DR. LAL PATHLABS LTD… · DR. LAL PATHLABS LTD Result Update (CONSOLIDATED BASIS): Q2 FY19 CMP: 962.65 DEC 13th, 2018 Overweight ISIN: INE600L01024 Index Details SYNOPSIS Dr Lal

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DR. LAL PATHLABS LTDResult Update (CONSOLIDATED BASIS): Q2 FY19

CMP: 962.65 DEC 13th, 2018

Overweight ISIN:INE600L01024

Index Details SYNOPSISDr Lal PathLabs Limited is one of India’s leadingconsumer healthcare brands in diagnosticservices.During Q2 FY19, the consolidated net profitjumps to Rs. 570.00 mn from Rs. 509.00 mn inQ2 FY18, an increase of 11.98%.Consolidated revenue for the quarter rose by14.17% to Rs. 3175.00 mn from Rs. 2781.00 mn,when compared with the prior year period.For the quarter Q2 FY19, consolidated EBITDAgrew by 14.14% at Rs. 977.00 mn as against Rs.856.00 mn in the corresponding period of theprevious year.During Q2 FY19, consolidated Profit before taxgrew 13.24% at Rs. 881.00 mn against Rs. 778.00mn in Q2 FY18.EPS of the company stood at Rs. 6.84 a shareduring the quarter, as against Rs. 6.11 per shareover previous year period.For the six months ended on 30th Sep, 2018,revenue of the company was Rs.6098.00 mn asagainst Rs. 5274.00 mn in corresponding periodof previous year, up by 15.62%.In H1 FY19, Net Profit of the company hasincreased by 11.65% to Rs. 1064.00 mn from Rs.953.00 mn in H1 FY18.The Company processed 11.1 mn samples as on30th Sep 2018.The Company Continued traction in patientvolumes at 18.8% in Q2 FY19.The company declared an interim dividend of Rs.2.50 per equity share (@ 25 % on a face value ofRs. 10/- per share) for the Financial Year 2018-19.Net sales and PAT of the company are expectedto grow at a CAGR of 16% and 17% over 2017 to2020E, respectively.

Stock DataSector Healthcare ServicesBSE Code 539524Face Value 10.0052wk. High / Low (Rs.) 1120.00/800.00Volume (2wk. Avg.) 37000Market Cap (Rs. in mn.) 80188.75

Annual Estimated Results(A*: Actual / E*: Estimated)Years (Rs. in mn) FY18A FY19E FY20ENet Sales 10569.00 12154.35 14342.13EBITDA 2952.00 3532.71 4210.72Net Profit 1708.00 2032.59 2439.17EPS 20.50 24.40 29.28P/E 46.95 39.45 32.88

Shareholding Pattern (%)

As on Sep 2018 As on June 2018

Promoter 57.41 57.41

Public 41.37 41.35

Others 1.22 1.24

1 Year Comparative Graph

DR. LAL PATHLABS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)DR. Lal PathLabs Ltd 962.65 80188.75 21.91 43.94 10.14 45.00Thyrocare Technologies Ltd 549.20 29505.00 17.73 30.98 6.66 100.00Kovai Medical Center & Hospital Ltd 718.00 7856.50 47.56 15.09 2.71 30.00GKB Ophthalmics Ltd 131.00 607.90 -- -- 2.22 0.00


QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results update- Q2 FY19,

Rs. in Million Sep-18 Sep-17 % Change

Revenue 3175.00 2781.00 14.17%

Net Profit 570.00 509.00 11.98%

EPS 6.84 6.11 11.98%

EBIDTA 977.00 856.00 14.14%

Dr. Lal PathLabs Ltd has achieved a turnover of Rs. 3175.00 million for the 2nd quarter of the FY 2018-19 as against Rs.

2781.00 million in the corresponding quarter of the previous year, an increase of 14.17%. Reported earnings per share of

the company stood at Rs. 6.84 in Q2 FY19 as against Rs. 6.11 in the corresponding quarter of the previous year. During

the 2nd quarter, net profit stood at Rs. 570.00 million from Rs. 509.00 million in the corresponding quarter ending of

previous year. Profit before interest, depreciation and tax stood at Rs. 977.00 million as against Rs. 856.00 million in the

corresponding period of the previous year, up by 14.14%.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q2 FY19 Q2 FY18 %Change

Cost of MaterialsConsumed 660.00 576.00 15%

Employees BenefitExpenses 487.00 434.00 12%

Depreciation &Amortisation Expense 89.00 71.00 25%

Fees to CollectionCenters/ChannelPartners

393.00 335.00 17%

Other Expenses 700.00 599.00 17%


Result Highlights

H1 FY19:

The company achived a revenue growth of 15.62% at Rs. 6098.00 mn in H1 FY19 as compared to Rs. 5274.00 mn in

the corresponding previous year period.

During H1 FY19, PAT of the company registered at Rs. 1064.00 mn as compared to Rs. 953.00 mn in H1 FY18, up

by 11.65%.

Q2 FY19:

The Company processed 11.1 mn samples as on 30th Sep 2018.

Cash, FDs and Liquid Investments at Rs. 6332 million as at Sep 30, 2018 from Rs. 6085 million as at June 30, 2018.

The Company Continued traction in patient volumes at 18.8% in Q2 FY19.

Stable tests per patient at 2.34 vs. 2.28 as on 30th Sep 2018.

Number of patients tested was at 4.8 million in Q2 FY19.

Areas of focus include; bundled tests scheme -‘SwasthFit’, digital interactions, elevated experience for the customer

and specialized tests.

Inerim Dividend:

The coompany has declared an interim dividend of Rs. 2.50 per equity share (@ 25 % on a face value of Rs. 10/- per

share) for the Financial Year 2018-19.

COMPANY PROFILE

Dr. Lal PathLabs is a provider of diagnostic and related healthcare tests and services in India. Through its integrated,

nationwide network, the company offer patients and healthcare providers a broad range of diagnostic and related

healthcare tests and services for use in core testing, patient diagnosis and the prevention, monitoring and treatment of

disease and other health conditions.

Dr. Lal PathLabs has built a national, “hub and spoke” network that includes its National Reference Laboratory in New

Delhi, Regional Reference Lab in Kolkata and 191 other clinical laboratories, 2153 patient service centers and 5,624

pickup points as of March 31, 2018. Their customers include individual patients, hospitals and other healthcare providers

and corporate customers.


FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31st, 2017 –2020E

FY17A FY18A FY19E FY20EASSETS1) Non-Current Assets

a) Property, plant and equipment 1079.00 1598.00 1677.90 1778.57b) Capital Work in Progress 156.00 96.00 129.60 165.89c) Goodwill 279.00 312.00 327.60 347.26d) Other Intangible assets 166.00 198.00 166.32 149.69e) Intangible Assets under Development 19.00 0.00 0.00 0.00d) Financial Assets

i) Loans 1.00 1.00 1.05 1.09ii) Other Financial assets 212.00 379.00 140.23 105.17

e) Non Current Tax Assets 70.00 93.00 97.65 101.56f) Deferred Tax assets (Net) 137.00 169.00 218.01 272.51e) Other Non Current assets (Net) 116.00 113.00 103.96 97.72Sub - Total Non- Current assets 2235.00 2959.00 2862.32 3019.46

2) Current Assetsa) Inventories 179.00 273.00 313.95 351.62b) Financial Assets

i) Investments 1061.00 1448.00 1520.40 1611.62ii) Trade receivables 418.00 412.00 568.56 909.70iii) Cash and Bank balances 286.00 658.00 1506.82 1928.73iv) Other Bank balances 2110.00 2477.00 2774.24 3051.66v) Loans 2.00 2.00 7.47 9.56vi) Other financial assets 480.00 799.00 958.80 1131.38

c) Other current assets 130.00 161.00 185.15 207.37Sub - Total current assets 4666.00 6230.00 7835.39 9201.64

Total Assets (1+2) 6901.00 9189.00 10697.71 12221.11EQUITY AND LIABILITIES1) EQUITY

a) Equity Share Capital 831.00 833.00 833.00 833.00b) Other equity 5124.00 7078.00 8210.48 9277.84

Total Equity 5955.00 7911.00 9043.48 10110.842) Minority Interest 25.00 38.00 39.90 41.903) Non Current Liabilities

a) Financial Liabilitiesi) Borrowings 0.00 0.00 0.00 0.00ii) Other Financial Liabilities 65.00 76.00 45.60 32.84

b) Other non-current liabilities 8.00 4.00 2.00 1.44Sub - Total Non Current liabilities 73.00 80.00 47.60 34.28

4) Current Liabilitiesa) Financial Liabilities

i) Borrowings 0.00 0.00 0.00 0.00ii) Trade payables 524.00 655.00 838.40 1048.00iii) Other financial liabilities 155.00 270.00 320.07 374.48

b) Provisions 69.00 87.00 75.69 70.39c) Current Tax liabilities (net) 2.00 14.00 174.45 357.80d) Other current liabilities 98.00 134.00 158.12 183.42Sub - Total current liabilities 848.00 1160.00 1566.73 2034.09

Total Equity and Liabilities (1+2+3+4) 6901.00 9189.00 10697.71 12221.11


Annual Profit & Loss Statement for the period of 2017 to 2020E

Value(Rs.in.mn) FY17A FY18A FY19E FY20E

Description 12m 15m 12m 12mNet Sales 9124.00 10569.00 12154.35 14342.13Other Income 275.00 312.00 421.20 539.14Total Income 9399.00 10881.00 12575.55 14881.27Expenditure -6749.00 -7929.00 -9042.84 -10670.55Operating Profit 2650.00 2952.00 3532.71 4210.72Interest -7.00 -8.00 -8.40 -8.82Gross profit 2643.00 2944.00 3524.31 4201.90Depreciation -275.00 -331.00 -390.58 -449.17Profit Before Tax 2368.00 2613.00 3133.73 3752.74Tax -812.00 -895.00 -1083.65 -1291.69Profit After Tax 1556.00 1718.00 2050.09 2461.04Minority Interest -10.00 -10.00 -17.50 -21.88Net Profit 1546.00 1708.00 2032.59 2439.17Equity capital 831.00 833.00 833.00 833.00Reserves 5124.00 7078.00 8210.48 9277.84Face value 10.00 10.00 10.00 10.00EPS 18.60 20.50 24.40 29.28

Quarterly Profit & Loss Statement for the period of 31st Mar, 2018 to 31st Dec 2018E

Value(Rs.in.mn) 31-Mar-18 30-June-18 30-Sep-18 31-Dec-18EDescription 3m 3m 3m 3mNet sales 2668.00 2923.00 3175.00 2984.50Other income 89.00 94.00 109.00 103.55Total Income 2757.00 3017.00 3284.00 3088.05Expenditure -2028.00 -2173.00 -2307.00 -2233.60Operating profit 729.00 844.00 977.00 854.45Interest -2.00 -2.00 -2.00 -1.74Gross profit 727.00 842.00 975.00 852.71Depreciation -107.00 -88.00 -94.00 -101.52Profit Before Tax 620.00 754.00 881.00 751.19Tax -218.00 -257.00 -307.00 -260.66Profit After Tax 402.00 497.00 574.00 490.53Minority Interest -1.00 -3.00 -4.00 -5.00Net Profit 401.00 494.00 570.00 485.53Equity capital 833.00 833.00 833.00 833.00Face value 10.00 10.00 10.00 10.00EPS 4.81 5.93 6.84 5.83


Ratio Analysis

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 18.60 20.50 24.40 29.28

EBITDA Margin (%) 29.04% 27.93% 29.07% 29.36%

PBT Margin (%) 25.95% 24.72% 25.78% 26.17%

PAT Margin (%) 17.05% 16.26% 16.87% 17.16%

P/E Ratio (x) 51.74 46.95 39.45 32.88

ROE (%) 26.13% 21.72% 22.67% 24.34%

ROCE (%) 49.12% 41.50% 43.38% 46.09%

Debt Equity Ratio 0.00 0.00 0.00 0.00

EV/EBITDA (x) 28.88 25.61 21.06 17.48

Book Value (Rs.) 71.66 94.97 108.57 121.38

P/BV 13.43 10.14 8.87 7.93

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 962.65, the stock P/E ratio is at 39.45 x FY19E and 32.88 x FY20E respectively.

Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 24.40 and Rs. 29.28

respectively.

Net sales and PAT of the company are expected to grow at a CAGR of 16% and 17% over 2017 to 2020E,

respectively.

On the basis of EV/EBITDA, the stock trades at 21.06 x for FY19E and 17.48 x for FY20E.

Price to Book Value of the stock is expected to be at 8.87 x and 7.93 x for FY19E and FY20E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

The healthcare industry saw a renewed interest and investments growth during the year. The Union Government has also

increased its allocation for Healthcare and Family Welfare by nearly Rs. 55000 million and the importance of this sector

is well understood and exemplified in the new proposals outlined this year. This includes the National Health Protection

Mission (NHPM) under which over 100 million poor and vulnerable families would be covered for secondary and tertiary

care hospitalization and opening of 150,000 health and wellness centres. While the Indian healthcare market is estimated

to touch USD 280 bn by 20202 and USD 372 bn by 2022, it is estimated that diagnostics including imaging based

diagnostic services would grow at 14-16% over the next couple of years and touch around USD 12 bn by 2020.

The Government has also announced a campaign to eradicate tuberculosis in India by 2025 and to this end, grass root

level plans are under execution. It is also pertinent to note that the focus on affordable healthcare is increasing and the

Governments both at Centre and State level are taking initiatives in this direction to make healthcare both accessible and

affordable.

Rapid growth in the industry is therefore expected to continue and is further being driven by various factors

including:

Increase in evidence-based treatments

Wide gap between demand-supply

Changing disease profiles and drug resistance

Increase in health insurance coverage including newly announced schemes like NHPM

Need for greater health coverage as population and life expectancy increases


Rising income levels make quality healthcare services more affordable coupled with tax incentives for availing

medical

insurances

Demand for lifestyle diseases-related healthcare services

Increase in preventive health check ups

Mobile and digital based delivery systems including aggregators

As is the case with most sectors, the diagnostic industry has a predominance of unorganized players due to absence of

stringent regulations and low entry barriers. Diagnostic chains command about 15% share. Within this pie, large

nationwide chains, such as Dr Lal PathLabs enjoy a 35-40% share. There are multiple formats in which diagnostic

business can operate; firstly as ‘standalone centres’ offering basic testing, ‘hospital based centres’ -where some of the

work may yet get outsourced to third-party laboratories and lastly ‘diagnostic chains’ -which have an all-India network

and offer a complete suite of services. Union Budget 2018 allocation of Rs. 52800 cr for FY 2018-19 vs Rs. 47353 cr for

FY 2017-18 2 IBEF Healthcare Study April 2018 3 Crisil Research

Diagnostic chains prefer a hub-and-spoke approach in order to reach out to a wider customer base. A typical arrangement

will have a combination of a Reference Laboratory, Satellite Laboratories and Collection Centres or Patient Service

Centres. In addition the network caters to picking up samples from other labs, hospitals and clinics who are not equipped

to test all samples and therefore need to outsource such tests.

Diagnostics essay the role of an intermediary, bearing information that can be used for correct diagnosis and treatment. It

gets broadly classified into imaging diagnostics or radiology -that identifies anatomical and physiological changes in the

body and pathology services -that involves testing of samples of blood, tissues, urine, stools and other fluids etc from the

body.

Typically pathology services account for the larger share within diagnostics, given it has gained prominence as the

preferred mode for testing a number of conditions. Within pathology it is the biochemistry related tests that represent a

greater share (approx. 36% in value3) -these pertain to determination of changes in chemical composition of body fluids

in response to underlying disease. Given the rising prevalence of chronic conditions like diabetes and cardio-vascular

problems a far greater number of tests are getting prescribed and consequently blood sugar and lipid profile tests have

come to occupy a dominant share within the diagnostics industry. Thus we see significant growth potential in the industry

in the near future.

Opportunities and Threats:

While there is confidence around the opportunity for growth in the diagnostics industry, there are a number of emerging

competitors both in the form of organized and unorganized players mostly at the regional level. Some regional

competitors are also gradually emerging as national players. There is also the emergence of aggregators who are offering


digital shopping and customer engagement platforms for healthcare services. This leads not only into intensified

competition but also results in competitive pricing pressures and margin erosion.

Outlook

The diagnostics industry is witnessing a great deal of visibility and interest with more organized players driving regional

growth. This is also resulting in gradual shift of the market from unorganized to more organized players thereby driving

quality and efficiency standards. This sector has also attracted investments further fuelling competition but at the same

time improving industry standards.

India still has large rural markets which are either underserved or not served at all by diagnostics and this provides the

opportunity for growth at the bottom of the pyramid although at significantly lower price points. In the urban markets too

there are pockets of growth opportunities given the overall awareness on health care and health attitudes which result in

more frequent testing for chronic diseases.


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Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

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Documents

DR. LAL PATHLABS LTD… · DR. LAL PATHLABS LTD Result Update (CONSOLIDATED BASIS): Q2 FY19 CMP: 962.65 DEC 13th, 2018 Overweight ISIN: INE600L01024 Index Details SYNOPSIS Dr Lal