Brokerages continue to be skeptical about Dr. Lal PathLabs notwithstanding its Q2 rebound.

 Brokerages continue to be skeptical about Dr. Lal PathLabs notwithstanding its Q2 rebound.

For the July–September quarter of the current fiscal year, the diagnostics player recorded a 52.4 percent year-over-year increase in consolidated net profit, coming in at Rs 109.3 crore.

Brokerages are still wary about Dr. Lal PathLabs, a diagnostic services provider, even after a remarkable 52% increase in net profit in the second quarter of FY 23. Remarkably, after evaluating the company's Q2 data, Nuvama chooses to suggest holding, whilst Kotak Institutional Equities and Citi have both given sell recommendations.

Early on November 3, the company's shares increased by more than 6%. At 11.14 a.m. on the NSE, shares were trading 6.25 percent higher at Rs 2,617.

For the July–September quarter of the current financial year, the diagnostics player recorded a 52.4 percent year-over-year increase in consolidated net profit, which came to Rs 109.3 crore from a profit of Rs 72.4 crore during the same time the previous year.

Compared to the same time last year, when the EBITDA margin was 26.9 percent, it was 29.6 percent. Om Manchanda, the managing director of the firm, explained the margin growth in an interview with CNBC TV 18 by citing pricing hikes and a good product mix. According to what he said, the company's margins should stabilize at around 26%.

Manchanda also saw a decline in the intensity of competition and significant discounting. Although he made it clear that there are no current M&A ambitions, he indicated interest in looking at such prospects in South India down the road. At Rs 780 crore at the end of the quarter, the company's cash balance represented an 86 percent year-over-year rise. According to Nuvama, the firm is well-positioned to make organic investments and investigate business potential in South India given its solid financial position. Manchanda underlined that attaining volume growth is the company's current priority. He said that he wanted to go back to 8% CAGR volume growth.

The positive outcomes of Dr. Lal PathLabs' entry into Tier 3+ cities were emphasized by Nuvama, which showed an 18%+ revenue CAGR from FY19 to FY23, accounting for 34% of the total top line. They also said that the company's marketing initiatives are receiving favorable feedback, pointing to improved growth possibilities, and that issues associated with high staff turnover have been resolved.

Citi said that patient volume increase is still modest at 7.7 percent annually when Covid-related variables are taken out of the equation.

According to Kotak, even if the worst of the pricing-driven rivalry in the diagnostics space may be over, newly formed firms are still having an influence on the volume expansion of well-established businesses. With prospects of growth recovery via expansion into Tier 3+ areas, they emphasized that a favorable pricing environment is yet to be achieved and ascribed the underperformance to saturation in bigger cities.