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Ladies and gentlemen, good day, and welcome to Dr. Lal PathLabs' Q3 FY '25 Earnings Conference Call for investors and analysts. [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.
Thank you. Good afternoon, everyone, and welcome to Dr. Lal PathLabs' Q3 FY '25 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. Shankha Banerjee, CEO; and Mr. Ved Prakash Goel, Group CFO and CEO, International business.
I would like to share our standard disclaimer. Some of the statements made on today's conference 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 stock exchange website.
I would now like to invite Dr. Arvind Lal to share his perspectives. Thank you, and over to you, sir.
Thank you very much. Good afternoon, everyone, and thank you for joining us on today's call to discuss our Q3 FY '25 results. I would like to begin by sharing my thoughts on the dynamics of the diagnostic sector in India and give you an overview of the key initiatives we are rolling out.
The government of India has committed to increasing the public health spend to 2.5% of GDP from the current approximately 1.8%. The need to strengthen primary and secondary healthcare infrastructure, especially in rural areas and in cities classified as Tier 3 and beyond has never been more pressing. At the same time, we are also witnessing a rise in noncommunicable diseases, also called NCDs or lifestyle diseases, and these include diabetes; hypertension; cardiac diseases; strokes; cancers; kidney, liver and lung diseases; and obesity.
NCDs account for nearly 65% of deaths in the country and a financial loss of about 2% of GDP every year. Therefore, it is imperative that both the government and the private healthcare work together to control the rise of these NCDs, starting with timely screening and preventive management. Creating accessible testing capabilities, which often serve as the first steps in delivering healthcare, has become increasingly crucial as was also seen during the COVID pandemic. In this context, Dr. Lal PathLabs network plays a key role in enhancing healthcare accessibility in an affordable and reliable manner, particularly in underserved regions.
The awareness around preventive diagnostics is also growing. We are in a position to facilitate time screening -- timely screening and early detection, enabling proactive healthcare management and improving overall health outcomes for all. Our ongoing investments in digital infrastructure have given us the flexibility to efficiently deliver services to a wider customer base.
We were the pioneers in leveraging AI-driven diagnostic modules with introduction of our AI-enabled test for breast cancer and prostate cancer many years ago. Genomics, where we have made significant investments and established our center for excellence called Genevolve serves as another platform that expands our diagnostic capabilities to have a laser focus on genetics and personalized medicine.
It is these innovative and cutting-edge diagnostic solutions that have made us the numero uno in diagnostics in India and the most preferred testing partner for both patients and doctors.
Our operations continue to scale up according to our predefined strategy, backed by over 75 years of experience. As a leader in healthcare, it is our goal to provide timely, efficient quality care to everyone in the country.
With that, I would like to hand over to Dr. Om Manchanda. Over to you, Om.
Thank you, Dr. Lal, and a warm welcome to all the participants on this call today. The last time I spoke about bundled packages and our strategic efforts in Western region. This is something I want to share about as to how we navigated our business without the price increase and still delivered better than last year's revenue and EBITDA margin in the first 9 months of the current year.
The first initiative that we took was a very sharp focus on geographical and test mix that delivered higher realization per patient as well as better margin. For example, Delhi NCR, a region with better margin profile, has delivered double-digit growth in line with national average. This has happened after many years of single-digit growth in this region. The second has been Swasthfit contribution continues to rise and has delivered higher realization per patient. This is as a part of our stated strategy.
Second initiative has been that we are expanding lab and collection center infrastructure in Tier 2 and Tier 3 towns. Third initiative has been relentless focus on the productivity initiatives. And lastly, a very sharp focus on franchisee collection centers that helps us to increase width as well as depth of the reach. The contribution from franchisee collection centers now has gone up to nearly 45%.
With that, I would now hand it over to Shankha for his thoughts. Thank you.
Thank you, Dr. Om. I extend a warm welcome to all participants joining us on the call today. I will present the key business and operational achievements.
We maintained a strong performance trajectory in the third quarter of the fiscal year '25, delivering 10.7% growth in revenues. The growth is delivered through sample volume growth and mix improvement and does not have any price increase benefit. I am pleased to share with you that DNCR recorded double-digit revenue growth for the second successive quarter.
Let me share some of the key operating statistics. Sample volumes stood at 20.6 million in Q3, a growth of 10.3% year-on-year, while patient volumes came in at 6.9 million, an increase of 3.8% over the same period last year. Revenue per patient for Q3 FY '25 stands at INR 861, a growth of 6.7% compared to Q3 FY '24.
This growth in revenue per patient is on account of mix management initiatives on geography, channel and product. We are accelerating our reach in the underserved markets with the planned opening of 15 to 20 new labs in this financial year. We continue to expand our reach into Tier 3 and Tier 4 markets and have started strengthening our presence in the core regions as well. We are now making investments in new infrastructure in metro and Tier 1 cities also.
Our bundled test program, Swasthfit, continues to contribute favorably to the overall performance with a robust growth of 27.2% in quarter 3 FY '25. Building on positive results, we are developing a wider range of bundle packages and expanding our market penetration beyond the traditional Tier 1 and 2 markets to address the growing demand. While it's still early days, the response, thus far, has been encouraging.
Our future growth will be driven by a combination of strengthening our operations in core metro and Tier 1 cities, penetration in Tier 3 and Tier 4 in North and East and building clusters in South and West. We are committed to maintaining the highest standards of diagnostic quality and accuracy, while expanding our service offerings to include high-end and super specialty tests. Our robust digital infrastructure will enhance the patient's experience by providing seamless access and customized solutions.
With that, I would now like to invite Ved, who will take you through the financial performance. Over to you, Ved.
Thank you, Shankha. Good evening, everyone, and a warm welcome. I will be sharing the key financial highlights for Q3 FY '25 and year till date. Revenue for Q3 FY '25 came in at INR 597 crores compared to INR 539 crores in the same quarter last year, reflecting a growth of 10.7%. YTD FY '25 revenue stands at INR 1,859 crores against INR 1,681 crores in the same period last year, a growth of 10.6%.
Revenue per patient for Q3 FY '25 is INR 861 against INR 807 in Q3 FY '24, mainly due to test and geography mix. Tests per patient for Q3 FY '25 is 2.97 versus 2.79 in Q3 last year, a growth of 6.3%. EBITDA for Q3 FY '25 came in at INR 154 crores, compared to INR 141 crores in Q3 FY '24, registering a growth of 9.6% with an EBITDA margin of 25.8%.
YTD FY '25 EBITDA stands at INR 527 crores versus INR 465 crores in last year same period with a growth of 13.3% and EBITDA margin of 28%. PBT for Q3 FY '25 came in at INR 138 crores versus INR 116 crores in last year same period, registering a growth of 19.4%. PAT for Q3 FY '25 came in at INR 98 crores compared to INR 82 crores in the same period last quarter, last year, registering a growth of 19.3% with a PAT margin of 16.4%.
For YTD FY '25, PAT stands at INR 337 crores against INR 277 crores in the same period last year with a margin of 18.1%. EPS for Q3 FY '25 is INR 11.6 as against INR 9.8 in the same period last year. And YTD FY '25 EPS stand at INR 39.9 against INR 32.9 last year same period, registered a growth of 18.7% and 21.4%, respectively.
Net cash as on 31st December 2024 is INR 1,123 crores. At last, I'm pleased to share that the Board of Directors of the company have approved a third interim dividend of INR 6 per share, taking the total dividend for the current year until date to INR 18 per share.
With this, I conclude my opening remarks, and I would now request the moderator to open the forum for Q&A.
[Operator Instructions] We'll take our first question from the line of Saion Mukherjee from Nomura Securities.
Just some P&L numbers. I just wanted to get some color. So we have seen consistent improvement in gross margin despite no price increase. So if you can take us through the dynamics in terms of volumes Swasthfit mix and you have raw material prices, currency, et cetera, so how should we think about gross margins going forward?
And the second one was on employee expense. What I noticed, it's been growing in mid-teens, higher than the revenue growth for the past few quarters. What's driving this? And how should this grow going forward in your view?
This is Ved. I think just to correct, gross margin in this quarter compared to last year same quarter is not -- has not improved. Basically, the gross margin has slightly -- lower than last year same quarter.
Second, in terms of employee costs, yes, definitely, there is an increase because we have started investing in new infra. And we hired about roughly 100 people in our sales and marketing team as well. So that is the impact where we are investing in the business for future growth.
So I think I just want to add -- this is Om here, and I want to add what Ved just mentioned. I think in the last sort of 1 or 2 years post COVID, there has been a sudden jump in gross margins. And maybe because of the COVID testing decline, our margins improved, and we also invested a lot behind technology initiatives, which helped us to improve productivity. But I would say that these margins one should assume more or less stable at this number rather than any improvement further going forward.
As far as employee cost is concerned, as Ved mentioned, we are now relooking at our organic infra and not only just in terms of lab, but also adding manpower in our business, so -- which is a combination of both these 2.
Okay. And if I can ask one more. Just on depreciation and tax rate. I mean, we see depreciation, amortization numbers kind of quite flattish or even declining. So any reason there? And you are still on the old tax rate. Are there any plans to move into the new tax rate? And what should we expect in terms of effective tax rate in the years ahead?
So our effective tax rate -- applicable tax rate is 25%. If you see the stand-alone, the tax rate is similar to that effective rate. But in consol, we are charging some depreciation on account of impairment of intangibles, so where we are not getting any tax benefit right now, so that's where the effective tax rate is about 29% in consol. But in future, I don't think there is any change we have on the applicable tax rate.
Okay. And any comment on depreciation, amortization number?
These are similar because there is not much CapEx, which is done in terms of newer investments. These will be coming in the future. So right now, depreciations are more and less in the same vein.
It is getting offset.
Yes.
But you were adding labs, right? I mean I understand your organic infrastructure you are adding, so one would have expected these numbers to go up.
So this is offsetting against the depreciation we are charging against the new addition.
Next question is from the line of Karthik Chellappa from Indus Capital Advisors, Hong Kong Limited.
Sir, 2 questions from my side. First is if I look at Swasthfit, that contribution to overall revenue has remained at about 23% to 25% in the last 4 quarters. What is our medium-term aspiration in terms of, let's say, revenue composition? And what needs to happen for us to take it to a higher level? That's my first question.
So -- Karthik, this is Shankha here. So if you see every quarter versus the same quarter last year, you'll see that it's a plus 3% -- 2%, 2.5%, 3% contribution over. And that's been a trend that we have seen through the last 2-, 3-year period that the contribution remains kind of flat between quarter 4 to quarter 3, and then, again in quarter 4, it jumped. So all the actions that we are taking, you will likely see some benefit of that accruing to us in quarter 4 and the baseline will shift again for the next 3 quarters. So the growth rate, if you see on Swasthfit and if you also compare the contribution versus same quarter last year, you will see the delta.
Got it. Which means that going into next year, this ratio at least on a year-on-year basis will continue to improve? Is that how I should interpret it?
Yes, that's really the plan.
Okay. Great. My second question, sir, if I look at Suburban, this quarter, at about 9.2%, that revenue is soft relative to both our overall revenue growth as well as Suburban's 9-month revenue growth as well. So what would explain this relative weakness in Suburban this quarter? And what is the plan or, let's say, aspiration for FY '26?
So I think we've been saying all along that in our business, quarter-to-quarter may not be the right metric to look at growth rates. I think what we are saying is that the growth trajectory on Suburban definitely is moving in the right direction. There is obviously -- some quarter, there can be a slight up. Some quarter, there could be a slight down. But overall, that trajectory will improve. And obviously, going forward, our plans are to grow even faster than what we are seeing now.
I also want to add. This is Om here. I want to add one more point. Actually, while the questions get asked on Suburban, but we are looking at West as a region for our total business. So we have 3 verticals there. One is Suburban, other is Dr. Lal PathLabs' parent business. And third, also, we have done -- I mean, smaller acquisition under the vehicle called PathLabs Unifier.
Our front-end team now is common for all the 3, and we really don't evaluate them whether it tends to be Suburban or parent as long as overall business grows because there's a huge sort of a network advantage we get one over the other. And obviously, there is a latent sort of brand equity for Dr. Lal PathLabs. And I was looking at the numbers, actually, West region, growth rate is even higher than our national average for -- not only for the quarter, even on a YTD basis as well. So while we've also seen some bit of uptick on the parent business as well in this geography. So that network of Suburban is also helping us in a positive way to get our Dr. Lal PathLabs business growing as well.
Got it. Okay. Wish you and the team all the very best.
We'll take our next question from the line of Rishi Mody from Marcellus Investment Managers.
So, Om, I heard your comment on the gross margin where you said that large part of the gross margin expansion is done, some is with this COVID going away, and hence, the normal business having higher gross margins and the others, the initiatives that you all have taken at year-end. One thing I wanted to understand, right? Today, there's an industry in the domestic reagents business, which is coming up, which is at a lower pricing than the international players. So like are we not planning to increase that mix or like we're going to pass on the benefits that we get from those, and hence, lower pricing -- our test best pricing? Or -- like I'm just trying to understand why wouldn't gross margin expansion take place if we incrementally keep using domestic players' reagents?
Maybe Ved can comment on the domestic part of it, but I also want to highlight because most of these regions are imported and dollar becoming expensive. While we are still holding on to this, I don't know what is the response of our vendors going forward. But that pressure also is going to come, not only for us, but for the entire industry. But as of now, we're just holding on to these prices. So there are headwinds on the reagent costs.
On the domestic versus international, maybe Ved, you want to comment?
Yes. Rishi, I think, as Om said, these are mostly reagents, which we are -- I mean, directly not imported, but imported material. However, having said that, we have started using some of the consumables, which is local Indian manufactured. And there, we are definitely getting some leverage and benefit. But this is -- if you see last 2, 3 years' consumption costs, it has reduced substantially because of mix, which we are changing, from 22.5% to now roughly 22 -- 20.5%, 20.9% this quarter. So that is where wherever we have opportunity, we are doing that. But there is -- same time, there is an inflationary pressure, which is coming. That's where I don't think in the future we should build any further improvement in the gross margin.
Okay. All right. So dollar depreciation primarily in the near term will lead to pressures there.
Second, I wanted to understand on the Swasthfit piece, right? So when I look at the contribution. From Q1, the contribution has come down to 23%, while Y-o-Y, it's still up. I'm just trying to understand is there something which is missing here? Like this contribution has historically dropped as a percentage of revenue ever since in the last 3 years at least that we have the data for, it's kept on decently well over a year, kept on growing on a Q-o-Q basis as well. So is '25 the peak? Or like what's happening here, if you can give some color?
So I think the data that I have in front of me and what I've seen is that Q3 generally is a soft quarter, so 23%, one should see it as to what was the contribution last year in the same quarter, that number is 20%. And our sort of assessment is that Q4 actually peaks because of a lot of people actually go for health packages because there's reimbursement. I think there's a tax advantage they get. So it peaks in Q4, and then, somewhere stabilizes after that in Q1 as well. But then it softens in Q2 and Q3. And again, it peaks in Q4. So I think 23% is not a representative figure for the year, but it's only a figure for the quarter.
Yes. And I think the trend is similar last year. So it's not as if every quarter last year was growing over the previous quarter. If you see the trend, last year was exactly the same contribution. Even last year, the quarter-on-quarter contribution was highest in Q3 -- Q1, then it dropped in Q2, dropped in Q3, again peaked in Q4. So I think that is the trend we have seen for the last 2 years and it is the same trend continuing this year.
Or other way to look at it is that keep contribution aside, Swasthfit this quarter has grown by 27% over last year same quarter.
Right. Okay. And I think last time you mentioned like this can go much beyond the 25%, 30% mark. So is that still the case? You're still maintaining that, right?
See directionally, I think industry is showing those trends, and I haven't collated other companies' data, but I think one should probably look at the trends in other companies as well, where the market is -- data is available publicly. But my own gut says that directionally, it's moving towards bundling and we keep growing. So -- now, I don't know what that number is. But definitely, if 50%, 60% of disease incidence is coming out of NCDs, I think NCDs are -- that segment is prone to bundling because they're all metabolic disorders, they're all clubbed together, and they are all falling in the domain of preventive testing, et cetera.
It's only the infectious or communicable diseases, you can't bundle it. You don't need to go for a malaria testing if you don't have fever, right? But you can still go for lipid profile and kidney function test, et cetera. So I think if you were to ask me as to where it can go, it is a reflective of total NCD burden in our society.
Okay. Understood. Finally, for Ved, just a couple of numbers I wanted your help with. So Suburban EBITDA margin for the quarter versus the same quarter last year if you could help me with? And on the tax piece, it seemed like a 28%, 29% tax rate for several quarters now. Just wanted to understand like what's the reason for this elevated tax rate. I -- maybe I missed it if you'd mentioned it in the past.
So Ved here, Rishi. So tax, as I mentioned earlier also that if you see stand-alone, there is absolutely around 24%, 25%, which is the applicable rate. But on consol, there are some adjustments, maybe some depreciation intangibles, where we are not getting any tax, and then, dividend adjustment, which is intercompany removal of those. So for that, it is reflecting higher tax rate, but normal tax rate is 25%.
Okay. So like this tax amount that we are showing in the P&L is actual amount that we are paying, not the P&L amount.
Yes.
Okay. And if you could help me with the EBITDA margins for Suburban for the quarter versus same quarter last year?
So it is lower. But again, on a yearly basis, I think margins for Suburban will be in the range of 15%, 16%, because Q3 has revenue dropped as -- so as the margins.
Okay. So if I take H1, we would have done about 17%, 18% EBITDA margins. You're saying, 9 months, it's at 15%, 16%. So this quarter, the EBITDA margin would be around 10%, 12%. Is that right?
Yes, 12%, 13%. Correct.
Yes, because higher fixed cost component is so high, it's very sensitive to volume fluctuations -- sorry, revenue fluctuation, yes.
And last year -- you're saying it's declined versus last year. So last year we would have been in the 15% range if I'm not wrong.
Decline versus last quarter?
Last quarter.
Last quarter. Last year, the margin profile would be the same, same quarter.
Last year -- from last year, it -- there is an improvement. Year-on-year, it is improved.
Q3 FY '24 EBITDA margin for Suburban was 11.5%. Now it's 12.3%.
[Operator Instructions] We'll take the next question from the line of Prakash Kapadia from Spark PMS.
2 questions from my end. Any comments on how are smaller players in the industry doing, any specific trends you would have witnessed in terms of consolidation or regional players' performance, that would help?
And secondly, any price increases on the annual because some of the larger players are contemplating price increases? So those are my questions.
So let me answer the second question first. Yes, I know that many players have been thinking of taking price increase. Some of them have already taken as well. I think internal, our view is that we want to get our volume growth going up. And the good news is that this year, we have seen significant improvement versus last year. And we believe our strategy of holding on to the prices and still managing revenue growth in line with our internal budget as well as over last year, I -- we think our strategy is working and without dilution of margins. We want to hold on to this for some time and see if we can get our volume growth up. That's our current view. We will probably review this going forward, maybe 6, 9 months later. But as of now, we don't plan to take any price increase.
Second is coming to the smaller players as to how it is. I think there is some sort of a stability and calmness in this whole industry right now because a couple of years back because of this deep discounting and aggressive pricing by some of the players were really uneasy times for the industry. Overall, it is stabilizing. I don't see too much of sort of a stress in the smaller labs, but I also don't see too many new labs coming up. So I think it's stable times, I would say.
And if some people are taking price increase, it does help smaller labs as well. One must know that because it gives them sort of a leeway to take price increase even locally also. So I think it is going to be stable times for smaller labs going forward for some time.
Okay. And lastly, doctor, in this context of what you just mentioned, is it possible directionally, we should grow faster than some of the other players given that we are spreading geographically? We've been one of the earlier players in Tier 3, 4 cities. So when do some of these initiatives fructify and lead to still higher sales growth for us?
Yes, I think you're right. But the challenge is also our base is equally large because at such base, let's say, give or take, INR 2,500 crore base, if you would grow at 10%, technically, you have to add INR 250 crores of extra business every year. That's a kind of broad math one has. So -- and growing it organically in the same market sometimes becomes challenging, and the newer markets are slow to respond. So I think -- I probably would say what you are saying is right because -- and we also want to make sure that it's sustainable growth.
And my personal experience is a 1% or 2% slower growth is still fine. But as long as you are structurally building it up for long term, go slowly, slowly build your infrastructure, because the reason for people to come back again and again is quality and trust. At no point in time our expansion should compromise on that because at times, in a hurry to get extra, that 1%, one may compromise on those aspects. So I think it's a more process-driven business, make sure that you build it brick by brick is what probably helps.
And we are seeing that actually in the market. And one of the factors, in fact, Delhi NCR, we've not talked about this. And for the last 2 quarters, our growth rates are pretty good. And I actually would say some of the lapsed users, which went to some of this new competition, have started coming back to us, so which is sort of a proof to at least...
Positive. Very positive.
Yes. So I don't know whether it's working that way, but it's just a hypothesis I have. I want to see for next 2, 3 quarters. But I probably would say that it has to be really -- it's a process-driven business, go steady, slow, slow, build it up, and it stays with you.
We'll take our next question from the line of Karan Vora from Goldman Sachs.
So my first question is with respect to the patient service center and lab ratio. So when we mentioned that we are trying to improve productivities and efficiencies, what are the metrics we kind of look at? Do we look at revenue per lab or revenue per patient service center or patient service center per lab? Which are the right metrics? And what is the ideal metric you would like to have like over a medium term?
I think clearly, this particular metric of ratio between lab and collection center is very important. Because a throughput through a collection center is definitely more efficient than throughput through a lab -- not only from a cost perspective, but also giving higher market access because you're spreading your infrastructure closer to the customer.
The second area has been an area of overall fixed block that we have, how does it compare in terms of cost per test or basically that ratio? And we have seen simple things like printing and stationery. If you reduce the physical paper use, that itself gives you a lot of benefit. The second area could be if you franchise more collection centers, your rental cost as a percentage of revenue actually is coming down because your own infra is high street infra, you end up paying more rent. And now, I think GST impact is also there, right, on that?
Yes.
And if it moves closer to collection center, it's really that kind of cost structure is not there in their hands. So some of these small, small initiatives, they all add it up, and that's how we get the benefit.
Got it. So right now, I think our patient service center to lab ratio is around 20, 21x. So what is the ideal number you would look at? And is it different between a Tier 1 and, say, a Tier 2 or Tier 3 city?
Yes. Tier 1, definitely, this number would be higher because you are operating in a small geography. We go deeper, then, obviously, it will be much lower. Your average number, I don't know where it can stop. We probably -- there was a time when we were 1 is to 7 also, and I've seen this journey from 7 to now 20, 21.
I think this is technically competing with turnaround time as well because more collection centers you have, they are far away from lab, your turnaround time actually gets sacrificed. So I think it's a very dynamic number. I don't know whether we have a target in our mind. As long as overall sort of a cost overhead, we just keep an eye on that.
I don't think we just decided to target and go after that number because at some point in time, like this year, we are trying to expand more collection centers, so this ratio may go off as well. But it's a very dynamic number. So I don't think we have a number in our mind to achieve. Higher the number, better it is for us.
Helpful. So, sir, my second question is with respect to the competition in Delhi NCR region from hospitals. So are you seeing the competition kind of increase like on a year-on-year basis or you think it is more or less in line with what you were expecting?
So it's more or less in line with what we expect, but I think -- last time also we spoke about, there are hospitals, especially the ones which are -- which have ambition to become bigger and get listed, they are the ones who are trying to look at retail pathology. But I -- at least in our sales meetings, we don't really get to hear from them that hospital is a very big threat. But definitely, it's a competition which is here to stay. There is no doubt about that. And there's a market -- large enough market.
In fact, I personally always have believed that organized competition helps all of us because technically, you are taking the market away from unorganized players, so -- and which is what we are seeing. The market has started responding now better. And bundling is the effect of aggressive competition activity around bundled packages. So overall, I have a feeling that these people will help market to grow on an organized play. Shift from unorganized to organize will move further.
Okay. So are there pricing like in line with what we are pricing? Or are they like more like price competitive? Do they price higher? How is their pricing?
They cannot afford to be -- to compete with us in pricing because they have to match their internal hospital pricing as well. So I think hospital guys will never be aggressive on pricing. They can be aggressive on building infra, but my sense is they will not go to deep cut the pricing.
Got it. And my last question is with respect to other kind of region-wise growth. So I think we mentioned that West and Delhi NCR have actually grown faster, so which kind of maybe implies that on East and South have kind of grown below average. So what has happened there? And on a normalized, say, medium-term growth perspective, which regions do you think can be above corporate average and which regions would be below?
So I think -- see, the difference is not very stark. When I probably mentioned about West region grows -- growing faster doesn't mean the East has grown very slow. I would actually say, if I had to pick one region, which probably requires focus is South for us. I think all other regions, in front of me, I have the numbers, more or less in line with national average, 1 or 2 percentage higher or lower. But I think one region which probably requires focus for us is South. So this is going to be a focus area in this financial year.
Okay. So even from a medium-term standpoint, more or less, the -- like growth should be split equally more or less in -- across regions?
Yes, yes. So it's a very uniform growth. So it does help us to see that we are not dependent on one region for higher -- for the growth. It is all across India.
And when we look at the margins, like do you think the margins across regions are similar? Or like if there's a rank order, maybe Delhi NCR would be the highest, but like what others would be higher than corporate average and what others would be lower? Like I'm not asking for this particular quarter, but in general, on a normalized basis.
Ranking is -- I think it's no brainer, Delhi NCR is the highest, then comes rest of North and then East and West. Any concentrated geography we will always have for us, yes. No, not for the industry.
Okay. And where would a corporate average stands or corporate average would be, above or like better than rest of North? Or...
Sorry, you're going too detail. Maybe we can share offline. I don't have...
We'll take our next question from the line of Saurabh Kapadia from Sundaram Mutual Fund.
Sir, initially, you mentioned about making investment in...
Saurabh, can you use your handset mode, please?
Yes. Sir, you mentioned about making investment in infra in metro and Tier 1 cities. So is it related to the lab investment or it will be more of a marketing infra?
Yes. So we are looking at lab and marketing both.
And what could be the quantum of investment there?
What will be?
What would be the investment, like quantum?
No, no. I think that's more in terms of number of labs that we'll look at. So we are starting to look at new infrastructure in metro and Tier 1 in terms of labs.
Okay. And secondly, with this Suburban getting completely modeled to current, maybe in the result you mentioned those under reduction in administrative overhead. So what kind of cost savings you could see post this merger of Suburban?
Sorry, we couldn't really get the question.
The voice is not very clear. You're not very audible.
Yes. So I'm saying now with the voluntary liquidation of Suburban, now we have mentioned there would be reduction in the overhead cost. So what kind of a cost saving we could see post that?
So this is administrative and legal and compliance costs primarily which can be saved because right now, there are multiple entities. Now it will be one. So there are certain costs, which we can save on account of these trends.
Any number to it?
It's not very substantial, but yes, there is -- definitely, there will be some savings.
We'll take our next question from the line of Anshul Agrawal from Emkay.
Anshul, please use your handset mode. Your audio is not clear.
Is this better?
Yes, we can hear you. Go ahead, please.
Perfect. So, sir, if you could just help me with the number of labs you have already added in the 9 months ended for this current year?
So we are well on track. We have said 15 to 20 labs. We are well on track to achieve that by end of the year.
Okay. So I have a follow-up question on that. Has the Delhi region grown on the back of network expansion? Or is this -- would this be a sort of an FSG kind of growth that we have witnessed over the last 2 quarters?
So primarily, it is FSG kind of growth as of now. Yes. So whatever we have seen in the last 2 quarters is still primarily...
We'll take our next question from the line of Punit Pujara from Helios Capital.
My first question is for Dr. Om. So, sir, you mentioned that the new labs have stopped coming in, but has that resulted in, let's say, lower valuation in the existing labs? I'm asking this because you have INR 1,100 crores of cash, and I think it makes sense to follow the roll-up strategy. Yes. That will be my first question.
He said about labs being stable, right, stable environment.
Okay. Stable environment, I essentially meant that we -- one tends to see a lot of new labs being launched by smaller players, so especially in the unorganized space, I don't see a lot of new players coming and putting up new labs. That's what I meant by that. But there is an aggression, there is a competition from the organized setup because those players are putting up new labs. But what I meant was unorganized sector.
I see. And the second is, clearly, you are focusing a lot on growth. So are there any adjacent areas that you're exploring to further accelerate the current rate of growth?
So we are currently looking at few options, but I think they are too immature right now to talk about. But yes, I mean, over a slightly longer-term horizon, there could be some adjacencies put to effect.
See, adjacencies for us essentially is looking at higher end test. And in the area of genomics, and Dr. Lal mentioned about in his comments about Genevolve, and it's in the area of autoimmune disorders. So there is a lot of effort going behind promoting higher-end tests. So that actually grows on back of the network that we have expanded. I think that's the way we look at adjacencies.
And second area is in terms of basic radiology, especially ultrasound and X-ray, and we have a large number of labs where we have these services. That's another area of adjacency. So that's the way we look at it.
We'll take our next question from the line of Sumit Gupta from Centrum.
Am I audible?
Yes, yes.
So sir, as we plan to expand geographically across the region. So like what is the patient volume growth that you expect going forward over the next 3 to 4 years?
So this year -- last year, I think we ended full year at about 2.7%. And I think right now, YTD, we are about 4.4%. So give or take, let's say, we are in the range of 4.5% to 5% is what I think we are expecting patient volume. And our endeavor is to improve that as we go forward. I think we are not taking any specific target on it. But what the idea is to -- with the new infrastructure collection, network expansion, et cetera, we can reach and access larger patient pools, and therefore, grow better in terms of patient volumes going ahead.
Okay. So -- and then those are also you plan to like expand through volume growth through Suburban -- sorry, Swasthfit?
Swasthfit is just one product, which plays more prominently in maybe metro, Tier 1 and some Tier 2 cities. Yes. So infra growth and Swasthfit are 2 different axes for growth. They need not be overlapping. They, at certain level, could be complementary to each other.
So I want to pick up this question on volume. We, first of all, look at volume, both these metrics together. It's not only just the patient growth, but also sample growth because what we are seeing as the contribution of Swasthfit is moving up. There is a slight decline that we see on the patient growth because frequency of visits -- actually, technically, these are patient visits. They are not unique patients. So we are seeing the frequencies drop, and that's why you see slightly slower or lower patient volume growth. So we want to see both together, and we want to see both growing as we move forward.
Understood, sir. And sir, like -- and you also highlighted revenue contributions from franchisee base collection center was 45%. So overall, how has the trend been? And how do you expect it to go forward?
I get a sense it's now stabilizing here because in addition to this, we have pickup points, which is nearly about another 20%, 25%.
Okay. Walk-in and home collection.
Rest of it will remain as a walk-in and home collection, which we normally call as retail business, which is our own infra. So I would say it is probably stabilizing at this number.
Okay. And sir, lastly, on the CapEx, so how much CapEx was there in 9 months FY '25? And what is your guidance for the next year?
So in 9 months, roughly, we have made a CapEx of around INR 30 crores. As Shankha mentioned, we are planning to open, let's suppose, 15, 16 labs in this year. So maybe this is coming in the later part of this year, so Q3 and Q4. And going forward, on an ongoing basis, CapEx, as a maintenance CapEx is about INR 60 crores, INR 70 crores per year excluding any major investment in any other venture.
We'll take our next question from the line of Abdulkader Puranwala from ICICI Securities.
Just a follow-up on what the previous participant was talking about. So -- I mean, if I see your Swasthfit revenues, they are growing much faster, and I think that is the broader trend for the last couple of quarters. And we have been talking about network expansion into Tier 2, Tier 3 markets where that has worked quite well. But in terms of the overall growth that ends out to single digit, so I just also wanted to understand on the volume front, how has the volume growth been in the Swasthfit versus the residual part of your portfolio? Is there any material differences compared to how your revenues are getting shaped?
Swasthfit volume.
We don't have that data in front of us. Do we have it? We will probably come back. We don't have that number in front of us. But overall, volume growth for the business is about...
YTD is 4.4%.
YTD is 4.4%. But we can come back to you offline. You're Abdul, right, from ICICI Securities?
Yes. Yes, sir.
Yes, we'll come back to you.
Sir, second is, again, on the similar line. So while historically, we have seen that bundling test is something which has always attracted a large competition, say, from online or from other channels. So any -- if you could share your thought process about carefully selecting this as one of your growth engines for the near future despite a threat of competition any day coming into it?
Sorry, I don't get that question.
No, he is saying bundle testing can get -- attract competition, and why is it a growth lever?
So I think the bundle testing is a phenomena, which is now across the industry. And I think to a certain extent, the promotions done by the online competitors are even spurred with demand overall. So it may not necessarily be one eating into the other, rather it has helped building the category much faster.
[Operator Instructions] We'll take our next question from the line of Yogesh Soni from InCred Equities.
Just wanted to understand what has been the West region contribution in last year? And also wanted to understand your plans on expansion into West and Southern regions?
So West region contribution is now nearly 15% all put together. It is similar to what we do in East, so East and West are now equally found to have balanced now. It has gone up from 14% to 15%, is what I see.
Okay. Got it. And sir, what endeavors are we making to expand into these 2 regions, West and South?
South, obviously, the reason for us to focus, as we did -- as we have always stated that these new regions, we look at both organic and inorganic, and we'll continue to put those efforts in these markets. And while on these calls you can talk about South, but South itself is very big. You have a cluster of Bangalore, you have a cluster of Chennai, Hyderabad. And so you look at cluster by cluster and then grow our business. We'll definitely focus more -- much more in South this year than what we have done in the past.
We'll take our next question from the line of Pradnya Ganar from UTI AMC.
Sir, my question is on the M&A strategy. So while you indicated that you -- M&A, you look at it to expand into a new geography. But can you also look at M&A to add new capabilities? I mean, are there any kind of testing capabilities that you would want to add and for which you might want to evaluate M&A?
Yes, that's a good question. Actually, when we look at some of these businesses, and I would say there's a routine testing, which I think every one of us does. Then there are a lot of these high-end tests that are done in India. And many of them are actually -- nobody has -- these test instruments -- these instruments are actually available off the shelf. So you don't need to go and acquire. Let's say, Illumina is one machine for genetic testing, which costs nearly about INR 8 crore, INR 10 crore. So you just go and buy this machine, and you add these tests. You don't need to go and acquire any company.
The effort really needs to be put on the sales and marketing side than acquiring some of these tests because they are -- technically, these technologies come from outside, available on the shelf, and you just go and buy these equipments, and you are adding those capabilities. I think the real effort is on the front-end side to grow the business.
Right. So currently, what would be our mix of specialized and semi-specialized test?
So there is no industry standard definition of specialized. But the way we look at our business, the way we define specialized, that portfolio for us is about 22% right now.
We'll take our next question from the line of Prashant Nair from AMBIT Capital.
I just wanted to reconfirm the volume growth number for the 9 months. Did you mention 4.5% or in that range?
Yes.
YTD. Patient volume YTD, 4.4%.
Okay. And is there a test volume number that you can share?
Yes, 9.5%.
9.5%.
Prashant, this is for -- this number that I'm mentioning to you, 4.4% volume and 9.5% sample growth is for 9 months.
Right. Got it. So when -- Om, when you mentioned you want to take volume growth higher, that's the internal thought process, where do you think you would want to settle? I mean is it like 100 to 200 basis points higher? Or can you reach a higher number than that?
Yes. Okay. Don't hold me for that number. But I would say that if you go back in time before COVID, our average volume growth used to be in the range of about 8-odd CAGR, right? And then we saw a phase where the -- and sample growth was not much during that period. Then we went into a phase where the sample growth picked up and the volume growth declined. And we were actually struggling to figure out as to what's really going on. And one of the variables we found was Swasthfit because as the bundling contribution was going up, sample growth was going up, but the volume was coming down.
But then I look at volume growth as a surrogate measure for our expansion efforts. I would want to see that more and more patients coming from newer markets, it gives us that we are expanding. Sample growth at times tends to convey that you are actually upselling to the existing customer base. So I think probably my message to the team would be at least go back to this number of 7%, 8% that we were inching -- we were doing in the past.
Right. And just one follow-up question. Om, I think while the volume growth in terms of patients has come down, I think your test per patient has probably gone up over this period. So do you think you will be able to retain that number at where it is now or maybe improve on it while you also step up on patient growth?
I think directionally, test for patient, there are lots of tailwinds on that. One tailwind, of course, is the bundling. The other tailwind I find is that generally -- and I think you guys cover pharma as well, maybe you may want to study some of these prescription behavior. I'm noticing that now more and more tests get prescribed on the same prescription than before. So that is also happening. So I think there is a favorable sort of a situation for test per patient in the future.
We'll take our next question from the line of Rahul Jeewani from IIFL Securities.
Sir, now you are talking about lab expansion in metro and Tier 1 markets as well. And as you rightly pointed out that we see a lot of these bundle tests on Swasthfit, primarily in larger metro markets. So with the expansion which we are targeting in metro markets, is there a potential that the sample volume growth, which has been around 9.5%, 10% for us, that can accelerate to a low double-digit kind of a number going forward?
No, but it will get offset by newer markets going up for Swasthfit because it's not Delhi NCR alone. You have entire UP, rest of North. These labs are also responding very well to Swasthfit kind of packages. So I think if there is a headwind in bigger towns, then it will definitely get offset by smaller towns. That's my take. Shankha, do you have a view on this?
No, no, I think it is all just a slight shift to say that there is still quite a bit of headroom in the metro and Tier 1 towns, which we want to capture. And not only will it be captured through Swasthfit or bundled packages, but also the prescriptions, which come out and where there is a lot of tag-dependent delivery expected.
Sure, sir. So I wasn't talking about any headwind. Actually, I was talking about this tailwind that over, let's say, past 2, 3 years, we have been expanding in Tier 2, Tier 3 markets in North and East. Now we are talking about expansion in metro markets as well. So with that expansion in metro markets, is there a potential that we actually start seeing an acceleration in volume growth, both on the patient volume as well as the sample volume growth?
So these are, in my view, quite a -- it's a part of the overall mix. If you see the contribution of metro and Tier 1 today, and we've been talking about our Tier 3, Tier 4 kind of contribution. So, therefore, it's not as if metro and Tier 1 is a huge contributor. It's also a part contributor. It's just about ensuring that there are a lot of tag-dependent testing opportunities or patient opportunities that we sense in these markets as well, which we would like to capture. Yes, the idea is to help us get newer patients or patients who may not be coming to us. And in a certain sense, it will help patient volume growth as well as sample growth.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you, sir.
Thank you, everyone, for being with us on this call today. We express our gratitude for your continuous trust and support. I hope we are able to answer all your queries and questions. Please feel free to reach out to us in case you have any further queries. Thank you once again. Now we can close the call.
Thank you, members of the management team. On behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.