LALPATHLABNSEQ4 & FY22May 23, 2022

Dr. Lal Path Labs Ltd.

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16analyst exchanges

6executives

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Management on call

Arvind Lal

Executive Chairman

Om Prakash Manchanda

Managing Director

Bharath U

Chief Executive Officer

Ved Prakash Goel

Group Chief Financial Officer

Shankha Banerjee

CEO Suburban and other group companies

Rajat Kalra

Company Secretary and Head of Investor Relations

Key numbers — 40 extracted

rs,

y organized players. The quality and consistency of diagnostic services provided by organized players, which strictly adhere to safety protocols, is trusted by patients a lot more than of the unorganize

12%

ere is a significant shift towards direct-to-home business. Home collections now contribute nearly 12% that used to be in the range of 5% to 6% during pre-COVID days. Second, there is a significant sh

irect-to-home business. Home collections now contribute nearly 12% that used to be in the range of 5% to 6% during pre-COVID days. Second, there is a significant shift of patient flow from company-own

to-home business. Home collections now contribute nearly 12% that used to be in the range of 5% to 6% during pre-COVID days. Second, there is a significant shift of patient flow from company-owned inf

6.7 million

ill take you through the business highlights including Suburban Diagnostics. In Q4 FY22, we served 6.7 million patients, generating revenue of INR 486 crore, with a growth of 12.7%. For the completed FY22, we

INR 486 crore

including Suburban Diagnostics. In Q4 FY22, we served 6.7 million patients, generating revenue of INR 486 crore, with a growth of 12.7%. For the completed FY22, we served 27.3 million patients with a revenue of

12.7%

In Q4 FY22, we served 6.7 million patients, generating revenue of INR 486 crore, with a growth of 12.7%. For the completed FY22, we served 27.3 million patients with a revenue of INR 2,087 crore and a

27.3 million

ts, generating revenue of INR 486 crore, with a growth of 12.7%. For the completed FY22, we served 27.3 million patients with a revenue of INR 2,087 crore and a growth rate of 32% over FY21. In Q4, COVID and

INR 2,087 crore

with a growth of 12.7%. For the completed FY22, we served 27.3 million patients with a revenue of INR 2,087 crore and a growth rate of 32% over FY21. In Q4, COVID and Allied tests contributed to INR 66 crore, th

32%

leted FY22, we served 27.3 million patients with a revenue of INR 2,087 crore and a growth rate of 32% over FY21. In Q4, COVID and Allied tests contributed to INR 66 crore, that is 14% of the overall

INR 66 crore

INR 2,087 crore and a growth rate of 32% over FY21. In Q4, COVID and Allied tests contributed to INR 66 crore, that is 14% of the overall revenue and INR 396 crore for the full financial year FY22, which is 1

14%

growth rate of 32% over FY21. In Q4, COVID and Allied tests contributed to INR 66 crore, that is 14% of the overall revenue and INR 396 crore for the full financial year FY22, which is 19% of the ove

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Guidance — 20 items

Nishid Solanki

opening

“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.”

Dr. Arvind Lal

opening

“We now aim to penetrate further and responsibly grow in this market to deliver high quality diagnostics with superior patient experience.”

Prakash Kapadia

“And let's see how it pans out going forward.”

Prakash Kapadia

“So, what's the game plan to grow our non-COVID revenue because that seems to be more structural for our -- that seems to be an area, which we keep focusing on.”

Prakash Kapadia

“Om, if you could highlight, within that approach to grow non-COVID, how should we look at it in the medium-term?”

Prakash Kapadia

“So, if you could give some color on medium term?”

Prakash Kapadia

“Number one is, we believe that Tier-2, Tier-3 towns will grow faster and we are very well placed in these markets, like Northern India and Eastern India.”

Prakash Kapadia

“So hopefully, as you asked the question medium-term, I do believe in two to three years’ timeframe, we should really be well placed in West region.”

Prakash Kapadia

“We will definitely look at some kind of partnership with them because we don't plan to go into e-pharmacy ourselves.”

Prakash Kapadia

“But we are very hopeful that non-COVID will grow better in this market, in this company and we are looking at Suburban not as a quarterly basis or a yearly basis but more on a long-term basis.”

Risks & concerns — 15 flagged

While we observed a short spike in COVID-related testing in January this year, subsequently, there has been a sharp decline in COVID and COVID-related tests since February onwards.

— Dr. Arvind Lal

Normalized EBITDA after eliminating the impact of RSU and CSR charge in Q4 FY22 is INR 131 crore as compared to INR 129 crore reported in Q4 last year.

— Ved P. Goel

Normalized PBT after eliminating impact of notional depreciation on the consolidation of Suburban for Q4 FY22 is INR 94 crore and for FY22 is INR 494 crore.

— Ved P. Goel

Normalized PAT after eliminating the impact of notional depreciation is INR 73 crore.

— Ved P. Goel

Yes, we are up against very high COVID base which of course will see a decline in this year.

— Prakash Kapadia

Manchanda: Actually, it's very difficult to segregate COVID profitability.

— Chirag Dagli

So, it's very difficult for us to actually put out a number.

— Chirag Dagli

But clearly INR 396 crore of COVID business that we have in FY22, definitely has contributed to the bottom line, which is very, very difficult for us to put a finger on saying how much it is, but as this slides down, yes, it will have impact on the overall number as well in FY23 and we must keep that in mind.

— Chirag Dagli

One, obviously, the impact of Suburban as we know, Suburban is always lower margin.

— Sriram Rathi

And second, obviously, the impact of Omicron on non-COVID business.

— Sriram Rathi

Yes, there may be a pressure on the business if some players actually use cash burn model and continue to hammer us.

— Sriram Rathi

At the back end, initially, we had thought that we will try and see that supply side also remains different, the kind of cost pressure and margin pressure, we probably would look at synergies much faster than what we would have done.

— Praful Kumar

And is there any challenge related to the quality also you are foreseeing?

— Praveen Sahay

Manchanda: It's very difficult to actually figure that out.

— Sayantan Maji

Because adding capacity is not a big challenge in this space.

— Sayantan Maji

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Q&A — 16 exchanges

Yes. Thanks for the opportunity. A couple of questions from my end. So, if I look at the organic non-COVID revenues for Dr. Lal, they are up 4% this quarter on a year- on-year basis. So, if you could highlight why is this lower than what we've seen for the last few quarters? Dr. Om P. Manchanda: How did you get this 4%? Classification: Internal

Prakash Kapadia

I derived that, I will just tell you. If I exclude the Suburban revenues of non-COVID and take the total non-COVID revenues year-on-year basis. Dr. Om P. Manchanda: Right. That’s 30%. So last year, our non-COVID revenue for full year was INR 1,257 crore. So, you're talking about Q4? Yes, Q4. Dr. Om P. Manchanda: Oh, I was looking at full year. Yes. Okay, what's the question? This 4% year-on-year growth is lower than what we've seen over the last few quarters for Dr. Lal specifically. Dr. Om P. Manchanda: So, I think our response to this question is, which Bharath also mentioned in his opening

Yes, sir. Thank you for the opportunity. Sir, can you comment on the profitability of the COVID business versus the rest of the business for the full year of FY22? Dr. Om P. Manchanda: Actually, it's very difficult to segregate COVID profitability. All I can say that COVID business gave a huge sort of operating leverage because COVID as a test is much more centralized tests than any other routine tests. Most of other tests like lipid profiles, or thyroid, etc., they are all done routine, they are done in a distributed format in 200 labs. But RT-PCR is one test with the early part of this COVID

Chirag Dagli

It is not dramatically higher than the rest of the business, sir. That is the clear understanding? Dr. Om P. Manchanda: I would definitely say in the second half of the year, definitely yes, because the prices virtually fell down to, I think now the average realization on this test is even lower than the overall portfolio realization. So, I think to my mind, we are exiting on a lower margin on COVID business than what we have as a company. Maybe in the early part of the year, margins may have been slightly higher. Understood. Okay sir, that is helpful. And the second question I had sir, you ta

Yes. Thanks for the opportunity. Sir, firstly, this Suburban was around INR 30 crore revenue this quarter, I think pre-COVID, it used to do around INR 40 crore plus. So, how should we look at this run rate going forward for FY23 and onwards? Should we be back to let's say INR 160 crore to INR 170 crore annual revenue or INR 30 crore is more of the new way? Dr. Om P. Manchanda: So your voice is not that clear, but I think I got a sense of it, what you're asking. You're basically saying that non-COVID business of whatever that number INR 160 crore, INR 170 crore, should we look at the same numbe

Sriram Rathi

Yes, sir. Right. Dr. Om P. Manchanda: Right, right. I think I will ask Ved to answer this question. Yes. So, Sriram, first I want to mention here that because of transition from IGAP to Ind AS, being part of our parent company. Now, we are changing the recording of revenue from gross to net, which essentially it will not be strictly comparable with INR 171 crore, INR 180 crore, whatever figure we used to have pre-COVID. So, that is where one change you will find going forward. But having said that, like to like, if we see those trends, I think we are trending much higher than what we used to d

Thank you for taking my question. The first question is on realization. So, if I look at the non-COVID realization, it seems like it's down low single-digit on a year-on-year basis. I just wanted to understand, is the trend similar if I were to look at it, Dr. Lal ex-Suburban and including Suburban?

Ved P. Goel

Yes.. So, if you see like-to-like revenue per patient is almost flat. There is slight impact due to Suburban because those are high contribution from COVID-related test. But if you see, non-COVID realization is almost same. And this is same, which we used to have pre-COVID. If you remember, INR 685, INR 686 is the revenue, which we always have. Okay, understood. And second is, I know you're not talking about month-on-month trend, but if I were to look at the growth rate in March, would that growth rate number be double digit? And is the revenue that we see in March a sustainable number? Dr. Om

Hi. Good evening, everyone. Thanks for taking my question. Dr. Om in your opening remarks, you mentioned that you would be focusing on becoming more cost effective. So, what are the measures undertaken and what's the plan going forward? Classification: Internal Dr. Om P. Manchanda: Right. So, I think there is an evolving construct on the supply side of this business. If you look at in the past, we used to have one big central lab and lot of peripheral or we call them satellite labs. But that also consumed a lot of overheads, right. So having more and more satellite lab is not a cost friendly i

Pooja Bhatia

Second is, something which is naturally happening to us is collection is moving more towards franchisee, which provides a variable cost structure than fixed cost structure when we do our own collection. So, I think these are two big sort of trigger items in terms of making it more efficient than being mushy. Okay. Over the next say, two, three years if we take a mid-term outlook, where do you think margins could settle given that there are a lot of changes taking place in the business model with higher franchisees, so that will bring about a lot of variable costs, like you mentioned? And test

Hi. Good evening. Just a couple of questions, first in terms of say one year, three years, five-year goals in terms of integration, Dr. Om and team, what are you looking at from Suburban in terms of say scale? How do you change and update the margins that the business report today to higher level, maybe a medium-term path towards higher profitability? Is it throughput, is it more of your home pickup? In terms of model and your medium-term goals, can you elaborate on the profitability part and scaling up? Dr. Om P. Manchanda: So, I think at the front end, we want to retain both the brands, Dr.

Praful Kumar

And overall, if I have to really put my thumb on something, which essentially would be Suburban, we need to drive growth. It’s an under sort of a leverage brand. It's a very strong consumer facing brand in the city of Mumbai. If we can crack this model of driving growth much faster than what this company has been doing in the past, I think we’ll be home in about three years’ time. So yes. That’s why I wanted to understand sir. Let's take a three-year, five-year outlook because when you did the call for the merger, when you did call out this acquisition, you clearly said that we have done this

Yes. Hi. I'll repeat my question. I wanted to understand more because, initially when you did this acquisition, and now you have a lot of data, you have a lot more grip on the way the system and processes run. So, going with your thesis of a medium-term turnaround and scaling up, can give us granularity more on how just the throughput goes up, it's getting more competitive, you're talking about pricing pressures in an inflationary environment. And I want to understand more from you, as investor, that how do you then scale up the franchise? How does it happen? So, in terms of one- year, three-y

Praful Kumar

Non-COVID. Dr. Om P. Manchanda: Non-COVID. We grow non-COVID, we go back to what our numbers were with both together. Second is, bring efficiency and leverage our network of LPL as well. I don't have exact numbers of collection centers in state of Maharashtra and the labs, but my sense is that if we combine the two, our network would be amongst the top two or three players. So, we are clearly well placed on investment at the back end. All we have to do now is turbo charge the front end and see how we grow the non- COVID business as we go forward. I think that's the way I would look at it. And

Hi, good evening. So, sir, my question was with regards to the competitive intensity, which you yourself mentioned is backed to most extent by the immense cash burn what these companies seem to be doing. Now here, suppose, I believe that this will not wane off in a quarter or two, and probably it will be there in the near-term. So, if it starts impacting our volume, would we be comfortable in taking some price cuts to save volume? Or would we look to maintain our margins, like if it's in the tune of 2% to 5% impact? So, I just wanted to understand our positioning over there, should the intensi

Management

Thank you for taking my question. My first question is related to the franchisee management, what you're talking about. So, what kind of revenue contribution you are expecting the way forward from the franchisees? And is there any challenge related to the quality also you are foreseeing? Bharath Uppiliappan: Yes, it's a great question. We declare our franchisee contribution in the annual report which we will do for a significant portion of the business today. The exact numbers will come in the annual reports. The second thing I would like to say is that on the quality part, we have come a very

Praveen Sahay

Okay. Helpful. Second question is related to, as you had also mentioned that bundle business has also increased. So, where you want to see this business to contribute in the coming year? How much contribution? Bharath Uppiliappan: So, there's no specific target we have to say we have to reach X percentage of revenue and so on. The idea of this bundle test is fundamentally to offer value for money for the patients on one side, and that value comes from efficient operations of the bundling which we do. So, it's our endeavor to provide the best possible service, we cannot dictate, you have to tak

Classification: Internal Hi, good evening. Thanks for taking my question. I wanted to understand the INR 345 odd crore of borrowing that we have taken on our books and what is the repayment plan going forward since we have sitting cash on books? That is my first question.

Ved P. Goel

So, Rakhi, yes, we have taken about INR 250 crore term loan and rest is OD against FDs. Anyway, we have net-net INR 344 crore of cash balance as on 31st March. So, obviously, we are now getting these borrowings much cheaper than what we have in FDs. So our plan maybe going forward, it should be over by maybe next one year. Okay. And also, on the stock option charge to P&L, we saw this bump up happening this year about INR 30.5 crore versus INR 20 crore of last year. Can you give us some idea of how this would look going forward or how do we think of this charge to P&L going forward? Would it b

Hi. Good evening, Om. I just have one simple question, Om. So when I look at FY20, and now FY22, your number of patients has grown by almost 41%, from 19.4 million to 27.3 million. That's an increase of 8 million patients. Have you done any analysis to see how many of these 8 million patients came to you for COVID testing? And that's, almost sort of getting customers for zero customer acquisition cost. And how can you sort of data mine and serve these incremental customers that you've got because of COVID and sell them more value-added tests and other offerings that you guys have? Dr. Om P. Ma

Dr. Arvind Lal

Classification: Internal Yes,. Maybe this figure is helpful to you. We have done more than 3.2 million RT- PCR tests, but that is from the beginning. So, you can imagine the numbers have really gone up. And, of course, now we welcome the transit way of the COVID testing, so that life comes back to normal. And don't forget, there is a very, very major segment which was not tested during COVID days. And that was the NCDs, the non- communicable diseases or the chronic disease segment, or the lifestyle disease segment. So, they are slowly coming back. And don't forget that those are very, very ser

Yes. Hi, good evening and thanks for taking my questions. Just wanted to get a sense, I mean, on a pro forma basis, I mean, maybe using non-COVID revenues as a benchmark, how much would the contribution to your revenues be of the top 10 cities? And in top 10 cities what would be the share of home collection? Dr. Om P. Manchanda: Sorry, this data may not be readily available, but we will note this question down and come back to you if you can share your number with us.

Sonal Gupta

Sure, sir. And just the other thing was in terms of like previously you have mentioned that the economics is similar for home collection versus having a franchisee outlet. So just trying to understand is there any change there or I mean, it's kind of similar even now? Classification: Internal Dr. Om P. Manchanda: It’s similar only because phlebotomist salary costs versus real estate, I think this just offset each other. So it should be similar.

And these numbers you're saying including Suburban for the fourth quarter? Bharath Uppiliappan: This is excluding Suburban. Yes. The home collection and the Swasthfit numbers are including Suburban. Dr. Om P. Manchanda: So, 18% in the total, but if you exclude Suburban from the base, your number would actually be lower. 18% LPL.

Saion Mukherjee

And this is for the fourth quarter, sir? Bharath Uppiliappan: Yes, it is. You mentioned I think sometime back, you are sort of tying up with pharmacies for patients. I mean, can you share how many pharmacies you have tied up with, any color? Dr. Om P. Manchanda: No, no. Maybe I got misunderstood. I don't think we're tying with pharmacies, but the question which I'm often being asked is that are there a lot of these new age players who are doing tele-consultation, who are doing e-pharmacy, would you be partnering with them? My answer has been, yes. But right now, there's nothing to talk about.

Yes, thanks for taking my question. So, I have two. So first one is on Swasthfit. So, I assume that Swasthfit includes preventive wellness health packages and bundling of sickness packages, sickness tests as well. So can you kind of split off how much of it is pure health packages, wellness packages, and how much of it is the bundling of the sickness tests? Dr. Om P. Manchanda: It's very difficult to actually figure that out. But I would directionally say the large part of it is bundle sickness area only. But health checkups would not be that, at least definitely lower than 50%. My sense would

Sayantan Maji

Okay, that's helpful. And second question is on the regional reference laboratory in Mumbai. So that was earlier I think supposed to come by end of FY22. So now, when do we expect it to be running and can you give any new rough idea about the capacity of this laboratory? Is it going to be as large as the one in Kolkata or smaller than that? Dr. Om P. Manchanda: Yes. So, I think we took a little bit of time because we wanted to do a paperwork on Suburban, because we decided to have only one lab rather than having two labs, one in LPL and one in Suburban. And since Suburban is going to be lead b

Hi. Thanks for taking the questions. Sorry, just to persist on the question around the competition which have been asked earlier, just one quick one on that. When you're talking about competition and you refer it to the competition that you've seen in the past there has been a lot of unorganized, a lot of relatively unknown names, which have been sort of coming into the market, I mean, if assuming some of the better- known national brands like the Tatas and Reliance’s of the world start competing aggressively in this market, and probably looking to use diagnostics as a bleed to probably build

Dr. Arvind Lal

So, Nitin let me tell you that these different price points is something which we have been seeing for a very long time and super added to the fact that there has been commoditization of this business and please remember the Indian railways model, that you're going from point A to point B, there is unreserved second class, a reserved second class, there is AC chair car, there is non-AC and two-tier, three tier, they are paying different kinds of prices for different kinds of services, but they are going from point A to point B. So, India is such a huge country which can have, I think from my p

Okay. Thank you everyone for being with us on this call today. I wish you all remain safe and healthy. I would now request the moderator to close the call. Thank you. Dr. Om P. Manchanda: Thank you. Bharath Uppiliappan: Thank you.

Management

Speaking time

Moderator

Ved P. Goel

Prakash Kapadia

Dr. Arvind Lal

Sriram Rathi

Chirag Dagli

Pooja Bhatia

Praful Kumar

Anuj Sehgal

Sayantan Maji

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Opening remarks

Nishid Solanki

Ladies and gentlemen, good day and welcome to Dr. Lal PathLabs’ Q4 and FY22 Earnings Conference Call. As a reminder, all participant lines will be in the listen- only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing ‘*’ then ‘0’ on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you and over to you, Mr. Solanki. Thank you. Good evening everyone and welcome to Dr. Lal PathLabs’ Q4 & FY22 earnings conference call. Today we are joined by senior members of the management team, including (Hony) Brig. Dr. Arvind Lal - Executive Chairman; Dr. Om Prakash Manchanda, Managing Director; Mr. Bharath, CEO; Mr. Ved Prakash Goel, Group CFO along with Mr. Shankha Banerjee, CEO of Suburban and other Group companies, and Mr. Rajat Kalra, Company Secretary and Head

Dr. Arvind Lal

Thank you, Mr. Solanki. Very good evening and a warm welcome to everyone present on the call. We are here to discuss Dr. Lal PathLabs’ Q4 & FY22 earnings. I would like to take you all through the key developments and updates during the period under review. Before I begin, I would like to share that this is the first full quarter post the acquisition of Suburban Diagnostics, and the synergies of two brands have made a significant positive impact on our business performance in the Western market. We now aim to penetrate further and responsibly grow in this market to deliver high quality diagnostics with superior patient experience. In the initial few weeks, we reported some spurt in COVID testing due to Omicron variant, which was rather short lived. As the caseloads declined at a rapid pace, with many opting for home testing due to mild symptoms. On the flip side, non-COVID business gained healthy momentum with strong volume gains as we resumed back to pre-COVID trajectory. Last two year

Ved P. Goel

Thank you, Bharath. Good evening, everyone, and thanks for joining this call today. Please note, that the results for Q4 and full year FY22 includes Suburban with effect from 12th November 2021, and are not strictly comparable with previous year. I'm now sharing some of the financial highlights for the Q4 and full-year FY22. Revenue for Q4 FY22 is INR 486 crore as compared to INR 431 crore in last year same quarter, a growth of 12.7%. Non-COVID revenue increased by 12.2% in Q4 FY22. Revenue for full year FY22 is INR 2,087 crore as compared to INR 1,581 crore in the last year, a growth of 32%. Non-COVID revenue for full year increased by 34.5%. Revenue from COVID and Allied tests in Q4 FY22 is INR 66 crore, which contributes to 14% of total revenue. Full year COVID and Allied tests revenue is INR 396 crore which contributes to 19% of total revenue. Revenue realization per patient for Q4 FY22 is INR 728 as against INR732 for Q4 last year, and for full year revenue realization is INR 765

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