Dr Lal Pathlabs IPO Page- Dec 15

Dr Lal Pathlabs IPO Page- Dec 15

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  NSSPL RESEARCH Tuesday 08December 2015 Dr Lal Pathlabs Limited NATVERLAL & SONS Regd. Of f . : Fairy Manor, 5th Floor, 13 Rustom Sidhwa Marg, Fort, Mumbai - 400 001. Tel. Board: 91-22-4213 4444 Dealing Rm: 91-22-4213 4400, 2265 1121 Fax : 91-22-4213 4440 Email : reasearch@natv erlal.com Offerforno of shares 11,600,000 Issue type Offerforsale promotersandinvestors % of sharesbeingofferedof total 14.04% Price band 540-550 Fundsraisedbycompany 0 Fundsraisedbyinvestors(mn) 6264-6380 Issue period 8-dec-2015 to 10-dec- 2015 Overview: Dr Lal Pathlabs Limited is a provider of diagnostic and related healthcare tests and services in India. The company offerspatientsandhealthcare providersone of the largest range of diagnosticandrelatedhealthcare testsandservicesforuse in core testing,patient diagnosisandthe prevention, monitoring and treatment of disease and other health conditions. In FY15 it collectedandprocessed 21.8millionsamplesand13.4 millionsamplesrespectively. Ithasa national reference laboratoryinNew Delhi,171 otherclinical laboratories,1554 patientservice centersandover7000 pickuppointsas of September30,2015. The net revenues grew at a CAGR of 29% while EBITDA and net profit grew at 29% and 34% respectively. Competitive advantage: Underpenetrated in India: As per WHO, India’s total expenditure on healthcare was 4% of its GDP which is not just behind developed countries but also behind developing countries such as China, Brazil, Russia and Thailand. This is due to under penetrationof healthcare servicesandlowerconsumerspending expenditure. This opens up a massive opportunity for growth and Dr Lal Pathlabsisverywell positionedto leverage on this growth potential with its vast network and reach, reputation and sustainable growth registered over the years. Among the fastest growing segment: The Indian diagnostic healthcare industry is estimated to be `377bn in size in FY15 and is projectedto reach`600bnn by FY18 by crisil.The companyhas a long operating history, nationwide network and reputation for providingqualitydiagnostichealthcare services.Combinedwiththe currentfragmentationof the industry,this is an opportunity for additional growthassmallerstandalone laboratoriesandcentersare choosingtojoinlargerdiagnostichealthcare services as franchisees and hospitals prefer to outsource diagnostic centers because of cost escalation and high maintenance. First mover advantage: The size of the diagnostic sector is at Rs 377 billion in FY15. Pathology has the largest share among diagnostic. In pathology standalone centers add up to 48%, hospital based centers constitute 37% whereas diagnostic chains contribute only 15%,of this large pan-Indiachainshave 35-40% share and regional chainshave 60-65% share.The companyhas a firstmoveradvantage beingthe pioneerinthe diagnosticindustryand enjoys almost 30% share of diagnostic chains in India. Its vast reach and network and experience in the industry make it favorable for enchasing the growth opportunity. Cash rich: It has huge cash balance of `2.35bn and has no debt which gives it an edge and enables them to invest in new technologies and equipment when required. This strong cash gives them an edge over standalone players who would have to continue to use dated equipment at times to ensure efficiency of their investments. The company being cash surplus has an advantage of expanding in newer locations without raising finance and burdened by interest cost. Financials: It has revenue of `6.63bn for FY15, growth of 18.26% on YoY basis. It reported revenue of `4.08 for H116. It has an EBITDA margin of 24% and PAT margin of 14% for FY15. For H116 the company registered an EBITDA margin of 22% and PAT margin of 9.18%. The company has a cash balance of `2.35bn as of FY15 and has zero debt. It has ROCE of 46% and ROE of 28% for FY15. It has a EV/EBITDA of 29x.
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  NSSPL RESEARCH AlkemLaboratories Limited NATVERLAL & SONS 2 Recommendation: The healthcare industryispoisedtogrow at 16-17% of CAGR from 2014-2019 whichisa huge impetusforthe company.The growinghealthcare insurance sector further gives lot of room for growth for the company. It has a P/E of 47x, an EV/EBIDTA of 26.5x and P/B of 13x for FY15. The valuations do look rich on an individual basis. Although there is no direct comparison to this company we would think given its nature towards healthcare it might be more suitable to compare to the hospital businesswherevaluationsare atthese higher levels. Further It has generated strong RoCE of 45% even with a sizeable cash componentwhichmeansthe businesshasgreatprofitgenerating potential. Although there are not many entry barriers in thisbusinesstosetupthe kind of scale and brandrecognitionandequipmentandcollectioncenterswouldtake alot of doing. In all we believe the business model is great and the growth potential is also excellent. The only major hesitation we have at present is the valuations which seem fair to even marginally rich. We believe upside in the near term may be limited but for those who would like to invest in the long term this is a great investment and we recommend a SUSCRIBE only for long term investors who have an investment horizon of over 3 to 4 years. Disclaimer The information providedin the documentis from publicly available data andother sources, which webelieveare reliable. It also includes analysis and views expressed by our research team. The report is purely for information purposes and does notconstrueto beinvestmentrecommendation/advice. Investors should not solely rely on the information containedin this document and must makeinvestmentdecisions based on their own investmentobjectives,risk profileand financial position. Efforts are made to try and ensureaccuracy of data however, Natverlal & Sons Stockbrokers PvtLtd. And / or any ofits affiliates and / or employees shallnotbe liablefor loss or damage that may arise fromany error inthis document. Natverlal &Sons Stockbrokers PvtLtdand/ or anyofits affiliates and / or employees may or may nothold positions in any of the securities mentioned in the document. This document is not for public distribution and should not be reproduced or redistributed without prior permission. Natverlal & Sons Stockbrokers Pvt Ltd. Fairy Manor, 13 Rustom Sidhwa Marg Fort Mumbai 400001 Tel 91 -22-42134444 Email [email protected]