DLPL stock has drastically outperformed its peers and the broader market place considering that the start off of the pandemic. Since mid-Feb 2020 (when worry pandemic began), the stock is up 106% against a Nifty return of 18%. More lately with the start off of the second wave, the stock is up 38% considering that mid Mar 2021 against a Nifty return of -4% more than the period. As a outcome, DLPL’s valuation has improved substantially to 79.5x one-year-forward earnings compared to 30- 60x in the pre-pandemic period.
We consider the stock functionality of DLPL was positively impacted by robust contribution from Covid-19 testing considering that 2QFY21 at higher profitability. We estimate that in 3QFY21F, the Covid-19 tests had ~45-50% Ebitda margin compared to ~27% for the non-Covid tests. A recovery in non-Covid test volumes post the lockdown in 1QFY21.
Lower yields and threat premium has positively impacted valuations of lengthy-duration development stocks. Incrementally, we stay positive on continued development in non-Covid tests. In 4QFY21, the preliminary outcomes of peers recommend non-Covid income development of 14-20% y-o-y and 7-11% CAGR more than 4QFY19-21F.
The profitability of Covid-19 tests may perhaps come down, specifically as volumes decline more than time provided substantial reductions in test costs (from ~Rs 1,500/test to Rs 700-800/test now) by governments. The rise in bond yields will also have a adverse influence on valuations.
We aspect in greater contribution from COVID-19 tests into our estimates and raise our FY22F EPS estimate by 6%. We assume COVID-19 test volumes peak in 1QFY22 and fall thereafter. Our FY23F EPS estimate is improved marginally by 2%.
We continue to worth DLPL at 45x one-year-forward earnings. At 45x FY23F EPS of INR51.8, we arrive at our target cost of INR2,333. Our TP implies downside of 30% from existing levels. We downgrade our rating to Reduce. We sustain that the fair worth variety is 40-50x one-year-forward earnings. Our assessment of the valuation several assumes robust development in volumes in diagnostic tests for DLPL in India provided underpenetration and market place share gains from unorganized players. However, we are probably to see restricted upside in EBITDA margins due to competitive pressures from current and new entrants which includes e-commerce players, in our view.
Significant worth-accretive acquisitions Higher-than-anticipated income and margin contribution from COVID-19 tests greater competitive landscape decrease price of equity.