PCG RESEARCH INVESTMENT IDEA 31 MAR 2017 Dr. Lal PathLabs Private Client Group - PCG RESEARCH Page | 1 Industry CMP Recommendation Add on Dips to band Sequential Targets Time Horizon Healthcare Rs. 960 BUY Rs. 890 - 960 Rs. 1090 - 1235 3-4 Quarters HDFC Scrip Code DRLALPEQNR BSE Code 539524 NSE Code LALPATHLAB Bloomberg DLPL CMP – 31 Mar 17 Rs 960 Equity Capital (Rs cr) 82.7 Face Value (Rs) 10 Equity O/S (cr) 8.27 Market Cap (Rs cr) 8080 Book Value (Rs) 82 Avg. 52 Week Volumes 118344 52 Week High 1280 52 Week Low 792 Shareholding Pattern (%) Promoters 58.6 Institutions 36.0 Non Institutions 5.4 PCG Risk Rating* Yellow * Refer Rating explanation Kushal Rughani [email protected]Company Background Dr. Lal Pathlabs (DLP) is a leading player in the fragmented & competitive Indian diagnostics market. Established in 1949, DLP based company has been able to widen its reach to a pan-India network on the back of strong brand equity and a scalable hub & spoke model, whereby specimens are collected from multiple locations within a catchment area or region for shipment to a clinical laboratory for centralized diagnostic testing. This network boasts of a National Reference Laboratory in Delhi (2010), over 172 clinical laboratories, 1,559 patient service centers and 4,967 pick-up points. The company has 172 labs, most of which are in Northern Region and It is the highest revenue contributor with 72% contribution. DLP possesses capabilities to carry out a comprehensive range of ~ 1,110 test panels, organized into ~ 1,934 pathological tests and ~ 1,561 radiology & cardiology tests & services in its quality laboratories which have been accredited by the College of American Pathologists (CAP) and National Accreditation Board for Testing & Calibration Laboratories (NABL). Its customer mix of individual patients, hospital tie-ups and other healthcare providers & corporates enabled DLP to test over ~ 22.2 mn & ~ 26.3 mn samples and ~ 10.1 mn & ~ 12.0 mn patients in 9M FY17 & FY16 respectively. Its centralized information technology platform is the backbone of its efficient operations as it integrates its network through a common logistics & payments system, thereby allowing efficient collection of samples & payments and offers convenience to healthcare providers & patients in locating patient service centers, booking tests and accessing test results online through their website & mobile app. DLP has established an international presence as well through its partners in the Middle East, Africa & South East Asia. Investment Rationale Diagnostic market size to touch ~US$ 9.8bn by FY18E Strong brand Dr. Lal PathLabs supported by self-sustaining business model Has a network of 172 labs, 1500+ PSCs and 4500+ Pick Up Points Well defined Strategy in place – “Hub and Spoke Model” Patient Service Centres (PSC) – quickest way forward for expansion
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PCG RESEARCH INVESTMENT IDEA 31 MAR 2017
Dr. Lal PathLabs
Private Client Group - PCG RESEARCH P a g e | 1
Industry CMP Recommendation Add on Dips to band Sequential Targets Time Horizon
Diagnostic Chain Presence Accrediations Laboratories Market Cap (Rs cr)
Dr. Lal PathLabs India, Middle East, Nepal, Malaysia NABL, ISO,CAP,CDC (USA) 172 7985
SRL Diagnostics India, Middle East, Nepal, Africa and Maldives NABL, ISO,ICAL, CLIA,APLAC 265 NA
Thyrocare* India, Nepal, Bangladesh and Gulf countries ISO,CAP, NAGL 1 3850
Metropolis India, UAE, Sri Lanka, South Africa NABL, ISO,CAP, CLIA (USA) 150 NA
Source: Company, HDFC sec Research, NA – not listed on Exchanges, * Operates through centralized Lab at Navi Mumbai
PCG RESEARCH
Private Client Group - PCG RESEARCH P a g e | 7
Revenues to post 21% cagr over FY16-19E
558660
791
927
1144
1393
0
300
600
900
1200
1500
FY14 FY15 FY16 FY17E FY18E FY19E
Rs
Cr
Source: Company, HDFC sec Research
EBITDA and PAT trend over FY14-19E
138157
209
246
294
361
8095
133163
197
239
0
50
100
150
200
250
300
350
400
FY14 FY15 FY16 FY17E FY18E FY19E
EBITDA PAT
Source: Company, HDFC sec Research
Robust Return Ratios (%)
40.1
32.8 31.227.6 26.3 26.3
52.5
42.8 41.2
35.9 34.0 34.6
0.0
10.0
20.0
30.0
40.0
50.0
60.0
FY14 FY15 FY16 FY17E FY18E FY19E
RoE RoCE
Source: Company, HDFC sec Research
Laboratory Count
131
146
164172
0
20
40
60
80
100
120
140
160
180
200
FY13 FY14 FY15 FY16
#
Source: Company, HDFC sec Research
PCG RESEARCH
Private Client Group - PCG RESEARCH P a g e | 8
PSC addition trend over FY13-16
824
1064
1340
1559
0
200
400
600
800
1000
1200
1400
1600
1800
FY13 FY14 FY15 FY16
#
Source: Company, HDFC sec Research
FY19E Revenue Split (%)
70
8
9
13
North South West East
Source: Company, HDFC sec Research
Northern Region revenue trend
409476
570657
804
959
0
200
400
600
800
1000
1200
FY14 FY15 FY16 FY17E FY18E FY19E
Rs
Cr
Source: Company, HDFC sec Research
Revenues trend for Western Region
4757 55
71
92
127
0
20
40
60
80
100
120
140
FY14 FY15 FY16 FY17E FY18E FY19E
Rs
Cr
Source: Company, HDFC sec Research
PCG RESEARCH
Private Client Group - PCG RESEARCH P a g e | 9
Three Different Models
Hospital Based Centres
Diagnostic Centres located within Hospitals. Mostly owned by Hospitals and also given third parties to manage the same.
Diagnostic Chains
Privately Owned Diagnostic Centres with two or more centres. Operates through Hub and Spoke Model of Collection Centres
Standalone Centres
Single Diagnostic Centre. Majority has small scale of operation and offer basic diagnostic tests
Source: Company, HDFC sec Research
Segment wise Diagnostic centres breakup (%)
48
37
15
Standalone Hospital Based Diagnostic Chains
Source: Company, HDFC sec Research
Projected Growth of Indian Diagnostic Industry
37.7
60.5
10
20
30
40
50
60
70
FY14-15 FY17-18P
Rs . '000cr
Source: Company, HDFC sec Research
PCG RESEARCH
Private Client Group - PCG RESEARCH P a g e | 10
Income Statement
(Rs Cr) FY15 FY16 FY17E FY18E FY19E
Net Revenue 660 791 927 1144 1393
Growth (%) 18.3 19.8 17.2 23.3 21.8
Operating Expenses 503 582 681 849 1032
EBITDA 157 209 246 294 361
Growth (%) 13.8 33.1 17.8 19.6 22.6
EBITDA Margin (%) 23.8 26.4 26.5 25.7 25.9
Depreciation 28 28 28 35 40
EBIT 129 181 218 259 321
Other Income 11 20 25 29 32
Interest 0 1 1 1 1
PBT 140 201 240 289 352
Tax 45 68 77 93 113
RPAT 95 133 163 197 239
Growth (%) 18.8 40.6 22.8 20.3 21.8
EPS 11.6 16.1 19.8 23.8 28.9
Source: Company, HDFC sec Research
Balance Sheet
(Rs Cr) FY15 FY16 FY17E FY18E FY19E
SOURCE OF FUNDS
Share Capital 81.3 82.7 82.7 82.7 82.7
Reserves 260 424 589 734 913
Shareholders' Funds 343 510 674 819 997
Long term Debt 0 0 0 0 0
Net Deferred Taxes -25 -12 -18 -18 -18
Long Term Provisions & Others 0 0 0 0 0
Total Source of Funds 332 513 681 823 1018
APPLICATION OF FUNDS
Net Block 92 112 165 195 218
Intangibles 18 16 19 19 19
Goodwill 42 42 54 54 54
Long Term Loans & Advances 17 20 25 32 40
Total Non Current Assets 169 190 263 300 331
Inventories 14 15 20 31 34
Trade Receivables 31 36 48 56 69
Cash & Equivalents 148 230 270 352 451
Other Current Assets (incl Curr Invests) 89 143 184 235 325
Total Current Assets 282 424 522 674 879
Trade Payables 41 52 67 88 112
Other Current Liab & Provisions 78 49 44 55 59
Total Current Liabilities 119 101 111 144 171
Net Current Assets 163 323 411 531 709
Total Application of Funds 332 513 681 823 1018 Source: Company, HDFC sec Research
PCG RESEARCH
Private Client Group - PCG RESEARCH P a g e | 11
Cash Flow Statement (mn)
(Rs Cr) FY15 FY16 FY17E FY18E FY19E
Reported PBT 140 201 240 289 352
Non-operating & EO items -11 -20 -25 -29 -32
Interest Expenses 0 1 1 1 1
Depreciation 28 28 28 35 40
Working Capital Change -57 -65 -54 -30 -75
Tax Paid -45 -68 -77 -93 -113
OPERATING CASH FLOW ( a )
55 77 113 175 173
Capex -67 -35 -65 -60 -35
Free Cash Flow -12 42 48 115 138
Investments 0 0 0 0 0
Non-operating income 11 20 25 29 32
INVESTING CASH FLOW ( b ) -56 -15 -40 -31 -3
Debt Issuance / (Repaid) 0 0 0 0 0
Interest Expenses 0 -1 -1 -1 -1
FCFE -13 41 48 114 137
Share Capital Issuance 1 1 0 0 0
Dividend -12 -23 -33 -52 -66
FINANCING CASH FLOW ( c ) -11 -22 -33 -53 -67
NET CASH FLOW (a+b+c) -13 39 40 90 103 Source: Company, HDFC sec Research
Key Ratios
Key Ratios (%) FY15 FY16 FY17E FY18E FY19E
EBITDA Margin 23.8 26.4 26.5 25.7 25.9
EBIT Margin 19.5 22.9 23.5 22.7 23.1
APAT Margin 14.3 16.8 17.6 17.2 17.2
RoE 32.8 31.2 27.6 26.3 26.4
RoCE 42.8 41.2 35.9 34.0 34.6
Solvency Ratio
Net Debt/EBITDA (x) -1.2 -1.4 -1.5 -1.7 -1.9
Net D/E -0.5 -0.6 -0.5 -0.6 -0.7
Interest Coverage 392.5 418.0 492.3 294.4 360.8
PER SHARE DATA
EPS 11.6 16.1 19.8 23.8 28.9
CEPS 15.1 19.5 23.2 28.0 33.7
BV 41.5 61.6 81.5 99.0 120.6
Dividend 1.3 2.5 3.5 5.5 7.0
VALUATION
P/E 82.5 59.7 48.6 40.4 33.2
P/BV 23.1 15.6 11.8 9.7 8.0
EV/EBITDA 49.1 36.9 31.3 26.2 21.4
EV / Revenues 11.7 9.7 8.3 6.7 5.5
Dividend Yield (%) 0.1 0.3 0.4 0.6 0.7
Div Payout 11.2 15.2 17.7 23.1 24.2 Source: Company, HDFC sec Research
PCG RESEARCH
Private Client Group - PCG RESEARCH P a g e | 12
Rating Chart
R E T U R N
HIGH
MEDIUM
LOW
LOW MEDIUM HIGH
RISK
Ratings Explanation:
RATING Risk - Return BEAR CASE BASE CASE BULL CASE
BLUE LOW RISK - LOW RETURN STOCKS
IF RISKS MANIFEST PRICE CAN FALL 20% OR MORE
IF RISKS MANIFEST PRICE CAN FALL 15%
& IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 15%
IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 20% OR
MORE
YELLOW MEDIUM RISK - HIGH RETURN STOCKS
IF RISKS MANIFEST PRICE CAN FALL 35% OR MORE
IF RISKS MANIFEST PRICE CAN FALL 20%
& IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 30%
IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 35% OR
MORE
RED HIGH RISK - HIGH RETURN STOCKS
IF RISKS MANIFEST PRICE CAN FALL 50% OR MORE
IF RISKS MANIFEST PRICE CAN FALL 30%
& IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 30%
IF INVESTMENT RATIONALE
FRUCTFIES PRICE CAN RISE BY 50%
OR MORE
PCG RESEARCH
Private Client Group - PCG RESEARCH P a g e | 13
Price Movement
100
300
500
700
900
1100
1300
1500
Rating Definition:
Buy: Stock is expected to gain by 10% or more in the next 1 Year. Sell: Stock is expected to decline by 10% or more in the next 1 Year.
PCG RESEARCH
Private Client Group - PCG RESEARCH P a g e | 14
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