were actually struggling to figure out what's really going on, and one of the variables we found was Swasthfit. Because as the bundling contribution was going up, sample growth was going up, but the volume was coming down. But then I look at volume growth as a surrogate measure for our expansion efforts. I would want to see that more and more patients coming from newer markets, it gives us that we are expanding. Sample growth at times tends to convey that you are actually upselling to the existing customer base.
So I think probably my message to the team would be at least go back to this number of 7%-8% that we were doing in the past.
Right. J ust one follow-up question. Om, I think while the volume growth in terms of patients has come down, I think your test per patient has probably gone up over this period.
Yes.
Yeah. So do you think you'll be able to retain that number at where it is now or maybe improve on it while you also step up on patient growth?
I think directionally test per patient, there are lots of tailwinds on that. One tailwind, of course, is the bundling. The other tailwind I find is that generally, and I think you guys cover pharma as well, maybe you may want to study some of this prescription behavior. I'm noticing that now more and more tests get prescribed on the same prescription than before. So that is also happening. So I think there is a favorable sort of situation for test per patient in the future.
Okay. Got it. Yeah. Thanks a lot.
Thank you.
Thank you. We'll take our next question from the line of Rahul Jeewani from IIFL Securities. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. Sir, now you're talking about lab expansion in metro and Tier 1 markets as well. And as you rightly pointed out, that we see a lot of these bundle tests on Swasthfit, primarily in larger metro markets. So with the expansion which we are targeting in metro markets, is there a potential that the sample volume growth, which has been around 9.5%-10% for us, that can accelerate to a low double-digit kind of a number going forward?
But it will get offset by newer markets going up for Swasthfit. Because it's not Delhi and NCR alone. You have entire UP, rest of North. These labs are also responding very well to Swasthfit kind of packages. So I think if there is a headwind in bigger towns, then it will definitely get offset by smaller towns. That's my take. Shankha, you have a view on this?
No. I think it is all just a slight shift to say that there is still quite a bit of headroom in the metro and Tier 1 towns which we want to capture. N ot only will it be captured through Swasthfit or bundle packaging, but also the prescriptions which come out and where there is a lot of tag-dependent delivery expected.
Sure, sir. So I wasn't talking about any headwind. Actually, I was talking about this tailwind that over, let's say, the past two, three years, we have been expanding in Tier 2, Tier 3 markets in North and East. Now we are talking about expansion in metro markets as well. So with that expansion in metro markets, is there a potential that we actually start seeing an acceleration in volume growth, both on the patient volume as well as the sample volume growth?
So these are, in my view, quite. It's a part of the overall mix. If you see the contribution of metro and Tier 1 today, and we've been talking about our Tier 3, Tier 4 kind of contribution, so therefore, it's not as if metro and Tier 1 is a huge contributor. It's also a part contributor. It's just about ensuring that there are a lot of lab-dependent testing opportunities or patient opportunities that we sense in these markets as well, which we would like to capture. Yes, the idea is to help us get newer patients or patients who may not be coming to us, and in a certain sense, it will help patient volume growth as well as sample growth.
Sure, sir. Thanks. That's it from my side.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing call. Over to you, sir.
Thank you, everyone, for being with us on this call today. We express our gratitude for your continuous trust and support. I hope we are able to answer all your queries and questions. Please feel free to reach out to us in case you have any further queries. Thank you once again. Now we can close the call.
Thank you, members of the management team. On behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.