Dr. Lal Pathlabs shares hit 52-week low post Q4 results; here’s why

Shares of Dr. Lal Pathlabs nosedived 7.5% to hit a 52-week low of ₹2,019.10 in early trade on Wednesday as investors gave a thumbs-down to the earnings report by the country’s largest diagnostic chain. The midcap stock breached its previous low of ₹2,151.05 touched on May 16, 2022, weighed down by a consistent fall in its share price. The stock has been falling for the last four trading days and has dropped more than 11% during this period.

The healthcare service provider on Tuesday reported a 27% fall in consolidated net profit to ₹62 crore for the fourth quarter ended March 31, 2022, as compared to ₹85 crore in the same period last year. However, the company’s operating revenue increased by 12.7% during the quarter to ₹485.5 crore as against ₹431 crore in the corresponding period a year ago. As per the company, Covid and allied contributed to 13.6% revenue during the quarter under review.

For the full financial year 2021-22 (FY22), Dr Lal posted a profit of ₹350 crore against ₹296 crore in the previous fiscal, and its revenues rose by 32% YoY to ₹2,087 crore.

According to domestic brokerage ICICI Securities, Dr. Lal’s Q4FY22 result was below its estimates due to a quarter-on-quarter (QoQ) decline in ex-Covid business. “Revenue from Covid and allied tests remained flat QoQ but ex-suburban sales declined 13.3% YoY. Base business revenue (ex-Suburban) grew 4.4% YoY (two-year CAGR of 13.7%) to ₹390 crore versus our estimate of ₹490 crore,” says ICICI Securities in its report.

The brokerage says that the recent correction in Dr. Lal’s share price largely factors in the near-term concern. It also cautioned that higher-than-expected competition and regulatory hurdles remain key concerns for the company going ahead.

The agency has maintained “BUY” rating with a revised discounted cash flow (DCF)-based target price of ₹2,981 per share against earlier projections of ₹3,525 apiece. It has also lowered revenue and EBITDA estimates by around 10% and 20% over FY23E-FY24E to factor in declining Covid sales, higher competitive intensity, and consolidation of low margin suburban business.

Another brokerage firm, YES Securities has recommended an “ADD” call on the stock with a target price of ₹2,900, a potential upside of 33% from the current price of ₹2,185. “Dr Lal faces a tough FY23 as Covid ebbs away from revenues even as base quarters had a significant proportion of Covid sales,” the agency says in its report.

The brokerage has cut volume growth estimates in FY23 on the back of increased competitive intensity and the firm’s management choice of not going after a cash burn model-driven competition. Suburban revenues are also expected to share a similar cut with revenues lower than last non-Covid full-year sales, it adds.

“Company hopes to maintain March month double-digit growth but intense competitive intensity to impact overall growth. Margins expected to come back to pre-Covid levels as high operating leverage of Covid business will fade out FY23 onwards,” the brokerage says in its report.