Dr. Lal PathLabs Ltd
NSE:LALPATHLAB
Earnings Call Analysis
Q1-2024 Analysis
Dr. Lal PathLabs Ltd
For Q1 FY '24, the company reported a robust growth in non-COVID revenue of 9.7% year-over-year, increasing from INR 480 crore to INR 528 crore, while total revenue saw a 7.6% rise to INR 541 crore. Revenue per patient climbed by 8.6%, attributed to price adjustments, improved test mix, and higher contributions from the Swasthfit packages. There was also a commendable rise in EBITDA margins to 28.4% and PAT margins to 15.4%, indicating efficient cost management and operational optimizations that underpinned a higher profit before tax (PBT) and profit after tax (PAT), which went up to INR 117 crore and INR 84 crore respectively. Additionally, the company has proposed a generous interim dividend of INR 6 per share.
The company saw solid growth in the number of tests per patient, but overall volume growth slightly missed expectations. The Swasthfit program, instrumental in increasing the test count, is seen as a strategic move that leverages the trust factor in diagnostics. As the COVID portion of the business subsides, its diminishing complexity allows for clearer trend analysis and healthier margins. Feedback suggests that the company’s trajectory on volume growth is positive and signs point to sustainable growth moving forward.
The improved financial figures are partially due to the absence of a provision against debtors that was present in the previous year, amounting to INR 5 crore. This indicates effective expense management, underscoring the current quarter’s stronger profitability.
Management discussed the revenue dynamics, explaining a 1.2% sequential increase in revenue per patient due to pricing power. However, revenue per test remained flat because the Swasthfit program, while contributing more to revenue, includes many tests at low incremental costs, thus diluting the revenue per test metric. This trend aligns with industry patterns where test revenue dips but revenue per patient rises. Moreover, the company expressed confidence in maintaining pre-COVID margin levels.
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Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of Dr. Lal PathLabs. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nishid Solanki of CDR India. Thank you, and over to you, Mr. Solanki.
Thank you. Good evening, everyone, and welcome to Dr. Lal PathLabs Q1 FY '24 Earnings Conference Call. Today, we are joined by senior members of the management team, including Honorary Brigadier Dr. Arvind Lal, Executive Chairman; Dr. Om Prakash Manchanda, Managing Director; Mr. Bharath, CEO; Mr. Ved Prakash Goel, Group CFO; along with Mr. Shankha Banerjee, CEO of Suburban and other [ group members ].I would like to share a standard disclaimer here. Some of the statements made on today's call could be forward-looking in nature and the actual results could vary from these forward-looking statements. A detailed statement in this regard is available in the results presentation, which has been circulated to you and also available on the stock exchange website.I would now like to invite Dr. Arvind Lal to share his perspective. Thank you and over to you, sir.
Thank you, Nishid. A very good evening to everyone. I welcome you all to Dr. Lal PathLabs Q1 FY '24 earnings conference call.I will commence by shedding some light on the evolving market situation and the progress that we have made. India's diagnostic industry remains vibrant presenting abundant opportunities in the future. In contrast to other nations, India's healthcare expenditure relative to its GDP is reasonably low. However, a shift towards evidence-based medicine has come of age after the pandemic. The industry is undergoing a transformation from unorganized to organized, more so since the onset of the pandemic. This positive shift continues and is attributed to multiple reasons including higher awareness and increasing preference of customers for branded players that offers superior quality and efficiency.I'm happy to share that [Technical Difficulty] Lal PathLabs as the 15th of the 100 Global Most Loved Workplaces 2023 across the world. There are only 2 other Indian companies in the list, which were ranked much below us. As a leader in the diagnostic industry, we have consistently tried to deliver superior patient experience by expanding our test menu and penetrating deeper in our core markets as well as foraying into newer markets.The synergy between Suburban Diagnostics and Dr. Lal PathLabs brand has further enhanced helping us garner incremental share in our high-potential investment market. We're constantly focused on expanding our presence to reach a larger number of customers, especially the Tier 3 and 4 cities, while doing so, we remain committed to continuously improve our testing capabilities, quality and patient experience.We have implemented total lab automation or TLA which is supplemented with digital intelligence. We've also reduced the requirement of aliquots or what are sub-samples by 93% by using [ in-width ] advanced sorting logic and aliquoting algorithms which resulted in savings of more than 1.3 million aliquots and more than 5,200 tonnes of plastic waste in our National Reference Lab at Rohini, New Delhi. This underlines Dr. Lal PathLabs' strong commitment towards sustainability and creating a greener environment.Our investments in strengthening the digital infrastructure has started yielding positive results as anticipated. This will help us in consistency meeting patient expectations on service parameters, while driving volume growth. Given our strong operating model and brand affinity in both B2C and B2B segments, I see the company continue to gain significant market share.Thank you very much. I would now like to hand over the floor to Dr. Om Manchanda. Over to you, Om.
Thank you, Dr. Lal. Welcome to Dr. Lal PathLabs Q1 FY '24 call. I shall say the broad industry trends.The first one is, at an overall industry level, the contribution from COVID testing has further declined. We are now mainly left with COVID-allied testing and this subgroup within COVID sale has a very strong overlap with non-COVID testing. Therefore, tracking and reporting sales with and without COVID separately does not make sense anymore. Therefore, we have also removed the chart from investor deck where we were showing these numbers separately. The good news is that, in some ways, this reduces the complexity and helps us analyzing business trends better.The second point is the Suburban Diagnostics is into Phase 2 of integration where we have started looking at common lab infrastructure between the two labs, that is Dr. Lal PathLabs and Suburban.Number 3, Swasthfit continues to raise the momentum of preventive health checkup sales. The contribution has further gone up in this quarter that is showing a strong positive impact on tests per patient as well as higher realization per patient. Added advantage of this increase in contribution is also seen in simplified operations.Number 4, widening our footprint both in terms of depth, that is going deeper into Tier 2, Tier 3 and Tier 4 towns as well as in terms of width which is both [Technical Difficulty] of Dr. Lal PathLabs.With that, now I hand over to Bharath for further update on Q1 results. Over to you, Bharath.
Thank you, Om. A very good evening to everyone present here. I warmly welcome you all to Q1 FY '24 earnings conference call. I will now take you through some of the operating and business highlights of our company.In Q1 FY '24, we recorded a revenue of INR 541 crores, which is a growth of 7.6% over last year Q1 and the non-COVID revenue grew by 9.7% Y-o-Y. The COVID RT-PCR testing revenue declined by 81% in Q1 FY '24 to INR 2.3 crores from INR 12 crores in Q1 FY '23. Revenue per patient for Q1 FY '24 was at INR 789. This was sequentially higher versus the preceding quarter by 1.9%, led by high contribution from Swasthfit, Delhi NCR region and full quarter flow-through of price adjustments.In Q1 FY '24, we recorded 6.9 million patient visits, which is flattish at an overall level, led by an unusually high base in Q1 last year. However, net of COVID-related testing, we grew patient volume sequentially by 8%. Also on a 4-year CAGR basis, the patient volume growth for Q1 FY '24 stood around 7% for the organic business. We also recorded a 6.1% growth in samples with [Technical Difficulty] to [ 2.8 ] in Q1 FY '24, representing a 7% growth.Now let me give you some update on few of our strategic initiatives. The first one is on increase in marketing efforts. In this quarter, on the organic business side, we launched a new marketing campaign, Bharat Ka Vishwas, with quantifiable reasons to believe why millions of patients and doctors trust Dr. Lal PathLabs. We believe that this campaign, over a longer period of time, will help pivot the conversation to the underlying drivers of this category and not just on pricing and discounting. This, combined with our digital-led initiatives like CHIPs, recommendation engine supported with ongoing activation programs are driving growth in our stronghold markets of North and East. DNCR region also recorded strong growth rates in Q1 FY '24. In the city of Mumbai and Pune, under Suburban, we have launched a strong direct-to-consumer program supported by thematic above-the-line campaign.The second strategic initiative revolves around our portfolio. Our bundled test portfolio, Swasthfit, continues to perform well and I'm happy to share with you that we have registered highest-ever quarterly revenue from Swasthfit of INR 112 crores in this quarter with a contribution of 22% to the total revenue, ex Suburban. Our super-specialty business continues to do well with strong growth rate, supported by new initiatives. We are also creating variance of common tests like lipid profile and making it medically more relevant to patient sub-segments like diabetics and heart-related ailments. Higher DNCR contribution and [Technical Difficulty] Swasth and super-specialty, coupled with reinvigorating our routine portfolio have positively contributed to revenue per patient and margin profile for the quarter.Number 3 strategic initiative revolves around geographical expansion. As stated in our previous calls, our strategic expansion in Tier 3 and 4 cities of the country continues as per plan. In addition to the 3 labs we opened in the preceding quarter at Siwan, Sultanpur and Murshidabad, we have commenced operations at 4 of our greenfield labs in Jind in Haryana, Una in Himachal Pradesh, Tamluk and Hooghly in West Bengal. These continued [Technical Difficulty] building blocks, coupled with the pan-India presence and the digital infrastructure that will help us deliver industry-leading growth rates for a long period of time.With that, I would like to invite Ved to take you all through the financial performance. Over to you, Ved.
Ladies and gentlemen, the line for the management is disconnected. Please hold while we reconnect them. Ladies and gentlemen, thank you for being on hold. The line for the management is now reconnected. Thank you and over to you, sir.
Thank you, Bharath. Hello, everyone, and thank you for joining this call. I trust each of you and your family are safe and healthy.I'm sharing some of the key financial highlights for the quarter. Our non-COVID revenue for Q1 FY '24 came in at INR 528 crore versus INR 480 crore last year same quarter, a growth of 9.7%. Total revenue for Q1 FY '24 came in at INR 541 crore against INR 503 crore last year same quarter, a growth of 7.6%. Revenue realization per patient for Q1 FY '24 is INR 789 as against INR 727 last year same quarter, an increase of 8.6% led by price increase, test mix and higher contribution of Swasthfit.Normalized EBITDA after eliminating the impact of RSU and CSR for Q1 FY '24 came in at INR 154 crore as compared to INR 125 crore in Q1 FY '23. Normalized EBITDA margins for Q1 FY '24 is 28.4%. PBT for Q1 FY '24 came in at INR 117 crore versus INR 81 crore in last year same quarter. PBT margin is 21.7% for Q1 FY '24. PAT for Q1 FY '24 came in at INR 84 crore versus INR 58 crore in Q1 FY '23. PAT margin is at 15.4% for Q1 FY '24. Cash and-cash equivalents as on June 30th is INR 877 crores. Net of borrowing, it is INR 731 crores.I'm pleased to share that our continuous efforts towards optimizing material cost and improving operational efficiency has enabled us to invest more into A&P and technology. At last, we are pleased to share with you that the Board of Directors of the company have approved an interim dividend of INR 6 per equity share.This brings me to the conclusion of my opening remarks, and now I would request the moderator to open the forum for Q&A. Thank you.
Thank you very much. [Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.
Sir, firstly, just your thoughts, Om, on the quarter, 10% revenue growth, I think both Y-o-Y and 4-year CAGRs look similar. So what did well and what did not versus what you expected?
So, let me first talk about what did not do well rather than what we did well -- what did well. One is, I think we would have loved to see a slightly higher volume growth. That's something we fell short. But I think what did well on volume front was number of samples growth or test growth because test per patient has gone up very sharply. Secondly, the contribution from Swasthfit continues to do well. And I think it is a very strategic sort of initiative from our side. We believe that trust is very important in diagnostics. And more and more people do health check-ups and as health care awareness goes up, this segment will continue to show growth, and that's a very big positive sign.I think COVID part, in any case, was declining, and we are happy that it's almost going away. It becomes -- our life becomes simple to analyze the trend. So that, I think, is a positive part. On the financial side, I'm sure you would have seen that our margins are much better than what we expected. So I think these are all your takeaways as far as results are concerned.
Right. Got it. Yes. Because I was thinking 10%, I thought we should do better 1Q, not because it was a very strong season for us. But just purely because Q-o-Q, we were seeing improvements into non-COVID. So it looks like last quarter versus this quarter, there's hardly been any improvement on non-COVID. That's what it feels like. Is that correct understanding?
So I personally -- and I think I've repeatedly been saying that these are gradual improvements that happen in our space. So suddenly, overnight jump, one should not expect. But I think the good news is trajectory is moving upwards because there was a time when we were little concerned about hyper competition, whether we can sustain this growth. But I think overall, now signs are very positive as we go forward.
Got it, sir. And secondly, on the operating expenditure, looks like that's not grown in proportion to business growth, which is good news, and hence, margins were up. I also understand that generally, first half for Dr. Lal has higher margins and then through the year, it comes down, second half. But any specific efforts you'd like to highlight on cost savings or some details, please?
So maybe I'll hand over this question to Ved to talk about. Ved, do you want to take this?
Yes. So Rahul, there are 2 major initiatives. One is on the material cost side, which obviously, there is an impact of mix and portfolio change. And second is, obviously, we are looking how to optimize this cost because this is the biggest cost in our P&L. So this definitely helped us in this quarter. And second is, last year same quarter, we had some provision against debtors, which is not there in this quarter. So that is another reason which we have taken.
What was the quantum for that provision, sir?
It was about INR 5 crore. It was [ BMC ] provision we had made against recovery for Suburban.
Got it. Got it. And lastly, on Suburban, how did that do during the quarter? Some color on whatever you could share, net of Ind AS revenue, patient volumes or revenue per patient and the overall business? You are expanding into South Bombay. What's really happening on Suburban, please?
I think, Suburban, what we are doing now is seeing whether -- what kind of synergies we can draw between the 2 companies and 2 brands. So we are looking at, very carefully, some synergies that can come out of lab infrastructure that exists between the 2 companies. I think that's the update we have. Secondly, in terms of marketing activities, we are a little more aggressive than before in Mumbai. We are trying to see how we can improve our B2C contribution in Bombay market.
Sir, any top line number and volume number you could share, please?
Yes. I think right now, I would actually say volume growth is slightly muted there, but we would probably share as we go along with the...
The next question is from the line of Aneesh Deora from Nomura.
Sir, firstly, on the margin. So it was 27% for this quarter, the EBITDA margin, which is higher than the full year guidance of 25%. So does this guidance level still hold? And how should we think about margins for the coming quarters?
So this is Ved. Again, as Rahul mentioned previously that generally, we have first half where margins are higher than second half. So we have to wait, but we are holding that statement that we should maintain our pre-COVID margins going forward.
Right. And what is the reason for the margins being higher in the first half of the year for Dr. Lal?
So first half, usually, our revenue, the trend historically, they are always higher. And we've also seen the mix of tests also is more drifted towards certain kind of tests where gross margins were higher.
Okay. All right. And secondly, on the -- so we've implemented the site increases, which is being adequately reflected in the revenue per patient, which has inched up quarter-on-quarter. But when we look at the revenue per test, that has largely remained flat. So how do you think about this? And what are the dynamics around it? Like one would ideally expect that the revenue per test could also inch up proportionately, but that has not happened. So any thoughts around this?
This is Bharath here. So revenue per patient, sequentially, there was a positive impact of about 1.2%, led by price flow. Revenue per test is actually a mix of multiple things. I'm not sure how -- I'm not able to respond. But give me some time, if it comes up later in the queue, I'll confirm then.
I'll probably add to this. See, the revenue per test will continue to be lower because as the contribution of Swasthfit keeps moving up, because Swasthfit has lot of tests in it, you will always see that situation. But I think we have to look at economics from an overall standpoint because we don't mind revenue of Swasthfit going up because marginal cost on the increment -- on additional tests is very, very low. But we are able to pass on that benefit through bundled packages to the patient. In that case, you will always see -- not only for us, I think the industry itself is seeing that the revenue per test is going down, but revenue per patient is going up.
Understood. That's helpful. And sir, just a clarification. You mentioned that 4-year CAGR for the organic business was 7%, right, if I got that correctly? Just want to clarify.
Yes. The patient growth.
For volume, we're talking.
The next question is from the line of Tanmay Gandhi from Investec.
My question is again on the operating expenses. So if you look at the sequential growth, revenues have grown by almost 10%. But still, our other expenses have degrown by 5%. So is there any one-off in the last quarter base? Or is there any postponement of expenses which is there in this quarter?
No. So Tanmay, as I mentioned, there was one provision we took in the last year. That was the only one item, and there is no postponement of the expenses in this quarter.
Last year, sir, you mean 4Q FY '23?
Yes.
Q1 of last year, right? Q1 of last year.
No, no, sir, I'm talking about sequentially. So even sequentially, it has declined by 5%.
Sequentially also.
Sorry, so provision was there in 1Q as well as 4Q. Is that what...
Yes, yes.
Okay. And sir, can you share margins for Suburban? Have they also improved?
Margin for Suburban also have improved. If you do just non-COVID versus non-COVID, right?
Yes.
Yes. Margins have improved there also.
Can you share the numbers?
I think the range is between about 11% to 13%, exact numbers we don't have, but it's in that range, about 11% to 13%.
The next question is from the line of [ Dino ] from Elara Capital. As there is no response, we move to the next question. The next question is from the line of Mehul Sheth from Axis Capital.
Sir, first question is around your gross margin. So does your gross margin also had some benefit of that price increase that you have taken in [indiscernible]?
Yes, yes, that's right, it has.
Can you quantify, means how much was because of that price increase?
This is -- it is about 3% which is for the full year.
No, not from margin, 3% is revenue, right?
3% of the revenue, right.
Yes. So what we are seeing is that there is a 3% upside to the revenue due to price increase. So whatever benefit goes down to gross margin one can calculate that.
And sir, one more question on your expansion side. So do you have any near-term target, which you're focusing more on the West and the South now to expanding collection center sites. So do you have any near-term target, how much center you want to add?
So I think our near-term target for West region is [Technical Difficulty] synergy between Dr. Lal PathLabs network as well as Suburban network. So currently, we are looking at -- we have mapped the lab locations for bot the company and identifying gap areas. So we will gradually fill these gaps. On an overall company basis, usually, we put about 10 to 15 labs. So that effort will continue on organic side. And we will continue to look at white spaces for our collection centers. In general, normally, we have seen about 10-odd percent of infrastructure growth that happens in our system. So that really turns out to be about 20-odd labs every year.
Okay. Just last question to Ved. Sir, can you give break-up like Suburban sales number, at least? How was total sales COVID and non-COVID sales, if you have handy?
Suburban revenue is INR 37 crore this quarter. And largely, it is non-COVID. A very small percent...
Of which about INR 36 crore is non-COVID, INR 1 crore is COVID.
The next question is from the line of Cyndrella Thomas Carvalho from JM Financial Limited.
Congratulations on good set of numbers. Dr. Om, you mentioned that certain disappointments that you were experiencing were largely on the volume side. Could you elaborate more on that statement? I mean, is this something to do geography-wise? Or is it a certain segment of the business that you were expecting to be better?
See, the thing is, if you look at the patients that we report, technically, they are not unique patients. They are all patient visits. So that's how historically we have been tracking this number. And we've always had a challenge of tracking unique patients because patients in our system come from various channels. They come through walk-ins, they come through collection centers, they also come through pickup points. It's very, very difficult to have one identifier, a patient ID, and then there are so many unique patients.But what we are finding is that patient visits probably have been less this quarter, and it led to ask many questions in our mind. One was, we took a price increase. Is that impacting it? We did this analysis for those tests, where we had taken a price increase, we didn't find any variation between that portfolio which has been experiencing price increase versus the other one where we have not taken price increase. In fact, the growth rate for both sides is the same. So that means we have ruled that out that price increase has impacted it. We also saw it whether the competition is impacting it. We did this [ Tier-wise ] analysis. We again found that it's probably uniformly across this thing.We also found that we are very -- not very sure it's an hypothesis, whether -- because the bundled packages are going up, whether it's impacting the patient visit frequency, we still don't know that. I think the strong sort of a reason that we are able to find out is that last year, I think non-COVID numbers are also impacted by COVID itself, which is very difficult to identify for us. And the base of last year is much higher. If you have that number with you, close to [ 6. ]...
[ 25% ] of the patients are in Q1.
Yes. In Q1. So I think right now probably only analysis that we have is the last year base is much higher, that probably has impacted this volume growth. We'll have to wait and see for this quarter and maybe 2 quarters later. We are very hopeful that on an annualized basis, we will see a smart recovery on volume side. I think that's the only thing probably I can say right now.
Right, sir. I agree with you on the COVID side, there must be some rub-off. I also believe that. But coming to the other point, the recovery should be led by -- what efforts are we putting in terms of getting these volumes up?
Sorry, I couldn't hear you properly. Can you repeat the comment?
Yes, yes. Dr. Om, I said that what will drive this volume recovery for us? What are the efforts we are investing in, which gives you the confidence that we will be able to recoup higher volumes?
Yes.
Cyndrella, this is Bharath here. So like we talked about in the opening speech, I think we're very focused on new acquisition program, new customer acquisition program. It can either be a physical hunting program or even a digital acquisition program. So that is really what we're looking at as one stage. Second is around the whole infrastructure expansion program. So we announced new labs. We are putting up collection centers in the regular pace and we'll continue to accelerate that whole area. So that is going to be a second lever of getting new customers in.And third is obviously improving our customer service levels as we move forward as well. So that stickiness increases and visit frequency increases and recommendation by doctors also increase. And the Super Specialty portfolio also will continue to make more inroads in acquiring new patients propagating those tests. So I think between these 4 levers, which we have, we should be able to see a smart recovery like what Dr. Om mentioned in the full year terms.
Quite helpful for us. And one last question is on the cost. If we look at the cost base, which I think most of the participants are asking. We are expecting investments, but somehow the cost base is remaining steady. So how should we look at it?
Cost base remaining steady.
So I think structurally, the P&L shape is changing on 2, 3 aspects. One is, if you plot data for the last sort of 10 quarters, 12 quarters, our rental cost is directionally going down. And one of the reasons for that is a lot of businesses actually shifting to collection center network. People are not coming to as walk-ins, but rather than they are going to nearby collection centers. So that's one change that we are observing. Second is, we are seeing a very volatility on the mix change.I think one of the reasons probably are earlier last year, our region cost was high because COVID testing was very high and that led to higher region cost, [ that recedes ], we are probably going back to the lower sort of consumption cost. So that's one -- second change that I'm observing. Going forward, you should see 2 heads going up. Number one is A&P, and we are constantly going to increase this number. And gradually, I think as we get a lot of confidence in margin recovery as we've seen in this quarter, we will try and claw back a lot of money back into the sort of A&P. The second area is IT cost. We have seen a sharp increase in the last 3 quarters to 4 quarters, and we will reassess the requirement, if required, we will invest more on IT infra as well.
The next question is from the line of Aashita Jain from Nuvama.
So my question is more on the -- from the industry side. If I look at the price hikes that you have taken and several of your peers have also taken in semi-specialized and high-end kind of tests, would it possible for us to take price hikes going forward in line with the inflation, at least in these high-end tests? What is your take on that?
So, I think at a macro level, I can only say that there is a bit of rebalancing which is going to happen on pricing. Traditionally, my experience has been high-end tests were actually cross-subsidized by routine tests in the past. As the competitive intensity in the routine is increasing, so I think some of these high-end prices will get automatically corrected because while sometimes realization per patient in the high-end is higher, gross margins are not that high as they are in the routine tests. I think first, my sense is industry is going to experience a lot of rebalancing of pricing.And another thing one must realize that the human component on high-end test is much higher. Routine tests are highly automated, machine-driven. That's why you actually see a lot of competitive intensity on routine, you don't see that much on high-end. How we are able to do it, yes, this is our first attempt in February this year. We will gradually sort of wait and watch and see how we go forward, but I think one should be able to correct it on a periodic basis.
Okay. My second question is -- yes. So my second question was on the industry growth in general. So recently, in one of the CRISIL reports, they have pegged the diagnostic industry growth at about 5% to 7% for the next 5 years. And this number was around 10% last year. So just wanted to know your thoughts on this? How do you see industry growth panning out, for, say, next 3 years to 4 years? And where organized players like you stand in that?
I haven't seen this report, but I won't be surprised if the industry growth rate falls to this level. Because to my mind, Tier 2, Tier 3 markets are just opening up from a diagnostics perspective and penetration of diagnostics in this industry on a sort of a qualitative basis, I can say is pretty low. So I would be surprised if this number is true, but I look up to this report and see what it is. Is this has come out recently?
So in one of the annual reports of the health care [ major ], I think they have reported this number, 5% to 7% diagnostic.
And there is reference to CRISIL report in that. Is it?
Yes. So I checked with the company, it was from the CRISIL, that is what I...
My own personal view is, I think it's quite global, I don't think so. While it may not be still that high as it used to be in the past, but I think this to me looks low.
And just lastly on the volume side, I mean, there are a lot of questions on that. If I look at your non-COVID sample growth, it's somewhere around 6%, which is still lower than what you have been guiding around 8% to 9% and, again, lower than what the pre-COVID level. So what is the trend that you're seeing on the volume side? How -- is the volumes -- are the volumes picking up gradual? How should we see this going forward?
Actually, volume growth number that we have been talking about is these are patient visits. And sometimes there's a spike also that happens in volume because as we enter into high sort of vector-borne diseases like malaria, chikungunya or dengue et cetera, one patient actually visits multiple times during fever season. And suddenly, when you have a non-fever season, these visits tend to drop also very sharply. So I would wait and watch. I won't get perturbed by this number, but I do believe that there should be a gradual jump in this volumes. And one of the analysis that we've done is sequentially how it has done. I think that it has done better, right, from a Q4 to Q1 about...
8%.
There is a jump of 8% in volume, and on a CAGR basis for last 3 years or 4 years is about 6.5%. I think it's just that Q1 of this year versus Q1, these numbers look very low. So I'll probably hold on to this. But I think as I made an opening comment, I think it's lower than what we expected. So we'll have to wait and watch as to how it goes.
[Operator Instructions] The next question is from the line of [ Vignesh Iyer ] from [ Sequent ] Investments.
Congratulations, sir, on good set of numbers. Just wanted to understand on the EBITDA side of it. I mean is this number a more sustainable number, and can we assume it as a more sustainable number going forward on the EBITDA side of it?
So as I mentioned earlier also, somebody else also asked this question. So this is normally first half, we have higher margins. But full year, I don't think this kind of margins we are guiding. What we are saying at least we are confident that we can maintain our pre-COVID level margins for the full year.
Okay. Okay. And sir, on the tax rate side of it, what would be a blended tax rate for FY '24? I mean -- are we shifting to something like 25%, which is normally...
Yes. We don't have any advantage. I mean, normal tax rate is 25%, which is applicable to us.
No, like we have paid around 29%, if I'm not wrong for the quarter, right?
That was mainly because of notional depreciation you have seen. But you -- if you see the standalone, it is about 25%.
The next question is from the line of Omkar Kamtekar from Bonanza Portfolio.
So, firstly, sir, my question is with respect to Swasthfit, over the long term, what kind of proportion of the total revenues do we target for the [Technical Difficulty]. So currently, it is [ 22% ], over the long term, how much of the total revenue share could be contributed by Swasthfit?
It's a very interesting question [Technical Difficulty]. So there can be multiple application costs we get from what I would call a bundled test offering portfolio. We can create bundles for many other disease conditions. We can get faster diagnosis out. So I think one way to look at it is to create things, we'll grow this portfolio only. Second, as I said, we'll [indiscernible] this and hence try to grow a [indiscernible] portfolio. So, yes, the future looks very bright. I don't want to put a number, but between [ 20 to 25 ] in the near term should be reasonably possible as for our estimate.
Okay. Okay. So we are also looking to create other bundled tests so that those also contribute towards the growth. Is that would be the right thinking?
Yes. I think let's look at it from a market perspective, there is a need to create this bundling.
Okay.
I think bundling has also become much more affordable [Technical Difficulty], but doctors are also [Technical Difficulty] seeing LFT, KFT together, which they were earlier prescribing separately. Patients also want to do it together. In fact, I have seen requests coming even for high-end test bundling as well because they want [Technical Difficulty], and see whether they can diagnose it early. One, which I keep saying, the core problem our industry solves are 2.One is, we must diagnose it accurately, and the second is, we must diagnose it early. I think accuracy wise, the industry has done a great job. The quality labs have come up. This early piece is being driven by multiple factors. It could be genetic testing, it could be bundling, because you can do the entire testing in one go itself and diagnose it early. And I think patients in both medical fraternity and patients, they are seeing great value in this because bundling is much cheaper than ordering individual tests.
Okay. Okay. And lastly, just a clarification. In the previous question, when you were mentioning about the Tier 2, Tier 3 growth. So I was not able to hear. So what was the growth number that you are expecting from this Tier 2 and Tier 3 expansion?
I was responding to someone mentioned about the industry is going to grow only about 5% to 7%.
Yes. So...
My thing was that I haven't seen the report myself, but my own gut says that it is too -- it's lower. It's actually -- while one should not see quarterly numbers, but over a long period of time, this whole Tier 2, Tier 3 market is yet to open up.
So what would be the number, if you could just have a rough estimate?
We probably need to put that thing, because the only way I can look at it as you and I see the same numbers, 1.4 billion people. And if you draw a pyramid, I think most of this industry is still lying in top end of the market, which is metros and mini metros, but it is still to go down, especially from a organized industry point of view, while unorganized sector may still be existing in Tier 2, Tier 3 towns, but I think organized industry still has to make a lot of inroads in these markets.
Okay. And last...
So it's more a qualitative comment rather I don't have any number to which I can...
And lastly, so, sir, there is one problem when you generally face into this Tier 2, Tier 3 or lower cities that generally patients would only try to go to a diagnostic center where the doctor has recommended. You might go to a specific lab or a specific technician to get the report. So how will this be overcome?
No, I fully agree with you. This is a challenge, and I think 20 years back, that was a challenge even in cities as well. So I think as gradually more brand awareness picks up, affordability goes up, people would be willing to pay a brand premium for this, as overall cost component goes down, OPD prices go up, so I think some of these practices would tend to go away and then branded players will be able to succeed. That's probably I think it will happen. But you are absolutely right. There are challenges. This market is not there just for us to grab just like that.
The next question is from the line of Rahul Agarwal from InCred Capital.
Yes. Thank you for the follow-up. One question, Om, was how we annualize into retail businesses. We look at same-store sales growth. I was just trying to apply that to diagnostics. So, let's say, you had a franchisee network of 3,000 roughly at end of March 2020. Should -- will it be fair to say that, that network is still growing on revenue or are most of the top line growth which we are seeing is coming from the new network, which you have added over the last 3 years. Any analysis there, please?
It's growing all across. In fact, you'll actually be surprised our Delhi NCR has shown better growth, while Delhi NCR has the same-store because there is hardly any scope to grow further outlets. So technically, if I look at this geography and the same-store as a concept, it is still showing growth. So I think it is all across. The profile of growth will be different in these markets. The same-store growth may be coming more because people are shifting to bundling, people are shifting more preventive, while it may be less in other markets, but there is a growth happening in both the segments.
Okay.
Just to correct, Rahul, we have 5,000-plus franchisee, not...
No, he just -- as an example...
Yes, Ved, I'm aware of that. I'll move on to second question was on cash flow. My sense is our cash profit for the quarter was about INR 120 crores, okay? As I understand, the gross cash you have reported is INR 877 crores and the debt on the books is about INR 146 crores. If I do a math, net cash is about INR 730 crores. So it looks like there is hardly any CapEx done in the quarter. Is that understanding correct?
Yes. You are right.
Okay. And lastly, Delhi NCR, you were saying that this improved and the growth is better. What's the revenue share here for the quarter?
So it's about 32% overall.
Including Suburban, right?
Yes. All put together, consolidated. So we're not going to talk about no COVID to non-COVID separately, one number, all companies as one. All put together, 32% is from Delhi NCR.
The next question is from the line of Karan Vora from Goldman Sachs.
Yes. So my first question is on broadly -- so you highlighted that from the competitive intensity point of view, the market has kind of stabilized. But is the competitive intensity back to pre-COVID levels or it's still high and from where is it coming from? Is it still the online players or you are also seeing it from the hospital players? Also an addition to that, so in the Delhi NCR region, you mentioned to kind of higher growth. But do we think that now that we have reached a sizable scale in this region, going back to pre-COVID volume growth would be difficult?
Okay. There are quite a few questions. So I think let me first answer competition. From COVID time, before COVID and post-COVID, whether competitive intensity is same or it has gone up, answer is yes, it has gone up. So, but definitely, it has come down from the recent past, but it has settled down at a much higher level. So I would say it's a new normal that has settled down. Now where is it coming from, it came from 3 sides. One was, of course, this new age players, private equity funded, second was hospitals, and third was some of the pharma companies.I think as the new normal is settling down, I would put hospitals as number one sort of a competitive threat to the industry or rather which can change the whole construct. So I think hospitals are getting more aggressive. Can they be pan India? I have my sort of a doubt on that, but obviously in regional or city level, they have brand equity and they are trying to leverage that, which is what has changed. The second question, I think you had was on Delhi NCR growth, right?
Yes. Correct.
So Delhi NCR growth, though it has -- it's gone up, but I don't think it's sustainable what we have seen in Q1. But Delhi NCR being a very sort of a high market share -- market for us. So I don't see this growth would be in line with our overall blended growth for the portfolio. So I think growth contribution from Delhi NCR will be lower than the rest of India as we go forward. While slightly better growth that we have seen in this quarter, maybe just be an exception.
Right, right, thanks for that. Another question on Suburban. So you mentioned in the call previously as to you are in the Phase 2 of the integration journey. So just if you can throw a bit more color on how many phases do you plan to completely integrate Suburban into? And like what is the time line for that, like will it take a year or maybe more than that? And by when can you expect the margins to cross 20% levels?
Yes, I think it's a great question. When we acquired about 1.5 years back, that time our thesis was, can we build Suburban as a separate company, as a separate team and separate unit. And we made an attempt doing that. We had put out certain growth numbers. Unfortunately, we didn't see those numbers coming in. So essentially the idea was can we just try top line and not worry about rest of the stuff. But then slowly we realized as COVID receded, we suddenly found that margins actually came down very sharply than what we had seen during COVID times and the growth rates were definitely not as high as what we expected.Then we quickly have changed our gear saying that not only this asset has to give us revenue synergy, but it's also we have to look at cost synergies as well. When the cost synergy started falling in place, then we looked at 2 phases. Phase 1 was can we look at our corporate cost of Dr. Lal PathLabs? Can that structure provide some overriding support to this asset, like finance, HR, marketing, IT, et cetera? So that was Phase 1. And the Phase 2 is when we went down to operations, we found that if we look at -- rationalize our lab infra, can we -- we can derive some synergies out of this. So currently we are in that phase. I think the last phase would be when you bring front-end synergies as well like sales team becoming one and things like that, which to my mind will happen as we go along. But right now, Phase 1 and Phase 2 is the focus.
Okay. And any guidance on the time line for all of this to happen?
I actually would play it by the year and see how our integration happens because the integration of lab ops is not that simple because both the companies operate on different lab information systems, different barcoding systems. So I would actually not put any time line right now on to this. But I would want to get it right the first time [Technical Difficulty] and steady in these things.
The next question is from the line of Dheeresh Pathak from WhiteOak.
Yes. Sorry, I came in late, so my apologies. But the way I'm looking at the results is that non-COVID revenue grew 10%. I am audible, right?
Yes. Yes.
Non-COVID revenue grew 10% and the patient count is flat, 7 million to 7 million. So all -- everything is coming from realization increase. Now there is price increase and there is mix impact. So can you break this 10% non-COVID increase in realization into price increase that you've taken on like-to-like and mix?
So, I think we've spoken enough on this. Maybe you were not there when we talked about this. But just to give a split of 10%, 3% is on account of price increase, balance is on account of mix. And if you take out -- if you take out COVID volumes, then the growth rate is about 2.5% on volume.
2.5% on volume.
Volume, we've taken away COVID numbers out of that. But since you asked about non-COVID, 10% breakup, right?
Yes. Yes.
The non-COVID, 9. whatever the number is, 3% is on account of price, balance is about 2.5% on volume and balance is the mix.
The next question is from the line of Aneesh Deora from Nomura.
Sorry, sir. Actually, my questions have been answered.
The next question is from the line of Omkar Kamtekar from Bonanza Portfolio.
So one question was based on geographical expansion. What is the next geography that we are expanding to? And...
Sorry to interrupt. Mr. Kamtekar, there's a lot of background sound coming.
So my question is with respect to what will be the next geography for expansion like we are looking for? One. And secondly, the cash that is on the books of INR 877 crores. Will that be used for any inorganic expansion over the next 1 year or 2 years?
I couldn't hear your first question, I did hear your second one. The cash on the books, yes, I think the primary objective is to utilize it for growth, both organic and inorganic. Since our business organically does not require too much of capital, so we will primarily use this for inorganic and we are still digesting our last acquisition that we did in Bombay. So as this stabilizes, the new opportunity comes up, we'll always be open to look at inorganic opportunity. First question, I'm sorry, I couldn't hear that. You were asking something to the Tier 2, Tier 3 towns.
So which are the regions, so are we looking to expand in the West region further or we go to South region like in the next months. So which region are we next focusing on for expansion?
Okay. Okay. South and West, so there is no doubt. I think every call that we talk about South and West are gap areas for us. We'll try and go in these regions.
Thank you. That was the last question. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, for being with us on this call today. I hope we were able to address your questions. I would now request the moderator to close the call. Thank you.
Thank you. On behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.