Target: ₹3,400
CMP: ₹3,053.50
Dr Lal Pathlabs’ (DLPL) Q2-FY25 margins expanded by 110bps y-o-y on the back of improving contribution from Swasthfit and better margin performance at Suburban (about 600 bps q-o-q). Sample volume growth (+8.6 per cent y-o-y), however, remained soft owing to lower incidence of monsoon-related illnesses (except West region) and a higher base.
With the management’s target of adding 15-20 labs in FY25, signs of Suburban turning around, and predatory pricing receding, we anticipate 13 per cent revenue CAGR over FY24-27. Ramp up from hospital-backed chains remain a key risk for the well-diversified revenue base of DLPL, in our view.
A strong balance sheet, industry leading margins, and improving return ratios provide comfort on valuations. We retain Buy with a revised Sep-25E target price of ₹3,400 (based on DCF), implying FY26E PER of 55x (in line with LTA).
The company has announced an interim dividend of ₹6/share for the quarter. Capex for the quarter was ₹10.60 crore and net cash on books stood at nearly ₹1,100 crore.
Key risks: Increased competition in the organised market from growing hospital chains, predatory pricing from any market participants, and adverse regulatory ruling around pricing cap for healthcare services.