Covid19 Tests will become a part of company’s portfolio – Dr Lal Path Labs

Update on the Indian Equity Market:

On Wednesday, Nifty closed 0.06% higher at 11,102. Among the sectoral indices Metal (+4.0%), Auto (+1.8%) and Media (+1.1%) closed higher. Pharma (-0.5%), Fin services (-0.2%) and PSU Banks (-0.2%) closed on a negative side. Hindalco (+9.1%), Tata Steel (+6.7%) and Eicher Motor (+4.4%) closed on a positive note. UPL (-1.5%), HDF Life (-1.5%), and Wipro (-1.0%) were among the top losers.

Excerpts from an interview of Mr. Om Manchanda, MD, Dr Lal Path Labs with ET Now on 3^rd August 2020:

• The business was impacted in the months of April and May due to lockdown restrictions. It restricted the movement of samples to various cities.
• The movement of patients was also impacted due to lockdown. There was a steep fall in walk-in customers.
• The company also witness a sharp fall in OPD.
• Recovery started in late part of May as lockdown restrictions started to get lifted.
• They witnessed a sharp recovery in June but the trends are early as there may be pent up demand coming up.
• The company witnessed some gains as competitors were not able to serve some markets.
• On impact of covid on diagnostic space, Mr. Manchanda said the government has built capacity in the recent past and 60% of business is coming from the government side. The company will be working in a supporting role to the governments.
• Tests for Covid-19 will become a part of company’s portfolio, but the trend line is not yet clear.
• Q1 was a bad quarter for the company, non covid business had shown recovery in June. Company expects that the growth will come back in later part of the year by Q3FY21E.
• Business related to covid is a new business for the company.
• Historically the company had grown organically. The model is urban based.
• The company picks up a geography and tries to cater all diagnostic needs in that area.
• Mr Manchanda said the company is neither a wellness company nor a diagnostic company but a full-service model.
• There are close to 215 labs as of now.

Consensus Estimate: (Source: market screener website)

• The closing price of Dr Lal Path Labs was ₹ 1,850/- as of 5-August-2020.  It traded at 71x/50x/44X the consensus earnings per share estimate of ₹ 25.9/37/42 for FY21E/FY22E/FY23E respectively.
• The consensus average target price for Dr Lal Path Labs is ₹ 1,769/- which implies a PE multiple of 42x on FY23E EPS of ₹ 42/-.

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