Dr Lal PathLabs sees margins declining 200-300 bps in 2-3 yrs
It has been a fairly good quarter on account of the seasonal fevers, said Dilip Bidani, CFO, Dr Lal PathLabs in an interview with CNBC-TV18.
Diagnostic chain Dr Lal PathLabs has reported more than 8-fold increase in consolidated profit at Rs 52.5 crore for July-September quarter compared with Rs 6.2 crore in same period last year.
It has been a fairly good quarter on account of the seasonal fevers, said Dilip Bidani, CFO, Dr Lal PathLabs in an interview with CNBC-TV18.
He also said the company has been indicating that its earnings before interest, depreciation and amortisation (EBITDA) margins, which were around 27-28 percent last fiscal year, would gradually over a period of 2-3 years undergo a decline of 200-300 basis points.
The company’s Kolkata lab is likely to get commissioned in the month of September next year. Bidani said the cost of constructing the Kolkata lab will start hitting the company in FY18.
He further said that company’s margin profile should be maintained at similar levels as last year without significant erosion in the coming months.
He further said merger and acquisition (M&A) is something which the company is open to doing.
Below is the transcript of Dilip Bidani’s interview to Sonia Shenoy and Latha Venkatesh on CNBC-TV18.
Sonia: It has been a steady quarter for you with a 20 percent revenue growth. Just tell us about what the expectation is for the second half of the year since in the first half, you have done about a 20 percent growth and you are sitting on a base of almost Rs 500 crore of topline. Do you think you can better than in the second half?
A: You have got it right that this quarter has been a decent quarter for us. It has been a fairly good quarter. The healthy growth has come on account of the seasonal fevers that typically do come up during this quarter and Q2 is typically the quarter which is exiting after the monsoons and during this season, you do have a lot of fevers which cause a lot of testing during this period. However, having said that, as we move into the colder season in Q3 and Q4, typically there is a drop in Q3 and therefore, one should not expect that these fevers will continue. In fact that has already started declining and we have seen that phase out happening already.
So, while Q1 and Q2 has a been a good healthy growth of around 20 percent, we should, as we have maintained in the past, we should be maintaining our numbers above the market growth, which while it is growing at 16-17 percent, we will be growing faster than that at around 18-20 percent.
Sonia: So, you did take a price hike as well in the month of June. Any more price hikes that you are planning to take over the next couple of months?
A: Price hikes is not something which happens in such a manner. It is really something which happens gradually. This particular price revision which was taken in certain markets was done after nearly three years and therefore, it is not something that we can plan or announce at the moment that there will be or there will not be. It all depends on what is our cost structures, inflationary pressures and so on. But as of now, I really cannot comment on any specific market or any specific test that may undergo some price revision.
Latha: We do not have too much of your profit history. You are a young company as far as the markets are concerned. What should we take as your profit run rate? Should we take Rs 50-60 crore as your quarterly profit run rate? What kind of an earnings per share (EPS) in FY17, in FY18 should we work with?
A: If you look at the profit margins, we are not really giving any guidances on the EPS numbers and profit bottomline numbers. But we have been indicating that our earnings before interest, depreciation and amortisation (EBITDA) margins which were around 27-28 percent would gradually over a period of two to three years, undergo a decline of 200-300 basis points. So, while this quarter has seen a healthy margin at 30 percent plus at EBTIDA level, we expect that over a period of time or this year atleast, we should be maintaining similar margins as last year.
As some of the costs that were expected to come in this year, particularly relating to the Kolkata lab of which the construction is in full swing, likely to get commissioned sometime in the month of September next year. Those costs will start hitting us in FY18. So, therefore, the margin profile should be maintained at similar levels as last year without significant erosion in this coming months, in the next couple of quarters. So that is the way we assess the business rather than trying to look at the profit before tax (PBT) and EPS numbers.
Sonia: You also have a significant amount of cash on your books, about Rs 370 crore or so. Are you looking to make any kind of acquisitions, some of the smaller laboratories over the next six months? Is that something that you are thinking about?
A: That is an interesting question. We have that as a stated strategy. Merger and acquisition (M&A) is something which we are open to doing. As and when we get an appropriate good asset or assets, we would certainly be open to looking at it favourably and therefore, that is an ongoing process, you cannot plan for it and commit a specific acquisition or indicate that something is going to happen. Until it is done, it is not really done. But that is something which is always on top of our minds.
