Dr Lal Pathlab has plans to expand in South and West Region: Om Prakash Manchanda, MD

Om Prakash Manchanda, Managing Director, DR Lal Pathlabs Pvt Ltd, talks about the outlook for COVID-19 and non-COVID tests in FY22, current market share, footprints, investment target and margin among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: The second wave led to an increase in the tests. What is your outlook for the first quarter of FY22?

A: COVID business is an even driven business, when a spike comes then the business goes up. Accordingly, it comes down in 10-15 days. We saw it last year and are seeing it this time as well. Testing increases when there is a spike in cases and as the positivity rate went down there is a decline in testing. We have seen in April when there was a spike and it is reduced in May. So, it is quite unpredictable and uneven, therefore, it is very difficult to talk about its guidance for this year. But, the COVID portfolio has three types of testing and they are

(i) RT-PCR and antigen test, which is linked with diagnosis.

(ii) Test of an antibody

(iii) On hospitalization inflammatory markers

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So, a portfolio of COVID is being created. So, it will have a baseline trend and spike driven trend. So, overall, it is very difficult to say that what will happen this year. But if we have a look at the last quarter of the last year then COVID has 11% contribution. There was a huge decline in COVID contribution in the last quarter as compared to the previous quarter. Therefore, it is difficult to say. The main focus of our team is to service non-COVID patients more and more because of cost-structure, operations have been running through the non-COVID. We will look towards COVID as soon as there is a spike in states and we have to support the patients, then we will be prepared for it on our part.

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Q: You talked about the non-COVID test. So, let us know about the kind of growth you are seeing there and what is your outlook on it?

A: If I will analyze non-COVID in last year, then there was a huge decline in non-COVID in the first half. It was an outcome of the lockdown and there was not much OPD, due to which people delayed the tests. But after a stage, you cannot delay it. So, in the second half, we saw a lot of revivals. But this year, as we are entering then there is an advantage of the base and if I will look at it by adjusting then I can see that our normal growth trends that existed earlier in the non-COVID domain are returning. So, I am very hopeful, this year our non-COVID business will return to the normal growth curve that we lost last year because of the lockdown. Still, there are some states where business declines due to the lockdown but overall I feel we will bring back the recovery in the non-COVID domain, which was slightly less last year. 

Q: What is your current market share in the non-COVID tests and what is the upside you are seeing from here? 

A: Actually, I can’t provide a number at this moment due to the unpredictability of the environment. You ever do not know when there will be a lockdown and when it will be lifted. At the same time, the base of the last year is quite low, because in the first half the base was low. So, providing any number is difficult for me but I believe that this trajectory will on the positive side. 

Q: What is the current market share in the non-COVID tests?

A: This industry is quite fragmented and as per an estimate people say that there are around a hundred thousand labs and the regional spread is quite different. If you look at this industry and estimate its size around Rs 30,000 crore then 10-15% of it is with the organized players. So, if you see our turnover of around Rs 1,400-1,500 crore then in Rs 30,000 crore the market share stands roughly at 4%. So, market share is in a single digit of every company. This market’s nature is quite fragmented. The industry is in a stage, where it is looking forward to being organized. So, we do not look a lot towards the market share as compared to our operational presence because as much as we can increase our geographical footprint, it will be good for us and we will be able to serve our patients. 

Q: Your footprint is increasing and we are seeing that you have expanded a lot in the last few years. Going forward, what are the plans in terms of cities and geography where you will be present? Also, tell us about your CapEx?

A: Overall, if you will study our infrastructure a bit then it is a three-tier infrastructure and they are 

Reference lab: We have this one in Delhi and Kolkata, each and we have plans to open two more such labs in Bangalore and Mumbai. 
Satellite Lab: These are small labs, which collects the test and support the big lab. Normally, we open 15-20 labs annually. This year maximum labs will be opened in South and West because our market share is relatively weak in this geography as compared to Delhi and Kolkata. We have a focus here. 
Collection centres: We will expand them as much as we can. 

All these expansions – of reference lab, satellite lab and collection centres - are carried on together. For the last one-two years, we had a focus on expanding in the South and West region and this will continue to be the focus area in the coming 3-4 years. This is our plan to increase our geographical footprint. 

Q: If you are adopting a franchise model then what is going to be the CapEx level in the next 2-3 years? Going forward, what is your outlook on the margins?

A: In our model, we do not franchise the labs as we want to keep quality control in our hands. Collection centres have always been a franchise. As far as investment plan is concerned, then it happens mainly at two places and they are the new labs that are opened. This time, the main investment will be in our reference labs that are opening in Mumbai and Bangalore. At the same time, we will be opening 15-20 satellite labs that we open annually and this is one investment. In the context of the second investment, the role of technology is increasing in our business. So, this year, we will invest a lot in our IT as well. Thirdly, the instruments of the high-end tests that we conduct in main labs are very expensive. These three are one block. Besides, we have a strategy for inorganic growth. In it, we will acquire small labs and this is also an investment opportunity for us. We have a subsidiary company Pathlabs Unifiers, which has acquired seven labs to date and this plan, will continue. So, this is our plan related to investment this year. 

Q: What is your outlook on the margin?

A: As far as the margin is concerned, last year, due to the lockdown and travel restriction, a lot of costs that we naturally incur in the business has declined. We have seen that our cost has declined by around 1-2%. We get the benefit of operating leverage because our fixed cost block is quite big. So, our margin outlook is stable, neither it will not increase a lot nor will decline a lot. I feel, our company will post a stable margin in the coming time.