Broker's call: Dr Lal PathLabs (Buy)

CMP: ₹1,500

Target: ₹1,762

Dr Lal PathLabs Ltd (DLPL) offers diagnostic and related healthcare tests and services in India and internationally. Company had 200 clinical laboratories and 2,569 patient service centres (PSC) and 6,426 pick-up points (PUP) as of March 2019.

Key takeaways: a) DLPL is one of the leading players in pathology diagnostic market in India, supported by its well positioned ‘hub and spoke’ business model.

b) North India business contributed about 71 per cent of revenue in FY19. However, company plans to increase its presence in Uttar Pradesh, Bihar, Orissa, Madhya Pradesh, Chhattisgarh, West Bengal, Bengaluru and Pune.

c) Revenue grew at a 16.2 per cent CAGR (FY15-19), helped by strategic business model and wide network. Factoring in Corona impact for 4QFY20 and early FY21, we estimate revenue to grow at a 14.0 per cent CAGR FY20-22E.

EBITDA margin remained in the range of 24 per cent-26 per cent over FY15-19. Given the fixed costs of 48-50 per cent, we expect EBITDA margin to remain under pressure for FY21E (24.5 per cent) and expand in FY22E (25.8 per cent).

Company has solid Balance Sheet, with no debt and cash & cash equivalent of ₹775 crore as on December 31, 2019.

We initiate the coverage with a ‘buy’ rating on the stock and a target price of ₹1,762 based on 46x FY22E adjusted EPS.