Dr Lal PathLabs says pricing pressure in diagnostics is now over
The diagnostics sector's phase of intense pricing competition has subsided, offering firms like Dr Lal PathLabs the opportunity to realise stronger margins, the company's Managing Director, Om Manchanda told CNBC-TV18.
The diagnostics sector is witnessing a welcome shift as it emerges from a period of intense pricing pressure. This change has paved the way for Dr Lal PathLabs to achieve improved margins, the company's Managing Director, Om Manchanda told CNBC-TV18 in an exclusive chat.
"We achieved 24% margins during a period of intense price competition, which has substantially eased now," he said.
The diagnostics industry has been facing scrutiny from analysts over concerns regarding escalating competition within the sector. In October, global investment bank, Goldman Sachs downgraded Indian diagnostic companies on account of rising competition and stretched valuations.
Goldman took a ‘negative’ stance on the sector and said it was turning bearish on B2C (business-to-consumer) incumbents in the space.
The investment bank downgraded the country’s two leading diagnostic firms—Dr Lal PathLabs and Metropolis Healthcare —and revised its ratings on the stocks to ‘sell’. It gave a price target of ₹2,100 for Dr Lal PathLabs shares.
In July, broking firm Kotak Institutional Equities had also reiterated its 'sell' rating on the stock with the lowest price target on the Street at the time, at ₹1,675 per share, a potential downside of over 30% from the market price on that day. The stock is currently trading at at ₹2,600 apiece.
Although the company has reported healthy margins recently, there is an expectation of a traditional decrease in the latter half of the year. The company's leadership is also bracing for a potential tapering of margins in the coming months.
On Thursday, November 2, the diagnostics player reported a 52.4% year-on-year (YoY) rise in consolidated net profit to ₹109.3 crore for the July-September quarter of the current financial year.
Revenue was at ₹601 crore, up 12.6% from the year-ago quarter.
The EBITDA (earnings before interest, tax, depreciation, and amortisation) margin was at 29.6% against 26.9% in the year-ago period.
Manchanda attributed the expansion in the current quarter margin to a combination of factors, with price increases being a strategic move, albeit a last resort for the company. He emphasised the role of a good product mix in bolstering margins, alongside careful pricing strategies.
Looking ahead, the company is targeting an 8-9% CAGR (compound annual growth rate) volume growth, in line with its historical growth patterns.
Dr Lal PathLabs, headquartered in New Delhi, is a provider of diagnostic and related healthcare tests, specialising in a wide array of medical diagnostics.
For more details, watch the accompanying video
(Edited by : Shweta Mungre)
First Published: Nov 3, 2023 1:39 PM IST
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