Dr Lal Pathlabs and Metropolis margins improve as growth returns to pre-COVID levels
Dr Lal Pathlabs and Metropolis Healthcare clocked sequential improvement in margin owing to their non-COVID portfolios. But the pure-play diagnostic test providers have their own set of challenges.
Diagnostic companies Dr Lal Pathlabs and Metropolis Healthcare clocked better margin in the July-September period compared with the previous three months, strictly on the back of non-COVID revenue as sales of pandemic-related tests continued to fall. However, the end-consumer may not see price falls anytime soon. Here's why.
Though the overall revenue of both companies met Street expectations, investors remained concerned about their prospects in the coming quarters amid higher competition and market saturation.
Both companies saw their profit margins — or the degree to which a business makes money — improve in the three-month period compared with the previous quarter, with revenue from the non-COVID segment.
Their fair quarterly performances come at a time when the industry is faced with price pressure thanks to online aggregators as well as hospital chains and pharma companies taking a slice of the market.
Dr Lal Pathlabs and Metropolis Healthcare have faced price erosion in key routine tests in their non-COVID portfolios, inflation marketing costs.
Analysts see limited room for further improvement in margins of both companies.
Dr Lal Pathlabs is hopeful of maintaining a pre-COVID margin to the tune of 25-26 percent. "That is something which we are constantly working towards on a longer-term basis and that is what we feel comfortable with," Dr Lal Pathlabs CEO Bharath Uppiliappan told CNBC-TV18.
“This industry has a very high gross margin contribution, the way we look at it, but also a very heavy fixed cost structure. It is not really possible to keep offering very low prices,” he said.
The proportion of revenue Dr Lal earns from non-COVID operations increased in the July-September period compared with the year-ago quarter.
This means that the company's pre-COVID operations — the portfolio before the pandemic — was the driver behind the company's highest ever quarterly revenue.
On a year-on-year basis, however, its margin slipped by 200 bps to 26.4 percent.
The Dr Lal management said the numbers are comparable on a sequential — or quarter-on-quarter — basis. "Growth has been broadly in line with what we have seen a couple of years prior to COVID," Uppiliappan said.
Dr Lal shares have gained 1.3 percent and Metropolis 4.1 percent in the past one month, a period in which the Nifty benchmark has risen 4.9 percent.
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