Dr. Lal Pathlabs Limited — Call Transcript 2019

Nov 25, 2019

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November 25, 2019

National Stock Exchange of India Limited BSE Limited Exchange Plaza, Corporate Relationship Department Plot No. C/1, G Block, Phiroze Jeejeebhoy Towers Sandra Kurla Complex Dalal Street Sandra (E) Mumbai- 400001 Mumbai - 400 051.

Subject: Financial Results Conference Call Transcript for Q2 & H1 FY20

Dear Sir/Madam,

Pursuant to Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, please find attached herewith Financial Results Conference Call Transcript of the Company for Q2 & H1 FY20.

We request you to please take the same on record.

Thanking You,

Yours Faithfully,

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For Dr. Lal Pa Labs Limited
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Company Secretary and Legal
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Encl: As above

Regd. Office: Dr. Lal PdlhLabs Ltd. s; .. .[-] 1, E. Sertnr-18, R,·,1 ,i111, New Delhi - 110(.JS. +91-11-302'.;J,:,oo. Fax: +91-11-2783-2134 Corporate Office: Dr. Lal PdlhLabs Ltd. 12th Fk••� Tower B. SAS Towe� M, 1,cily, S�rtnr-3B. Gurugram - 122 001. Haryana +91-124-3016-5"0. Fax: +91-124-4234-4�:J E-mail: laipall1iahs:I•i<1Jr,�t1,iabs com. Web: www.1a1rathiabs com. CIN No.: L74YiiOLl9?:;PLC06S:;ca

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Dr. Lal PathLabs

Q2 & H1 FY’20 Results Conference Call November 08, 2019

	Call Duration		1 hour 08 minutes
			(Hony) Brig. Dr. Arvind Lal – Chairman & Managing Director
	Management Speakers		Dr. Om Prakash Manchanda - Whole-time Director and CEO
			Mr. Ved Prakash Goel – Chief Financial Officer
			Mr. BharathUppiliappan- Chief Executive Officer (India Business)
			Mr. Rajat Kalra - Company Secretary & Head of Investor Relations
	Participants who asked		Chandramouli Mauli from Goldman Sachs
	questions
			Saiprasad Prabhu from Bajaj Capital
			Sriraam Rathi from ICICI Securities
			Pritesh Chhedda from Lucky Investment Managers
			Prashant Nair from Citibank
			Keshav Lahoti from Angel Broking
			Prakash Kapadia from Anived Portfolio Managers
			Nitin Agarwal from IDFC Securities
			Sumit Chandwani from Daiwa Asset Management
			J. Madhavi from Narnolia Financial Advisors
			Neha Manpuria from JP Morgan
			Dhruv Jain from Ambit Capital
			Manish Poddar from Nippon India
			Tushar Manudhane from Motilal Oswal Asset Management
			Anuj Sehgal from Manas Capital
			Sameer Baisiwala from Morgan Stanley
			Ankit Jha from Stock Access
			Saurabh Jain from SSJ Finance
			Aman Sharma an Individual Investor
			Nirmal Gopi from IDFC Securities

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Moderator:	Good day, ladies and gentlemen, and welcome to the Q2 & H1 FY‟20 Earnings
	Conference Call of Dr. Lal PathLabs.As a reminder, all participant lines will be
	in the listen-only mode, and there will be an opportunity for you to ask
	questions after the presentation concludes. Should you need assistance during
	the conference call, please signal an operator by pressing „*‟ then „0‟ on your
	touchtone phone. Please note that this conference is being recorded.I now
	hand the conference over to Mr. Nishid Solanki of CDR India. Thank you and
	over to you, sir.

Nishid Solanki: Thank you. Good evening, everyone and a warm welcome to Dr. Lal PathLabs Q2 and H1 FY„20 Earnings Conference Call. Joining us today are Hony. Brig. Dr. Arvind Lal -- Chairman and Managing Director; Dr. Om Prakash Manchanda -- Whole Time Director and CEO; and Mr. Ved Prakash Goel -- CFO. We also have with us, Mr. Bharath – CEO, India Business; and Mr. Rajat Kalra -- Company Secretary and Head of Investor Relations.

Before we begin the call, I would like to highlight that some of the statements made on the call today to be forward-looking in nature. Actual results may vary from these statements. A detailed disclosure in this regard is available in the „results presentation‟ which was shared earlier.

I would now like to request Dr. Arvind Lal to share his perspectives with you. Thank you, and over to you, sir.

Dr. Arvind Lal: Good evening to everyone on the call today. I am pleased to share my views on the performance of the company and the road ahead. We have continued to deliver strong performance quarter-after-quarter backed by a proven hub-andspoke business model and emphasis on driving quality to attain scale. This has made us the leading diagnostic player in the country and I am glad that we have further strengthened our leadership position in this space. Higher patient volumes and sample growth is a testament to our positive growth momentum and we remain on track to make further inroads on this to focus on accurate and affordable diagnostic services with emphasis on expanding the test menu and geographical presence.

Overall, I believe that the future of diagnostic industry looks to be bright in India, and there are ample growth opportunities available for a national level player like us which enjoy customers trust through long track record of accurate test and decades of experience in diagnostics. The positive shift in market share from the unorganized to organized, more technology in healthcare, government policies like Ayushman Bharat -- Pradhan Mantri Jan Arogya Yojana and the rising awareness regarding diagnostics as an important first step in treating diseases in tier-2 and tier-3 cities will benefit the industry, at large including Dr. Lal PathLabs.

Further, I am pleased to share with you that the board of directors of the company have approved an interim dividend of 60%, i.e., Rs.6 per share to the equity shareholders of the company.

With that, I would like to hand over to Om to share his thoughts and update on the operational performance.

Om P Manchanda: Thank you, Dr. Lal. I am pleased to announce another quarter of healthy operating results for the company. To share quick highlights for the company, revenue for the quarter was Rs.365.6 crore, an increase of 15.1% YoY; for the half year, revenue stood at Rs.700.8 crore, up by 14.9% compared to first half FY„19. In Q2 FY„20, the patients served on a visit basis is at about 5.3 million,

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growth of 12.1% and for first half FY „20, patients served is at 10.2 million, growth of 13.9%. Tests per patients have gone up to 2.45 in the quarter as compared to 2.34 in the same quarter last year. As we strive to broaden our presence, the contribution from rest of India has been increasing and it now stands at 59%. The growth of rest of India regions in Q2 FY‟20 is at 20.2%. Our focus is on driving our top line growth through volumes organically as our network expands.

One factor that I wish to highlight is that the contribution from our network has been improving at robust rate. This is crucial to capitalizing on operating leverage in our system.

Our bundle package test “Swasthfit” continues to gain popularity with our patients and its contribution now has increased to 15% of our overall revenue. Our growth strategy is to strike a healthy balance between penetrating deeper into existing markets and expanding into newer markets especially in West region. The country is underserved by quality and trustworthy diagnostics service provider. We would like to be known as the leader in adoption of best practices in the large unorganized space. Our approach to growth remains measured as reflected by strategic smaller acquisitions that we have completed. These are essentially partnership with trustworthy local brands and doctors who are very closely aligned in ethos as well as in values.

On our broader plan, we continue to evaluate meaningful opportunities to add capabilities at regional level by way of inorganic means, again our approach is very prudent and well deliberated.

With that, I conclude my opening remarks and would request Ved to give an Update on the Financial Performance.”

Ved P Goel:

Thank you, Om. Good evening, everyone and thank you for your participation on this call. I would now share with you some of the important financial highlights. Revenue for Q2 FY„20 is at Rs.365.6 crore as compared to Rs.317.5 crore last year same quarter, a growth of 15.1%. Revenue realization per patient for Q2 FY„20 is at Rs.687 as against Rs.669 for Q2 FY„19. Normalized EBITDA after eliminating the impact of stock-based compensation, CSR expense and impact of IND AS 116 in Q2 FY‟20 stood at Rs.104.7 crore as compared to Rs.90.5 crore reported in Q2 FY‟19, a growth of 15.7%. Normalized EBITDA margin for Q2 FY„20 is 28.6%. PBT for Q2 FY‟20 is at Rs.102.3 crore as against Rs.88.1 crore in Q2 FY‟19, a growth of 16.1%.

The company has exercised the option under Sec. 115BAA of the Income Tax Act as introduced by the Taxation Law Amendment Ordinance 2019. The company has re-measured income tax and deferred tax provisions for six months ended September 30, 2019. The applicable income tax rate is now reduced to 25.17% from 34.94% earlier. We have recognized the impact of this change in the results for Q2 FY„20. Accordingly, PAT for Q2 FY‟20 is at Rs.81 crore as against Rs.57.3 crore in Q2 FY‟19, a growth of 41.4%.

Cash, FDs and investment in mutual funds as at the end of Q2 FY‟20 is at Rs.782 crore. EPS Basic for Q2 FY‟20 is Rs.9.77 per share versus Rs.6.91 in the same quarter last year.

Further, as you all are aware that the company‟s wholly-owned subsidiary PathLabs Unifiers Private Limited has signed a binding term sheet to acquire 70% stake in APRL PathLabs Private Limited which has acquired the business

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	of m/s Amins Pathology. This acquisition would help us to further strengthen
	our presence in the state of Gujarat.
	That brings me to the conclusion of my opening remarks, and I would now
	invite the moderator to open the forum for question-and-answer. Thank you.
Moderator:	Thank you very much. We will now begin the question-and-answer session.
	The first question is from the line of Chandramouli Muthiah from Goldman
	Sachs.
Chandramouli Muthiah:	First question is on the patient volume growth; you reported 12.1% for this
	quarter. I understand last year the patient volume base might have been little
	higher for some of the promotional schemes you rolled out in East India. So, if
	you remove that from the previous year base, what would be your patient
	volume growth for this quarter?
Bharath Uppiliappan:	This is Bharath here. Our patient growth rate would expand by another 120
	basis points.
Om P Manchanda:	It has been about 13.2%, if you have adjusted for the BTL activity that we have
	done.
Chandramouli Muthiah:	Second question is just on guidance. You‟ve made three acquisitions so far this
	calendar year. And if I just do some rough math and if we were to assume that
	these acquisitions were to contribute in the back half of the year, it looks like
	benefit of about 50 basis points to 1% added to the overall growth. Just relating
	to your guidance of 14%-15% top-line growth, would this be in addition to the
	original guidance made at the end of the previous fiscal year?
Om P Manchanda:	We actually do not want to really give guidance for the year. In fact, last
	quarter. I mentioned that we really do not want to put a figure around what we
	will do at the year-end, but as our strategy has been some of these smaller
	acquisitions are part of normal day-to-day sort of business that we do. So,
	unless there is very large acquisition, there is not going to be material impact
	the way we are looking at the market. But, however, on a long-term basis, we
	believe that we should be in this range let us say two to three years
	perspective.
Chandramouli Muthiah:	Just related to this. Ved, you mentioned about the tax rate coming down to
	25.17%. Is that the full year tax rate that we need to assume for FY‟20?
Ved P Goel:	25.17% is the effective rate for the full year. So, whatever the first quarter
	impact was we have are already incorporated in this quarter.
Chandramouli Muthiah:	Just last question is on the other expenses. So if I look at your other expenses,
	it looks like it has been sort of flat Q-o-Q while revenues have grown 9% Q-o-
	Q. In the last two years, I do not think you have been able to control other
	expenses. So just trying to understand how you have been able to control other
	expenses this quarter?
Ved P Goel:	So last year, we had some extra expenses due to marketing for BTL kind of
	activities, this year it was comparatively low.
Moderator:	Thank you. The next question is from the line of Saiprasad Prabhu from Bajaj
	Capital. Please go ahead

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Saiprasad Prabhu:	If I understand from your opening remarks you said that your leadership
	position is on three factors; one is on network; one is your best practices and
	lastly the brand building exercise. So in terms of the best practices, can you
	highlight two or three key features which are the best practices that we follow
	versus our peers or the standalone centers?
Om P Manchanda:	It is not a comparison from peer group I would say, but some of the practices
	that we actually follow is that we focus on three key areas -- One is the quality;
	and second is service; and third is making sure that our price value equation is
	competitive. So, on the quality front, many of our labs are CAP-accredited as
	well as NABL accredited. So there is a very-very sharp focus on quality and
	very sharp focus on service side of it. We are investing a lot behind technology
	so that patient can download their report on the net or on the move or through
	our app, they can book online, pay online. So there is a lot of investment going
	in the area of technology, at the same time, we actually try to leverage scale as
	much as possible so that our price value equation remains competitive.
Saiprasad Prabhu:	In terms of accuracy of your results, like what sets us apart from standalone or
	local diagnostic companies, like what are the recent parameters if you can
	highlight?
Om P Manchanda:	I think at a broad level of this call there are two or three things which are very
	important because many of these labs have similar sort of equipment because
	most companies supply to all labs. But, what really makes the difference is
	good quality lab versus not-so-good quality lab is control and calibration.
	Calibration for every machine has to be done on a daily basis. That is where I
	would say that some of the smaller labs may cut corners and may not do
	calibration on daily basis. That may lead to fluctuation in the results. I think that
	is a very important area. How we monitor that is by running controls at regular
	intervals. As per the protocol, we also do lot of proficiency testing where the
	counter sample is checked at some other locations. That is how we establish
	quality.
Moderator:	Thank you. The next question is from the line of Sriraam Rathi from ICICI
	Securities. Please go ahead.
Sriraam Rathi:	Firstly, what was the contribution of Northern region this quarter and how would
	have that grown in the quarter?
Om P Manchanda:	Contribution from Northern region, I think we have basically started making a
	sort of a split between Delhi NCR and rest of India rather than North as a
	region. So, our rest of India contribution has gone up to 59% compared to 57%
	last year same quarter. So essentially, this is a point we have been consistently
	mentioning, that while if we grow good in Delhi NCR, it is a bonus, but we want
	to make sure that our company is not standing on one leg and happy to share
	that we continue to do very well in rest of India market.
Sriraam Rathi:	Secondly, from the last two, three quarters, we are noticing that the realization
	per sample per patient has been quite stable. So does that mean that the
	declining situation is over now behind us, and probably there could be a
	possibility of some growth on the realization also?
Om P Manchanda:	I personally would not bank on this area. This depends on multiple variables.
	Of course, the contribution of rest of India does make a big difference. Mix
	between B2C versus B2B also makes a big difference. Contribution of
	Swasthfit versus non-Swasthfit makes difference. But overall I would say that
	our business really has to do with volumes than realization per patient. So give

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	and take, here and there some quarters you will see fluctuation if the low value
	tests are lower, that is why you see this value going up and down. But,
	personally if you ask me on a long-term basis, I really would not see that very
	high improvement on revenue per patient.
Sriraam Rathi:	Lastly, more from the broader perspective that there have been a lot of talks
	which keep on happening on the possibility of price cap from the government.
	But just wanted to take your assessment, what would be your view on that
	because there are also multiple labs which are available which offer lower cost
	test, because this creates a lot of uncertainty from the future growth
	perspective of the company like Dr. Lal, so that is why I just wanted to get your
	view on that?
Om P Manchanda:	We do not have any fresh information to share because what I shared last time
	is what we gather from the media. Now, as far as the pricing is concerned, I
	keep repeatedly saying that this is that part of value chain where quality is
	more important than the price. Overall, contribution of diagnostic in the
	healthcare cost is not more than 5%. So I think on this area, one should focus
	on quality because if you get this wrong, downstream costs or implication on
	somebody‟s life can be much higher, and market forces in this space is so
	much that it is highly competitive space. Already, if you adjust for inflation,
	actually prices are going down over a period of time. So, I would say that need
	of the hour is to really look at the quality aspect around price; however, any
	move from policymaker is concerned, we do not have any fresh update. As far
	as the risk is concerned, that continues to remain as it was before.
Sriraam Rathi:	Anything you are hearing from the regulation perspective basically to regulate
	laboratories and all?
Om P Manchanda:	There is some amount of regulation already in place because Clinical
	Establishment Act that exists, many of the states have now started adopting it,
	and you require a license for a lab which is in some ways, ensuring that some
	bit of regulation has already started falling in place in many states.
Moderator:	Thank you. The next question is from the line of Pritesh Chhedda from Lucky
	Investment Managers. Please go ahead.
Pritesh Chhedda:	Sir, I didn‟t understand your comments on the flat cost that we have seen in the
	first half and what is the outlook there and I see a bit of seasonality in your
	business in the second half. So, if you could comment because also the other
	part here is, should we take this 26%-27% margin as a representative for full
	year or your second half has seasonality and the operating leverage for Q2?
Om P Manchanda:	Second half generally is lower than the first half. As we said that we do not
	want to exactly comment on the year outlook. But if you look at last few years
	trends, second half generally tends to be lower, and overall margin also if you
	study for the last 16-17quarters, you will notice that second half margins are
	also slightly lower than the first half. So, I think one can apply that and figure it
	out as to how it is.
Pritesh Chhedda:	And usually what should be the cost base rise for you for 14%-15% top line
	growth which has 12%-13% patient growth?
Om P Manchanda:	So, as we have been saying that we want to make sure that entire growth in
	the company is aligned with the volume growth. So our cost structure should
	ensure that whatever normal increase is there and also whatever growth is

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	there comes from expansion. So I actually would say that it should be in line
	with what we do in volume.
Pritesh Chhedda:	Expense growth should be in line with volume?
Om P Manchanda:	Yes.
Pritesh Chhedda:	And lastly, on your expansion side, so what is our capital expenditure, and
	usually what kind of expansions do we take in terms of reach or touch points,
	etc., which itself brings you the growth?
Ved P Goel:	So, we generally have Rs.30 crore-Rs.40 crore kind of maintenance Capex,
	unless and until we do some any mega project. So this is how we are looking
	at it this year or the next couple of years, about Rs.40-50 crore of Capex.
Om P Manchanda:	And normally we split between IT and instruments and few new labs. These
	are three big areas where the capital expenditure gets consumed.
Pritesh Chhedda:	But you do not set up distribution infra along with it or that usually is
	franchised?
Om P Manchanda:	Not distribution, collection infra is franchised out. So, there is no capital
	expenditure involved because whatever Capex is required, little bit is also
	incurred by the franchisee.
Pritesh Chhedda:	What is the usual collection infra growth in terms of number of touch points or
	whichever way your metrics is captured?
Ved P Goel:	Our collection center infrastructure grows are about 10% to 12% a year in
	number of unit terms, but each one has a cycle of maturity.
Pritesh Chhedda:	So that basically translates into your 12% volume growth?
Ved P Goel:	No, that is where the maturity curve kicks in, every unit does not give the same
	kind of curve.
Pritesh Chhedda:	But you‟re greater than three year collection infra would be growing on the
	LTL…same-store basis, right?
Om P Manchanda:	Like-to-like which is nothing but same-store growth and that definitely would be
	around 9%-10%. Let us say if our value growth is close to 13%, 14%, 15%, this
	will be around 9% or 10% will be like-to-like.
Pritesh Chhedda:	And the balance 3% comes from expansion and touch points?
Om P Manchanda:	Yes, absolutely.
Moderator:	Thank you. The next question is from the line of Prashant Nair from Citibank.
	Please go ahead.
Prashant Nair:	I had one question on the M&A that we have seen recently. You seem to have
	done a few more acquisitions in the last few quarters than you have normally
	done in the past. And not all of them have been in your traditional strong base
	like either North or East. So, is this a conscious decision to put more capital at

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	work and expand a bit more aggressively or is it just you have got some good
	assets all around the same time, how should we look at this?
Om P Manchanda:	Prashant, if you go back to our stated strategy, we have always been saying
	North and East are our core markets for organic, South and West are for
	inorganic. In South and West, we have had two focus cities which is Pune and
	Bangalore, and it is in line with that strategy that we are looking for a possible
	consolidation or M&A targets in these markets. So, there is nothing new, it is
	more in line with our stated strategy of looking at inorganic in South and West.
Prashant Nair:	Have you taken any price hikes this last quarter or does it continue to be
	rebalancing depending on what makes sense in this market?
Om P Manchanda:	I think we shared in the last quarterly call that we took some price increase in
	Delhi NCR. It is very marginal and nothing very material, but we did take some
	or I would say price rationalizing; some places, we dropped it; some places we
	took it up. But net-net, I think there was a bit of increase in the Delhi NCR, and
	we took this in the month of June-July.
Moderator:	Thank you. The next question is from the line of Keshav Lahoti from Angel
	Broking. Please go ahead.
Keshav Lahoti:	I just wanted to check now that with this tax cut that essentially puts more
	money in the company‟s hand which can ideally be reinvested back in the
	business. So, would you be looking at doing price cuts or something like that in
	order to take away market share from the unorganized sector, is that an
	option?
Om P Manchanda:	Cash is never a constraint for us as a company. So, I am not sure whether
	extra cash is going to make our life different or our strategy very different,
	because we always had cash. As far as the pricing bit is concerned, it only
	increase your paths of operating performance, in any case is not favorably
	impacted. So, we continue to look at our operations as we were looking at
	before. Unless we have some good assets, we do not want to chase something
	for the sake of chasing it just to get extra cash. So we will be very prudent in
	terms of where we invest. I think to my mind, “Does it change our strategy? No,
	answer remains. We will continue to operate as we were operating before,
	because cash was never a constraint earlier also.
Keshav Lahoti:	I just also wanted to check because there is a talk of consolidation which is
	going on in the industry given that we have a lot of private equity based players
	who have not really been funded for quite some time, and I am talking about
	probably some of the smaller second and regional players. So, would it be fair
	to say that at this point of time some of these smaller players‟ business would
	be coming under pressure, and at some point of time, you will have enough
	acquisition opportunities especially in your preferred market of West and
	South?
Om P Manchanda:	So in any case, that strategy was there before also, and we will continue to
	operate that way, but we would not unnecessarily be chasing bad assets just
	because we have extra cash. If there are good assets, we will definitely invest,
	that in any case has happened before also.
Keshav Lahoti:	Also, given the fact that we are also acquiring a lot of scale at this point of time,
	over a period of time which will also give us some amount of additional
	competitive advantage, are you now looking at becoming a bit more aggressive
	in terms of your growth strategy, and would you be looking in terms of

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	becoming more aggressive in order to accelerate growth from whatever, the
	last three, four-years average of around 13%, 15% or would you be looking to
	accelerating growth further from year on?
Om P Manchanda:	So my response to this question would be that we will definitely be looking at
	larger geographical presence. I think in the last three years, post our listing we
	have focused quite a bit on East. While we continue to focus on East and
	North, we would want to put extra effort in other parts of the country. And I
	think, as Prashant asked this question earlier, that West region we have done a
	couple of acquisitions. So, our focus now will shift to, more to these markets to
	see how we expand our presence in non-core markets.
Keshav Lahoti:	The acquisition which you have done this year, what would be the total
	contribution in terms of absolute number to the top line and how much have
	you paid for them totally, for these acquisitions?
Om P Manchanda:	I think if you annualize it because we may not have the entire annual impact
	this year, but if you annualize it, my sense is about 1.5% contribution will be
	there for top line.
Ved P Goel:	We paid about Rs.49 crore.
Om P Manchanda:	About 70% for this. We do not have exact numbers on this. Maybe offline we
	can take this question and give you a correct answer. I do not want to guess a
	figure on this.
Moderator:	Thank you. The next question is from the line of Prakash Kapadia from Anived
	Portfolio Managers. Please go ahead.
Prakash Kapadia:	As a customer, if I book a test through the call center, I am charged collection
	charges. If I do it online that is waived. So why this anomaly? Pricing seems
	similar be it online or through the app. So, any thoughts on difference in
	pricing?
Bharath Uppiliappan:	We are trying to digitize as much as possible and move people to go online. So
	on the app, lot of new features like time slots, etc., so, every call which comes
	to us cost a certain sum of money and a follow up and so on. But digitizing it,
	we are able to move to relatively self-service options. It is better for the
	customer, better for us also to operate. Promotion is being run to encourage
	digital movement.
Prakash Kapadia:	If you could share some of the app downloads till now, some number, and are
	we trying to increase the download of apps because I think that will ensure lot
	of stickiness to our brand.
Bharath Uppiliappan:	Yes, you are absolutely right. We are focusing a lot on the digital adoption.
	However, I would be very cautious of downloads as a metric in our business.
	What we are really trying to improve upon is, of our active customers on the
	app because app download can be very different in many other industries, we
	would like to put a metric around a number of our current customers on the app
	which indicates stickiness for us. The exact number on this, I do not have it
	readily available, but we can share it to you in a different call.
Prakash Kapadia:	If you could also comment on the Calcutta market, what has been the trajectory
	in terms of patient volumes? And Delhi NCR any impact on the dengue
	season, positive or negative? And currently, what is happening in Delhi -- any

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	impact on footfalls or business because we hear and see a lot of things on the
	negative side in Delhi specifically?
Om P Manchanda:	Firstly, in East India, it continues to deliver good growth and on the volume
	front is 20% and value also is 19.6%, about 20%, so, that is the kind of growth
	trend. As far as Delhi NCR is concerned, this year, one has seen a healthy
	season compared to what normally one sees, and that is a trend which
	continues even now also. And this is from a perspective of vector-borne
	diseases. On air pollution, I have no comments.
Moderator:	Thank you. The next question is from the line of Nitin Agarwal from IDFC
	Securities.
Nitin Agarwal:	This is Nitin here. Sir, just to reiterate you mentioned that for the quarter versus
	the 15% overall volume growth, 20% was in rest of India. What was the
	number for NCR?
Om P Manchanda:	So, our NCR growth in terms of value was about 8%. That is how our average
	came out to be 15%-odd for the quarter as a company.
Nitin Agarwal:	But the fact that this growth which is more sort of skewed towards the rest of
	India market has come with improvement in patient realization, and the
	common understanding is that as you are speaking about your rest of India
	market business has relatively lower realizations, how do we reconcile that?
Om P Manchanda:	I think last year Q2 we had a lot of promotion done and we had a lot of free
	patients and that brought down the revenue per patient, but this year that has
	gone away from the volume and suddenly we see revenue per patient going
	up. So I would not really read too much into RPP going up in rest of India. But I
	think the question is still valid that rest of India is driving our growth because
	there is a very focused effort that we are putting in, in making sure that our
	geographical footprint grows because we do realize that Delhi NCR is a smaller
	market, just about 4--5 crore population block while rest of India is huge, and
	we need to make sure that our collection center network, lab network grows in
	rest of India. And these efforts have been going on for some time. I think the
	question is that “How we are able to manage our EBITDA margin despite this
	promotion moving to much higher to rest of India?” So that is where as a
	management team we are putting a lot of effort, that entire infra we expand
	outside is productive and calibrated to the extent that we do not have adverse
	impact on EBITDA as we go forward.
Nitin Agarwal:	Just taking a point up from there, this is a fairly commendable job that
	management has done in terms of the overheads which are there because the
	growth in overheads for the last few years especially has been fairly muted.
	And this is around the time as you mentioned rest of India business has
	meaningfully scaled up over this period of time. How do we optimize this cost
	base even going forward, I mean, will it still continue to lag the revenue growth
	as we go forward?
Om P Manchanda:	Our operating expenses tend to go up if you increase the lab infra. So, we are
	looking at ways and means of making it more productive and which is
	essentially we are trying to see how we take advantage of scale. So in a much
	calibrated manner, we identify markets where we drive growth, because
	spreading yourself too thin can create this issue. So, if you go line-by-line,
	there are many areas like rent, etc., we have been able to become more
	efficient. So, combination of all this put together, we are trying to manage this.
	But I think the key thing that is required to be managed by us, as the proportion

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	of rest of India grows, how we make sure that we do not dilute our margins,
	and that is where we continue to focus on and use scale to our advantage as
	much as possible.
Nitin Agarwal:	Between rest of India and Delhi, is there a major difference at the gross level
	also in these two businesses segments or is there a larger, scale impact, the
	fact that you operate in Delhi in a more compact scale, that lends itself to a
	better EBITDA margin?
Om P Manchanda:	These two businesses slightly differ. Delhi is our are/hub, that is where we
	started which is more walk-in, there is very high footfall, and lots of facilities are
	managed by our own infra. But as we go to rest of India, that is where we start
	leveraging our franchisee network. So, lot of cost is actually borne by
	franchisee infra than on our P&L. I know B2B sounds little negative, but it is
	basically through partners that we get lot of business in rest of India. So I see
	that two different kinds of profile of businesses that we have in one company.
Moderator:	Thank you. The next question is from the line of Sumit Chandwani from Daiwa
	Asset Management. Please go ahead.
Sumit Chandwani:	You were just highlighting on the cost part of it for the rest of India. So, at what
	point of time, to benefit from the operating leverage, if you start to incur higher
	Capex or setting up of regional labs or some set up of labs in your West and
	South markets since you are not doing a lot of acquisitions and increasing the
	scale from there, so at what level do you start incurring Capex for that?
Om P Manchanda:	Actually, this is quite a complex calculation because we are also seeing very
	high level of automation that is coming in the space. So, one is able to actually
	manage and testing at a very high sort of capacity with very low manpower. So
	I do not have off the cuff any number to share with you, but I do not think that is
	a major challenge, but what we are seeing is that cost of processing is actually
	going down because automation is going up. And what it means is that you
	would not require a large space, you would not require large manpower and
	very high throughput machines are able to actually do testing at a very low
	cost. So that is how we are able to manage our cost structure.
Sumit Chandwani:	I am coming from the point of view that we started to shift the volumes from
	Delhi to East lab. So at what point of time you will look at a critical volume to
	require a regional lab in the West or South?
Om P Manchanda:	So I think we probably are re-looking at the way our model of East and North
	has been because these labs are close to 60,000-50,000 square feet lab. We
	are now able to manage it in much smaller space. So you may not require that
	kind of expenditure as we have seen in East going forward.
Moderator:	Thank you. The next question is from the line of J. Madhavi from Narnolia
	Financial Advisors. Please go ahead.
J Madhavi:	So my first question is regarding the number of clinical labs, PSCs and PUPs.
	So, if you can share these numbers as on date that would be helpful?
Om P Manchanda:	So we do not give numbers on a quarterly basis. 200 labs we have as of March
	31, 2019 because these numbers are very dynamic. And we will now give a final number as of 31stMarch 2020.

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J Madhavi:	So as on FY„19, we had around 200 clinical labs. If you can share how much of
	these are owned labs and how many of these are franchised?
Om P Manchanda:	Primarily, they are all owned by us with the exception of a few franchisee labs.
	I do not know the exact number, but they are in the area of like Jammu and
	Kashmir and Ludhiana, maybe in very low single digit. But our strategy is to
	have our own labs and franchise out PSCs, and 95% PSCs would be
	franchised out.
J Madhavi:	As of today, how many PSCs are owned by us?
Om P Manchanda:	So as of today, we have 2,569 PSC‟s franchise as of 31st March 2019, and of
	that, about 90-odd are owned by us, which is a very small number.
J Madhavi:	How should we see the growth in the number of PSCs and PUPs say in the
	next two to three years?
Om P Manchanda:	So as Bharath mentioned that close to 10% to 12% growth one should see in
	these PSCs because our focus also is to see that same-store growth or
	throughput per PSC goes up and we should take advantage of scale and
	channel also. So our focus is not only just to increase the number of PSCs but
	also throughput per PSC. Just to put a number, I think about 10% is the
	number you should expect.
Moderator:	Thank you. The next question is from the line of Neha Manpuria from JP
	Morgan. Please go ahead.
Neha Manpuria:	We have done a couple of acquisitions in the last year. Have valuations of the
	PE players or some of these owners come down for deals, has that made it
	easier? I am asking this because a lot of PE players peg valuations to the listed
	players like yourself and others recently which would make it difficult for you to
	get attractively priced assets, right?
Om P Manchanda:	No, many of these acquisitions that we have done, they are not PE-funded
	players first of all.
Neha Manpuria:	If you are looking at slightly larger deals, like these were more standalone
	smaller labs?
Om P Manchanda:	If you look at last time also, I shared, there are three kinds of players: One is of
	course, large player, is in the top which are four or five, then there are city-
	based players, many of them are PE-funded, and efforts is now moving to the
	bottom of the pyramid which are city-based small players, and there is a clear
	strategy of our moving to see if we can build a critical mass around Pune city,
	and as we mentioned West region. So we are not PE-funded player. So we are
	very selective in this and seeing the quality of asset rather than just acquiring
	for the sake of acquiring.
Neha Manpuria:	So we rather go with the standalone city-based players than the second tier?
Om P Manchanda:	Second tier, we are always open, but I am saying right now those deals are not
	on table.
Moderator:	Thank you. The next question is from the line of Dhruv Jain from Ambit Capital.
	Please go ahead.

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Dhruv Jain:	Sir, I had a question on your Bangalore market. You said that it is a key market
	for you. But considering there are a lot of other PE-backed players and a
	couple of other listed players, how has been the growth and what is the
	operating trend there?
Om P Manchanda:	We do not have city specific sort of a number right now. We can offline take
	this question, but a qualitative figure, as we mentioned, two focus cities; one in
	West and one in South, Pune continues to stay a focus city, Bangalore is also
	a focus city for us. And the reason why these two cities we‟ve picked up
	because we believe that these cities have sort of a cosmopolitan population
	where a lot of North Indians are there and brand equity is there in certain part
	of the city. And if we can build a critical mass, it will help us to expand the
	entire region of South and West.
Moderator:	Thank you. The next question is from the line of Manish Poddar from Nippon
	India. Please go ahead.
Manish Poddar:	Sir, any idea on the market growth let‟s say for the first half of this year?
Om P Manchanda:	Great question. Because three or four are listed, and a couple of them have
	already declared their results and we have just collated, I think if I look at peer
	group, they are into low single digit kind of growth rate is what I have been told,
	so we will all put it together and see how it is, but it is definitely in the area of
	about 8% to 10% is the volume growth I see.
Manish Poddar:	I am trying to understand pricing in East India, how does it now stack up with
	the other players in those markets, because earlier we were giving at a
	discount to the pricing which is there in North India?
Om P Manchanda:	That is our internal benchmark. So I think the question that used to get asked is
	that “How is your pricing compared to Delhi NCR?” That obviously is at a
	discount because our cost structure is also very different. But as compared to
	local competition we are competitive. It is not a discount or a premium, I would
	say, it is very similar.
Manish Poddar:	How many patients booked through the app or through the call center in the
	last six months, just trying to understand of this total 10 million patients, how
	many would be doing that?
Om P Manchanda:	It is very small actually. It is not worth talking about. I know everybody is talking
	about app online, etc., because we are in medical business, we want to make
	sure that there is no error, pre-analytical is a very important area for us. I do
	not want to unnecessarily push the market on to booking on app and then we
	have a lot of other related issues because test names are very complicated,
	each test there are ten such variants, and there is no common knowledge with
	the patient. So there is always a possibility of committing error. So I think this
	app business is more suited to screening kind of packages, health packages
	where just pick one or two from a drop down and book it, but if you actually go
	through a prescription, that is little complicated. So I really would not
	unnecessarily get overexcited by app booking, etc.
Moderator:	Thank you. The next question is from the line of Tushar Manudhane from
	Motilal Oswal Asset Management. Please go ahead.
Tushar Manudhane:	So just for the rest of India market, if you can just help me with a broad
	breakdown of B2B and B2C segment?

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Om P Manchanda:	I think as a company our B2C business is about 60%-odd, 40% in B2B and rest
	of India would actually become other way round.
Tushar Manudhane:	So basically B2C share is much higher than the B2B for rest of India?
Om P Manchanda:	B2B share is much higher in rest of India. And the definition of B2B is that we
	pick up a lot of samples directly from the hospitals; that is counted as a B2B.
Tushar Manudhane:	For the rest of India, what would be like average realization in each of these
	segments?
Om P Manchanda:	I do not have B2B, B2C split here, but our rest of India realization is close to
	60-65% of what we realize in Delhi NCR. But that realization should not be
	misconstrued as if our pricing is lower to that extent, because there is a lot of
	net rate booking that happens in rest of India versus what happens in Delhi
	NCR because here the franchisee contribution is much higher, and we have a
	net rate pricing in rest of India, that is why the realization is lower, but, that
	does not mean our margins are lower to that extent.
Moderator:	Thank you. The next question is from the line of Anuj Sehgal from Manas
	Capital. Please go ahead.
Anuj Sehgal:	I have two questions. In your annual report on the P&L, you have an item „Fees
	to collection centers and channel partners‟, roughly 12%, 15% of your revenue.
	So I wanted to understand how was the flow of cash? So when the patient
	comes to your collection center, he or she gives a sample and he/she pays at
	the collection center, does money all come to Dr. Lal Path and then you pay
	out to the collection center, because that is what the P&L suggests or is the
	other way around? And then how do the fees or referral fees get paid to the
	doctor?
Om P Manchanda:	I think you are barking up the wrong tree. We do not give any referral fee to the
	doctor.
Ved P Goel:	So fees to collection center is about 13% which you are right where patient is
	paying to the collection center. We collect 100% and then we pay to the
	franchisee or collection center.
Om P Manchanda:	To your second question, we do not have any arrangement with doctors. So
	there is no such question like that.
Anuj Sehgal:	Even the collection centers are not paying to the doctors?
Om P Manchanda:	Correct.
Anuj Sehgal:	And then my second question is, you talked in the beginning about the
	Ayushman Bharat Scheme. If you see some of the other examples in countries
	like Indonesia where they have a similar medical health insurance scheme
	which actually has done very well. As it scaled up and became very critical in
	terms of scale, it actually resulted in much higher volume but at much lower
	cost. So what is your expectations of the Ayushman Bharat-driven business in
	India if the scheme were to scale up in a meaningful way, and any potential
	impact on not just Dr. Lal, but other healthcare providers?
Dr. Arvind Lal:	Ayushman Bharat Scheme so far has seen I think, 1.7 million patients. It is
	largely due to the in patients, etc., and the outpatients which have gone to their

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	so-called health and wellness centers. But actually, the pathology part is not
	involved. So being a service provider only for diagnostics has not impacted us
	at all so far. The government of India will have to take a call that whether we
	put pathology in the OPD charges, etc., so that is a different ballgame. Right
	now we are talking about IPD. And IPD, all those things are internal inside the
	hospital built into the charges of what a particular procedure is costing, in all of
	these hospitals.
Anuj Sehgal:	So if the pathology were to come under the scheme, would you take up that
	business and be keen to be a service provider or would you not take that
	business because it probably would come at lower prices but may be at a
	significant volume?
Om P Manchanda:	We will have to see the economics of that as and when it happens.
Moderator:	Thank you. The next question is from the line of Sameer Baisiwala from
	Morgan Stanley. Please go ahead.
Sameer Baisiwala:	Post the acquisition, what are the next few steps for you to get more
	entrenched in those markets and how do you take say for example, Rs.15
	crore revenue to Rs.50 crore, what is the journey like?
Om P Manchanda:	So it is clearly focused strategy, we just want to build scale in a limited
	geography. And that asset actually has equity into contiguous markets. So our
	expansion plan would be, to pick up districts close to that place where we
	acquired. So it is clearly a cluster approach we want to follow wherever we
	have done these acquisitions.
Sameer Baisiwala:	And so therefore then you go out to adjacent districts and then have new
	franchisees, PSCs and then open a lab, is that the way you expand?
Om P Manchanda:	That is right, and we also bring in lot of processes, lot of consumer-facing
	initiatives where service levels go up and things like that. So, the brand
	experience becomes very different. So, whatever our learnings have been from
	our own parent business, we try to transfer it to that acquired asset and grow in
	the contiguous markets.
Sameer Baisiwala:	And any number targets sort of that you doubled, tripled the revenues over
	certain timeframe or something?
Om P Manchanda:	Actually, in the short term, there is a lot of pain because we first get into a
	cleaning up office because many practices may not be aligned to what we do.
	So actually things tend to get worse before they start looking up. There is a
	slight dip and then couple of years down the line it starts moving up. I want to
	share one example, we have had in Kanpur where we did one acquisition
	about 10-odd years back, today business has become 10x in about 10-years.
	So if you actually draw that learning and see if you can grow these smaller
	assets in a smaller market. But idea is that these smaller acquisitions also will
	go through lot of pain of cleaning up first. But these labs will always have good
	equity in these limited markets.
Sameer Baisiwala:	Any thoughts of going international or business remains pretty much in India?
Om P Manchanda:	I think our primary focus will continue to remain in India, and South and West,
	as we mentioned is the market which is where our shares are very low, we will
	first attempt to do something there.

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Dr. Arvind Lal:	We already have labs in Nepal and Bangladesh, if you call that international.
Moderator:	Thank you. The next question is from the line of Ankit Jha from Stock Access.
	Please go ahead.
Ankit Jha:	I would like to understand that how is the response from the bundled package
	test “Swasthfit” , what is the growth there and how are the margins there?
Bharath Uppiliappan:	The growth rates continue to be very robust; upwards of 30%-odd, and a
	contribution is now 15% of the overall portfolio. The margins are also healthy
	given that we have bundled tests for efficiency.
Ankit Jha:	How is the competition with pharmacy and online aggregators and how is the
	intensity there?
Om P Manchanda:	So we do not have exact sort of information to share, but we are getting mixed
	signals from there because many people are also getting into diagnostics, but
	we are also finding that some of them are finding it difficult to scale because at
	a city level, they are able to do well, but if they go beyond city then it is quite
	challenging, and challenges come out in both ends; one is the front end
	because they are not able to control phlebotomy experience because many of
	them are home collection-driven models, at the same time, they are also not
	able to aggregate at the back end because service, quality both are impacted.
	So, some of them in order to improve these three variables, they have started
	hiring phlebotomy and if they are starting their own lab, and certainly they find
	themselves doing the same thing what we are doing. So it does not remain like
	eCommerce stuff. So it is a bit of mix thing. I would not like to give a definitive
	answer right now. I am also picking up as much information as possible. And if
	you guys pick up something, please share with us so that it helps us to design
	our strategy better.
Moderator:	The next question is from the line of Saurabh Jain from SSJ Finance. Please
	go ahead.
Saurabh Jain:	You earlier commented that the revenue that you are getting per patient is
	increasing at a rate much lower than probably the rate of inflation itself. Can
	you comment more on that and maybe in terms of how will you improve on
	your pricing power and will this trend change sometime soon?
Om P Manchanda:	Revenue per patient as I keep mentioning I do not want to see pricing as a
	route to increase the realization. But I do see a higher end test contribution to
	go up. I also see bundling to help me drive revenue per patient. I also see if I
	can do a cross promotion, but definitely I do not see pricing as a route to
	increase revenue per patient.
Saurabh Jain:	Can you also comment on how you are seeing the unorganized space
	behaving in terms of the lab expansion there or what trend are you seeing
	there?
Om P Manchanda:	Definitely, my view there is that unorganized space is definitely feeling the heat
	of growth. On one side, they are also not able to take price increases, and
	since they operate in a limited market, they do not see volume growth, and
	there is also a pressure on compliances because each lab has to be run by a
	doctor, they have to keep licenses. I think the unorganized space is going to
	feel the heat a bit. It is like some people will try to compete with the larger
	players and increase the test menu, but most of it would want to partner with

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	the larger ecosystem like a large player like us. But I do not think any new fresh
	investments will come where people want to put up more labs. I think that era
	is gone where labs are going to multiply. We actually have to reduce costs in
	some ways.
Moderator:	Thank you. The next question is from the line of Aman Sharma, an individual
	investor. Please go ahead.
Aman Sharma:	I just have an idea. I am not sure whether you are aware of it or not. So there
	are a lot of life insurance companies, like before taking the life insurance they
	also take the medical test for the individual. So are we collaborating in this
	manner?
Om P Manchanda:	Yes, this business exists, but they are always looking for lower pricing. So they
	are like any one player, and then they end up partnering with a lot of local labs
	rather than large players like us. But definitely there are some quality insurance
	players who come to us. The other challenge that we face in this business is
	that we are not only there for tests, but we also want some kind of medical sort
	of MBBS help because you have to check blood pressure, you have to take all
	other parameters. So it is not only the diagnostic alone or test alone, they need
	some doctor consultancy as well which in my view a local lab can provide
	because they can give lowest price and they can manage all that. So that is
	why this business is there, but it is not a very large business I would say.
Moderator:	Thank you. The next question is from the line of Nirmal Gopi from IDFC
	Securities. Please go ahead.
Nirmal Gopi:	Om, just looking through the numbers and clearly if we look through the last
	four quarters, the business is literally into two halves. We had a fairly tough
	situation, low growth, and low profitability in H2 of last year and the business
	seems to have turned around fairly dramatically in the first half of this year. In
	your assessment what is the change in these two periods if there is a way to
	classify them?
Om P Manchanda:	Thank you very much, “We will see a dramatic improvement.” I would not read
	too much into that. But I think one thing consciously that we are trying is to see
	how we increase focus on rest of India and reduce our dependence on Delhi
	NCR because rest of India is like open sky. So, we focus on East, we carefully
	pick the markets, we are not a company which is just Delhi-based, we are now
	much broader based. I think as the brand becomes widespread, we hope to
	see a better growth. So, that is one thing which I will say has changed.
Nirmal Gopi:	In terms of the operational focus in terms of cost optimization, anything else
	which really plays itself out in a slightly more meaningful way in the last couple
	of quarters versus what we experienced in H2 of last year?
Dr. Arvind Lal:	Nirmal, we emphasize a lot on the pre-analytical quality of the operations. And
	the good quality just does not happen out of the blue. So we strive very hard to
	maintain the quality, especially at the pre-analytical level. Second thing, which
	we have done in the last quarter or maybe slightly before, is that we have got
	very robust internal quality assessment software which has never been used
	by anybody in India before. So at a glance, we can monitor so many outside
	labs, etc., and we are much ahead of the curve than anybody else. So these
	are two qualitative things which I can share with you.
Moderator:	Thank you. As there are no further questions from the participants, I now hand
	the conference over to the management for closing comments.

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Nishid Solanki : Thank you, everyone for joining with us on this call today. I would now request the moderator to close the call. Thank you. Moderator: On behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

This is a transcription and may contain transcription errors. The Company or sender takes no responsibility for such errors, although an effort has been made to ensure high level of accuracy.

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