Dr. Lal PathLabs Limited (LALPATHLAB) Earnings Call Transcript

Thank you. Good evening, everyone, and welcome to Dr. Lal PathLabs Quarter 1 FY '27 Earnings Conference Call. Today, we are joined by senior members of the management team, including [ Honor Ravi Brigadia ], Dr. Arvind Lal, Executive Chairman; Mr. Shankha Banerjee, CEO; and Mr. Ved Prakash Goel, Group CFO and CEO, International Business. I would like to share our standard disclaimer. Some of the statements made on today's call could be forward-looking in nature, and actual results could vary from these forward-looking statements. A detailed description in this regard is available in the results presentation that has been circulated to you and is also available on the stock exchange website. I would now like to invite Dr. Arvind Lal to share his perspectives. Thank you, and over to you, sir.

Thank you very much. Good evening, ladies and gentlemen, and welcome to our first earnings call for the financial year 2027. '27 is for us a year of execution, scaling what we have already built, deepening our reach into new markets, including rural. The Indian diagnostics industry remains firmly in a structural growth phase. Demand is no longer anchored only to episodic illness. It is increasingly shaped by the rising burden of lifestyle and noncommunicable diseases, growing health awareness and driving disposable income that are making regular preventive testing a part of everyday life. We also remain deeply committed to providing access to quality diagnostics in the underserved regions of the country. Towards that, we have launched a rural outreach program, which is now active in seven states, and we have tested more than 110,000 patients in these areas in the first quarter of this year. We have continued to widen our footprint with purpose. The incorporation of our wholly owned subsidiary in Dubai marks a considered first step in extending our diagnostics expertise outside India, building on our existing presence in Nepal and Bangladesh. In parallel, the broader health care ecosystem is expanding with hospitals across the country, adding new capacity and capability. This tailwind is opening up deeper integration, stronger clinical partnerships and great scope for super specialized testing over time. Dr. Lal is well placed to lead through this shift and our continued investment in scientific leadership, R&D, digital infrastructure and service standards is aimed squarely at capturing it responsibly for the long term. I will now hand over to Mr. Shankha Banerjee to take you through our operational and financial performance for the quarter. Over to you, Shankha.

Thank you, Dr. Lal, and good evening. We are glad to be here today to review our operational performance and strategic milestones as we conclude the first quarter of financial year 2027. We have entered the new fiscal year with strong operational momentum, sustaining the resilient growth trajectory established in FY '23. We crores in Q1 FY '27, registering a year-on-year growth of 19.1%. It is important to note that this revenue growth rate is the highest quarterly growth rate achieved in the last 4 years. The revenue growth is mainly driven by patient volumes, which stood at 8.2 million with a growth of 8.2% and sample volumes, which stood at 25.9 million with a growth of 10.7%. It is important to note that our performance continues to be driven by underlying organic business trend. It is important to note that our performance continues to be driven by underlying organic business trends. Our execution strategy rests on three key pillars. The first [indiscernible] under that, we have launched 16 new beds with four first in India beds in this quarter. Expanded advanced diagnostics through NGS scanners, flow-cytometry-MDS assay, perforin assay, AI-enabled is pathology and 81 [indiscernible]. The second pillar is enhanced patient experience. On that, we have launched a GenAI patient bot on WhatsApp, enabling conversational transactions. Delivered with journeys for test inquiry, telocation inquiry and report access. It reduces booking friction, personalized interactions and positions of Dr. Lal PathLabs at the forefront of the GenAI patient engagement. The third pillar is operational excellence. The sustained focus on operational excellence has resulted in industry-leading turnaround time on whole [ exome ] sequencing to 15 days and an express whole [ exome ] sequences and tending our routine testing portfolio of more than 400 test is now delivered in 3 hours for almost 90% of walk-in patients. [indiscernible] and AI tools to improve customer experience, optimize operations and advance clinical capabilities in areas such as pathology and cancer diagnostics. Looking ahead, we are well wished to maintain our targeted sustainable revenue growth over the medium term backed by structural volume tailwinds, expanding diagnostic footprint and enhanced focus on high-end specialized sets. We also retain a significant pricing headroom as a strategic lever going forward. With that, I will now hand over the call to Ved to discuss the financial metrics for the quarter in more detail.

Thank you, Shankha. Good evening, everyone, and a warm welcome. Thank you for joining us today. I will take you through the key financial highlights for the quarter ended 30th June, 2026. Revenue for Q1 FY '27 stood at INR 798 crores compared to INR 670 crores in the same quarter last year, reflecting a strong growth of 19.1%. Revenue per patient rose to INR 968, up by 10% from INR 818 with Q1 last year. Result favorable change in the test and geographic mix and increase in cases prices. Cash per patient increased to 3.14% compared to 3.07% in the same period last year, highlighting continued traction in our asset portfolio. EBITDA for the quarter came in at INR 47 crores versus INR 192 crores in Q1 FY '26 with a growth of 28% with EBITDA margin of 31%. Profit before tax rose to INR 69 crores or INR 181 crores, up 26.8%, with a PBT margin of 28.7%. Profit after tax stood at INR 170 crores compared to INR 134 crores in Q1 FY '26, delivering 27.2% growth with a PAT margin of 21.4%. Earnings per share for Q1 FY '21 came in at INR 10.1 up 27.8% from 7.9% in the corresponding quarter last year. Our bank sheet continue to be strong and resilient with a net cash and equivalent of INR 1,693 crores as on June 30, 2026. Now I would like to give you an update on two transitions, which the Board has approved per addition of 50% equity stake in [ San Chang ] Healthcare Limited in [ Hana ], engage the diagnostic business for a consideration not exceeding a [indiscernible] of INR 45.6 million. The second, the exposition of 30% is stake in [ Neon ] Technology Private Limited engage in innovative solutions in sample reservation and biobanking for a concession of exceeding INR 3.5 crores. This is in line with our focus on salinity innovation. Further, I'm happy to share that the Board of Directors have declared an interim dividend of 50%, that is INR 5 per share. We remain confident in our outlook and our ability to deliver sustainable and profitable growth. While continuing to hold our commitment to providing reliable and high-quality diagnostics. On my opening remarks. I will now recess the moderator to for Q&A.

[Operator Instructions] The first question is from Amey from JM Financial.

Remind on the good set of numbers. First question on the revenue per sample and the revenue per patient growth, it is quite high this quarter. You mentioned in your remarks that some of it is led by the hike in the CGHS prices. Is it possible to quantify how much portion of it would it be? And how sustainable should we assume that the growth will pick up for the entire year because of this?

Yes. Thanks for the question, Amey. So the [indiscernible] CGHS price increase is now flowing through into the system. Other assessment is that it kind of is in fact in to the tune between 2% to 3% at an overall company level. And I think this benefit will continue for at least another 2 to 3 quarters.

Sure. And in terms of volume growth, this second quarter, we have maintained 8% volume growth. on to slightly softer quarter. So will this volume growth continue or will it improve in the remaining of the year? What is our sense?

So at the beginning of the year, I think we had said that we are looking at volume growth which is patient volume between 6% to 7%. So Q1 definitely comes slightly ahead in terms of the volume -- patient volume growth number. I think it is too early to comment because we have also mentioned in the past that 1 quarter is not maybe the way to maybe cut of the business because there could be some shift between quarters, which may happen. So I think we are through Q2 as well, when we have done half the year, we might be in a better position to talk about what the outlook for the year would be more.

Sure. And just last question, if I can squeeze in. So look, we were talking about general price hike for second half of this year. So because of this -- now the CGHS contribution is helping us. So should we assume that this price hike will be delayed now?

So Amey, I think price increase is something for us, which is quite a -- it's a strategic lever. So it depends on multiple factors, including how the pricing table of the competition is moving as well as are there enough or are there any cost pressures, et cetera, that need to be looked at. So right now, we had anyway indicated that we would be thinking about something related price only towards the end of the year. So -- but I think somewhere there is when we will reassess that pricing change is required or not. As of now, we were anyway not thinking about a price increase in the first half of the year. So I think we'll look at it once the first half of the year is over.

The next question is from Tausif Shaikh from BNP Paribas.

On an opening remark, you have said that Dr. Lal has started a rural program in seven states. Can you just throw some light on the program? And also the patient volume growth of 8%, is it fair to assume the large part of volume growth would be coming from Tier 2 cities of North India?

So the rural outreach program is a drive that we have taken -- it's kind of an initiative where we are looking at NCD or the noncommunicable disease burden is not only there in the urban part of the country, but it is also -- we assess is maybe there in the rural part of entry. So this drive is more of a health initiative for the rural people. And we have actually started this some few quarters back. And right now, I think we are talking about it because it will reach some level of scale. Now in terms of the overall patient volume growth, the volume -- patient volume growth, we are seeing is across the geography is not restricted to [indiscernible].

That's helpful. Just last question. Do you maintain your guidance of mid-teens revenue growth and EBITDA margin of 26% to 28% for this fiscal after a strong start?

So like I was mentioning to the previous question that the first quarter results have come slightly ahead of our expectations. And we'll have obviously more I would say more positive way of giving a forecast or a change in forecast after the first half of the year is lower. But having said that, looking at what -- how we have moved in first quarter, chances are you might be more towards mid-teens rather than early teams.

The next question is from Yogesh Soni from Haitong Securities.

First thing is I wanted to understand on the [indiscernible] -- so what I understand is that pit has been growing at a healthy rate around high teens to near 20%, so do we expect first fit to continue sustain this high teens kind of a growth going forward as well?

So even this quarter, our [indiscernible] growth has been kind of in the 20% range as well I think we are definitely looking at sustaining this growth at this level. That's the idea. And what we are seeing is that we are seeing traction of sort Tier 2 and PSC geography. So it is getting much more wider excesses. And that therefore, we believe that this growth rate should be able to sustain for some more time.

And just to add on to what you said. I mean your rural outreach or is that also expected to elevate this at fit growth?

The rural outreach program is not driven by soft [indiscernible]. It's a different program. It's a much more affordable rural kind of a package. So there, the objective is, like I said, it's more about trying to see how we can serve the rural population, identify what kind of noncommunicable diseases are prevalent there and then later on see how the -- that part of the population can also get the benefit of good quality testing to identify their conditions. It is not for [indiscernible].

Okay. Okay. Understood. And second question, sir, I wanted to understand how are we tracking on the genomics and radiologic front? I mean whether -- the contribution from these segments have reached near high single digit? Or are we at a lower revenue contribution?

See, we don't really talk about genomics separately in terms of the contract. But suffice to say that we are focused on genomic given that it has quite a lot of applications in the newer emerging cancer diagnostics and even some of the other diagnostic areas. So therefore, we are kind of focus on that portfolio. Plus, it is not in terms of contribution or moving significantly. It is still less than 5% of our portfolio.

Next question is from Anshul Agrawal from Emkay.

First question is on the increase in realization. Just wanted to understand this better, sir. What kind of contribution would be coming from this favorable geographic or favorable test mix. I understand CGHS rate hikes has resulted into 2% to 3% realization hike. But the other components, what could be the contention, if you could just throw some light here?

So like I think Ved mentioned in the opening remarks, it's a mix of the and geography. Now different portfolios are there the contribution mix from different geographies like, for example, we said the Delhi NCR for us is a higher realization geography. So the performance in the better realization. Likewise, when you look at the overall geography mix, each individual item will be very difficult for us to say because our pricing is different in different geographies, geographic clusters. So if you take out the HCS pricing benefit of 2% to 3%, the rest is because of the test and [indiscernible].

Okay. So I can sort of did you that Delhi or the core NCR region would have grown in line or slightly better than what the overall portfolio has done?

So our idea has always been to grow Delhi NCR in line double digit and as near to the overall revenue as possible, and we are still able to that.

Sir, second question is on the acquisitions that we have made in the current quarter. First, on [ Neon ] Technologies. Is this -- if I understand this correctly, is this sort of venturing into allied health care services? Or will this investment we used to sort of -- for internal consumption or backward integration kind of purposes?

So [ Neon ] technologies is a start-up, which is working on what some interesting innovative possibilities within the diagnostic supply chain. And we see some of these certified, they have huge operational benefit for the truth business. And I think we will jointly be working with the teams there to make some of these things successful. So it is not about pulling into something new, but a lot of it will be direct benefit in our operational business.

Got it, sir. And one question on the other acquisitions. So what percentage of the overall revenue is being contributed by international business currently? And any plans or any target for this business to sort of contribute, say, high single-digit revenue to the overall revenues, say, 3 to 4 years out, 5 years out.

So it is a slightly longer wave line project for us. And these are the steps that we are taking today doesn't necessarily mean that the contribution from these markets or international is going to change significantly in the near term. But the idea is, yes, over a slightly longer-term horizon, we should be able to increase the contribution of international. As of now, we have not set after any target like that because we still need to learn a lot about running the international operations, fine-tuning it, settling it down. I think once we get those things done, and we understand the dynamics of running more international geographies, which are not really in the intense of continent, we can -- we may be thinking about a plan of really putting forward numbers on how we would like the contribution would look like for sizes down the line.

Got it, sir. Just one last question, if I can squeeze in. Any guidance on the number of lab additions that we plan to do for the current year? Will it continue just like last year?

Yes, it is going to be more like last year. We are looking at between 12 to 15 labs to be added this year as well.

Great. And anything on the radiologic front, sir? Would you look to add more centers?

So there are a few centers that we are looking at to add in Delhi NCR, and we may also try and pilot one or two centers outside of Delhi NCR into Tier 2 towns to see how that business model shapes up. So it could be maybe three to four centers this year.

The next question is from Prakash Kapadia from Kapadia Financial Services.

Really appreciate the growth trajectory, which has come all the efforts, which we've been taking have fructified and hope this becomes a structurally high growth as we've always hoped for. So congrats to the team. Finally, all the efforts are showing. A couple of questions from my end. West India has been the performance, if you could give some insight because we had a low base earlier, there were integration issues. So how is West India shaping up?

Right. So Prakash, I think the good news is most like the integration, the limbs integration that we did the all digital thing. I think for this quarter also, we are seeing our traction improving. So it is the suburban business specifically, which is the main driver of our West portfolio right now, is really turning around and on trajectory moving -- it's very close double digits actually right now in terms of growth.

And that should continue. It was -- seems to be [indiscernible] should that be slightly...

So you are right. I mean that is exactly the plan that every quarter also, we have started rather last quarter itself, we have started now investing into newer, so newer regulatory centers and collection network through the suburban brand. And we are quite hopeful that in the coming quarters, this trajectory should start moving up further. Your voice is cracking can't get [indiscernible].

I'm sorry, we seem to have lost the line for Prakash. We'll take the next question. The next question is from Saion Mukherjee from Nomura.

Is you mentioned one pillar of growth, which is these new tests, which you are introducing. Some of them are first in India or even in Asia. I just wanted to understand the kind of market opportunity, these new tests provide? And how do you -- are you to develop these in-house or you partner through business development efforts with other companies abroad, if you can just talk about the dynamics there? And given India's demographics, what's the kind of addressable market size all these new tests can have? .

So Saion, the pillar that I talked about was not really new tests. The pillar that I talked about was scientific excellence. Now one of the factors around scientific excellence and specifically in the clinician community, the vital complicated cases and ability to really be able to two high complex highly complex testing. So the company which helps solve complicated cases also is a natural choice for all the other I think that might be emanating from the institution or for that lease specialty. So the way that we track the results are not for the new tests that are getting launched because they may be far and few in between, but it is about our ability to really convert more clinicians or get Dr. Lal PathLabs diagnostic providers and therefore, their share of business approved to the company.

Understood. And so these stats are developed by you in-house or they are kind of in partnership with other companies? How do...

They are -- I think they are both kinds. But right now, a lot of this is in partnerships, including international partners.

Okay. Okay. Great. And just one question. I think on -- I think you talked about it sort of your international foray, is currently the contribution is not significant, right? And it may not increase meaningfully at least in next 3, 4 years? Will that be a right assessment?

Yes. So the contribution is less than 5% and I would say, at least in the next significantly going beyond that number in terms of...

Next question is from Shyam Srinivasan from Goldman Sachs.

Just the first one on the increase in the revenue per patient just trying to dissect again. I was just -- I thought in your remarks, you said geographic mix, test mix and CGHS, you obviously called out that between 2% and 3%. I just noticed that the wasted contribution Y-o-Y has not changed. So when you mean test mix, what would that mean?

So we have a portfolio of specialized tests. We have other tests also with high realization. So the rustic contribution remains the same because it has grown similar. So it has also grown at around 20%, and overall revenue has also grown around 19%. So therefore, contribution has not changed. Our [indiscernible] growth is still quite strong, but the contribution has not changed. So that is the reason why you see first contribution not changing, but the specific growth is still quite good. And the other part of our portfolio realization portfolios are also growing.

Got it. Sir, Shankar, historically, [indiscernible] was growing like so -- and this is 1 quarter where that is not sort of the case. So I was just trying to understand, which are these additional tests outside of [indiscernible] look like? Is it B2B as you're seeing that we have seen higher realizations?

I don't think we are commenting on a test level performance here. But what I can say is that we have a specialized test portfolio, which has higher realizations and even that portfolio has done [indiscernible].

Got it, yes. Very helpful. Second question just is on the reclassification of, I think, costs between the different line items that I think footnote 15, so some INR 8 crores has changed. So I just want to understand what is the between fees, collection fees, I think other expenses and even in employee expenses, there's been some change. Is it historical.

So some [indiscernible] and related to [ Noranda ] was regrouped from manpower personnel costs to other costs. There is no other relation.

Sorry, with your voice is cracking or maybe it's my line, but can you repeat?

I'm saying there are costs it is clear which has been reclassified from manpower personnel costs to other logistic costs, which is part of other costs. There is no realization in these two collections settlement now.

Understood. So when we now look at employee as a percentage of revenue, okay, the number is 16.6%. Historically, this number is to be 18%, 19%. So this is a structural change, right? That's what you think.

Actually, like last quarter also, we have beaten this percentage because we have higher revenue. So this percentage is looking low -- but as such, there is no change at the most. It's a like-for-like were from previous quarter as well as this quarter, we have reclassed [indiscernible] from expenses.

The next question is from Rahul Jeewani from IIFL Securities.

Now sir, if we see for the entire diagnostic industry, we have seen a growth acceleration for past 2 quarters, so including your peers and yourself, there has been some sort of a growth acceleration in fourth quarter and 1Q of this year. Now part of the reason which you pointed was the CGHS price increases to the tune of, let's say 3%, but apart from CGHS increases, has there been any structural change in the industry, which is, let's say, now adding the growth profile for all the diagnostic companies, at least for the past 2 quarters?

So no, that's an interesting call out, and you are right, even when we look at our numbers, the growth is structural. It is coming from all the geographies that we have. So one thing is obviously, like we said, about CGHS. I think any other underlying I think we got to wait for a few more quarters to really be more clarity in terms of the numbers from -- at a test level, client level, et cetera, before we can decipher because there is no other differential trigger that we have been able to identify as of now. But the all around.

Sure, sir. And let's say, our patient volume growth, which 2 quarters back over around 5.5% to 6% kind of a number. And right now, we let's say, of this incremental growth on the patient volume side, can you call out the levers which has led to this acceleration? You obviously talked about suburban adding a larger number of radiology centers. So is that contributing to your patient volume growth acceleration?

See, right now, I would not jump to that [indiscernible], the reason is in Q2 or Q3 of last year, when we were doing the call and the conversation, one of the reasons why the patient growth numbers were low was also to do with the figure season. And I think we have spoken about that. So I think we need the cycle to run through 2 quarters for us to say that what is really -- that it has really caught on because we haven't yet entered fever season this time down. So once Q2, Q3 is done is when I think there will be more clarity on the patient volume growth number, how is it kind of panning out for the year?

The next question [indiscernible].

The volume is not clear, sorry.