Dr Lal Pathlabs’ (Dr Lal) Q1FY22 functionality was above estimate due to larger income from Covid-19 connected tests. Covid-19 and allied tests contribution improved to 36.3% of sales (13.2% in Q4FY21). Base business enterprise revenues grew 84.1% YoY, two year CAGR of 7.4% to Rs 3.8billion vs estimated Rs 4.1billion. Overall, income grew 128%, EBITDA margin was up 1300bps YoY to 31.2% and adj. PAT was up 362% to Rs 1.3billion on a low base. The base business enterprise was also impacted by second wave of Covid but has began recovering Jun’21 onwards. We stay positive on Dr Lal offered volume development consistency, capacity to execute nicely and powerful return ratios. Considering current rally in the stock price tag, which has made valuations fair, we downgrade it to ‘hold’ from ‘add’.
Strong income development led by Covid-connected tests: Dr Lal witnessed one more quarter of powerful development with 128/41% YoY/QoQ development. Revenue from RT-PCR and anti-body tests contributed 17.3% and other Covid allied tests contributed more 19.% of total income. Base business enterprise has witnessed a two-year CAGR of 7.4%. The volumes (patients) witnessed 103% development and we estimate powerful development in FY22E on a decrease base. Average realisation stood at Rs 860 (up 13.2% YoY) on account of larger Covid tests income. We think the corporation would witness double-digit volume development more than longer period, offered leadership position and shift from unorganised to organised players.
Operating leverage drove margin expansion: Dr Lal reported an EBITDA margin of 31.2% (+290bps QoQ) vs estimated 28.6%. Higher income was the crucial cause for the exact same as operating leverage advantage kicked in. Covid tests income would drop from Q2FY22 as instances have dropped substantially and therefore, EBITDA margin would normalise. We count on EBITDA margin to boost 190bps more than FY21-FY23E with choose-up in patient volumes, sustaining rewards of price handle and operating leverage. Valuation: We raise FY21-FY23 EBITDA estimates by 3-9% to element in larger income from Covid tests and development recovery in base business enterprise. Considering current rally in stock price tag, we downgrade Dr Lal to ‘hold’ from ‘add’ with a revised DCF-based TP of Rs 3,405/share.