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ICICI Securities
Dr Lal PathLabs (Add)
CMP: ₹1,550.35
Target: ₹1,710
Dr Lal PathLabs is engaged in the business of running laboratories for carrying out pathological investigations of various branches of bio-chemistry, hematology, histopathology, microbiology, electrophoresis, immuno-chemistry, immunology, virology, cytology, other pathological and radiological investigations.
Dr Lal Pathlabs’ Q4FY20 performance was below our estimate as lockdown post Covid-19 in the last two weeks of March’20 affected business.
Volumes (test samples) grew just 5.7 per cent y-o-y versus 9MFY20 growth of 17.0 per cent. Lower realisation (revenue/sample) dragged revenue growth to 0.2 per cent y-o-y to ₹300 crore (ICICI Securities estimate: ₹340 crore). The company has consistently displayed steady volume growth over the quarters, however, Covid-19 would impact near term performance akin to Q4FY20. EBITDA margin declined 400bps to 19.0 per cent (I-Sec: 25.7 per cent) with lower revenue despite IND-AS 116 benefit. We expect the company to revert to its strong growth phase once Covid situation normalises.
Considering the recent rally in the stock price, we downgrade the stock to ‘add’ from ‘buy’.
Key downside risks: Higher-than-expected competition, pricing pressures and prolonged impact of Covid-19.
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