Nov 4, 2016

Normally Q2 is the highest quarter both in terms of revenue as well as volume

Om Prakash Manchanda, Whole-time Director & CEO, Dr Lal PathLabs Ltd

There are a lot of labs but the real differentiation comes through the branding route and network, said Manchanda.

In an interview with ET Now, Om Prakash Manchanda, Whole-time Director & CEO, Dr Lal Pathlabs Ltd, gives his views on the company’s Q2 results.

ET Now: It is a known fact that it is a strong quarter. My question is how has the volume growth been in Q2 and how much of this growth has come in because of price hikes? 

Om Prakash Manchanda: Our Q2 volume growth has been about 13.6% and our revenue growth has been about 21.5%. Normally Q2 is the highest quarter both in terms of revenue as well as volume and this year, as all of you know, we saw an unprecedented surge in seasonal fevers like malaria, chikungunya and dengue and that impacted our volumes significantly.

ET Now: What is the broader trend in value added products? I mean, if I look at the general diagnostics space it is getting not competitive, but hyper competitive and the only differentiating factor for your company has been value addition. What is the update there? 

Om Prakash Manchanda: As you rightly said the space is getting hyper competitive. This space has always been extremely competitive, a very fragmented market. There are a lot of labs but the real differentiation comes through the branding route and network. The real differentiation for us is the trust people have in our reports. As I have been always mentioning that people come to us because they think that they get accurate and faster delivery of reports from us and plus the convenience of our collection network, which is very close to the patients.

ET Now: The last time we were chatting with you, you said that you are looking to penetrate some of the underserviced markets by using the same strategy that you adopted in the NCR region. What is the status right now? Have you identified any new geographies where you are looking to penetrate through? 

Om Prakash Manchanda: Yes absolutely. As we articulated earlier, if you trace our history we started from Delhi, NCR and then we grew in the nearby markets in northern India. Then we moved to western India especially in MP, Rajasthan and then to the east. So our organic canvas is very clear that we drive growth in northern, eastern as well as central Indian market. There are two distinct segments in this space: one is B2C, which is the consumer facing business, what you see in this part of the country. However, there is also a very strong institutional business which is B2B. Sometimes that business is not visible to consumers but it is very strong pan India. We have very good franchise in southern and western India where we get business from large hospitals and private labs. So technically our presence is across the country but the consumer facing business is very large in northern and eastern India and we are on track as far as our strategy is concerned of building a network of satellite labs, collections centres as well as pick up points.

ET Now: What about the quarters ahead because a lot of people would also believe and correct us if we are wrong but a lot of people would believe that this strong showing was also due to this outbreak of viral diseases and chikungunya and dengue. Will this normalise or do you reckon that you can replicate what you have done in Q2 into Q3 and Q4 as well? 

Om Prakash Manchanda: That is a great question and I would like to clarify that it is very seasonal in nature, it is not sustainable. As we move into Q3 it has already started dipping and we are seeing the seasonal impact now going away. And as I mentioned Q2 is generally the higher quarter and Q3 is a lower quarter till about February you will see, this is called a healthy season where as the winter sets in the volumes in both revenue will dip. So as you rightly picked it up it is an exceptional thing that happened particularly this year but usually our Q2 is high because of seasonal fevers but it is definitely not sustainable every month or every quarter.

ET Now: What does this mean for the full year? you have got a good quarter then two flat quarters. the aggregate picture for FY17 what changes there? 

Om Prakash Manchanda: We always mention that we will probably see a growth trend of higher than the market growth which is about 16-17% and I had indicated earlier it may be around 18-20 but now given this Q2 quarter I see we probably would be on the upper end of this range around 20% odd so this what we grew even last year also so I think we should be around that number.

ET Now: Any reason for me to believe that your margins will stay in and around 30% at EBITDA level? That is where your margin positioning is? 

Om Prakash Manchanda: For the quarter two, yes we have seen 30.4 but these are not the margins which one should look at for the year. Since very high sort of a turnover normally tends to happen in northern part of India so we saw a benefit of great operating leverage coming in this quarter. We also had a price increase in the month of June so this quarter also saw a full quarter impact on the margins but relatively as we go into the rest of the year margins should normalise but definitely it will be higher than what we have been talking about in the past, in fact I had earlier mentioned that it should be around between 25-26 but I think now it could be between 26 or 27 so maybe around 27% for the year but definitely margins will also normalise as we go into the rest of the year.

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