Dr. Lal PathLabs Limited (LALPATHLAB) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Dr. Lal PathLabs Q1 FY '21 Earnings Conference Call. [Operator Instructions] 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.

Thank you. Good afternoon, everyone, and welcome to Dr. Lal PathLabs Q1 FY '21 Earnings Conference Call. Joining us today are senior members of the management team, including Honorary Brigadier Dr. Arvind Lal, executive Chairman; Dr. Om Prakash Manchanda, Managing Director; Mr. Bharath, CEO; Mr. Ved Prakash Goel, CFO; and Mr. Rajat Kalra, Company Secretary and Head of Investor Relations. Before we commence the call, I would like to underline that some of the statements made on the call today could be forward-looking in nature, and the actual results may vary from these forward-looking statements. A detailed disclosure in this regard is available in the results presentation, which has been circulated to you earlier. I would now like to request Dr. Arvind Lal to share his perspectives with you. Thank you, and over to you, sir.

Thank you, Nishid. Good afternoon, ladies and gentlemen, and I thank you all for joining us in today's call. I hope everyone is keeping safe amidst this pandemic 19 -- COVID-19 situation. I will begin by sharing my thoughts on the performance for the quarter. As the world continues to deal with the impact of COVID-19 pandemic, day-to-day life has been affected severely, as have businesses and economies across the globe. Q1 FY '21 for us was no different, as we commenced the year with several challenges and disruptions posed by the pandemic. It was a very difficult period with the lockdown being in force in this quarter. And given the essential nature of our services, we were allowed to operate also in a constrained environment, and volumes momentum was significantly impacted due to patients' hesitance in stepping out of their houses also. Also, this -- all this impacted our financial performance for the first quarter of this fiscal year. As a company, we have consciously taken steps to digitize the entire patient journey long before the COVID pandemic hit us. We are confident that this will continue to give us an upper hand over the competition. I am sure you will appreciate our digital aspirations, where we have deeply integrated technology into our operations to provide our patients a seamless customer experience. As a trend, diagnostics draw greater attention for pandemic as people become more vigilant and sensitive to their health and wellness. This is expected to provide a boost to the health care and diagnostic industry over the medium to long term. We remain committed to offering our services responsibly during these unprecedented times, as well as creating value for all the stakeholders. Further, I believe that all the initiatives undertaken in the recent past will help us significant market share -- gain significant market share and further elevate our position as the largest labs and diagnostics player in the country. With that, I would like to hand over the call to Dr. Om Prakash Manchanda to share his thoughts. Thank you.

Thank you, Dr. Lal, and good afternoon to everyone. As Dr. Lal mentioned earlier, we witnessed a difficult first quarter due to several restrictions in force for the COVID-19 pandemic that impacted our business adversely. Being an agile and proactive organization, we promptly implemented several initiatives to combat the impact of this pandemic on our operations. Apart from setting up a dedicated task force to address all COVID-19-related issues, we accelerated our emphasis on home collection and online test booking by leveraging our digital infrastructure. We are also working on initiatives to reduce the time spent and the contact with the patients whenever they visit any of our centers. This is going to help us bring back the patients. As a company, our focus remains on driving volumes and expanding our reach. Towards this end, we have worked tirelessly to increase our contribution from rest of India. As you may have seen, we've been acquiring select small and stand-alone labs in a calibrated manner in cities of West and South India. This is aligned with our strategy of expanding presence outside of Delhi NCR region. The labs that we acquire are of superior quality, an important part of our strategy for expansion in rest of India market. We also strive to improve -- sorry, we also strive to provide improved experience to our patients by leveraging technology that we have inculcated into our systems, thereby helping us provide seamless and convenient process. I'll reiterate our mission of providing accurate, quality and timely diagnostic services to our patients in an easily accessible manner and at affordable prices. With that, I conclude my opening remarks and would now request Bharath to take you through the operational performance of the company.

Thank you, Om, and a very good afternoon to everyone on this call today. In Q1 FY '21, our revenue for the quarter came in at INR 266 crores, and we served 3.5 million patients. It has been a challenging quarter, with an overall revenue decline due to the national lockdown and consequent disruption in our operations. Through the quarter, our teams have focused on overcoming frequently changing town-level regulations to bring our market servicing back to normalcy. We have thus witnessed an encouraging recovery trend from April to May to June '20. Some of it may, though, have been due to pent-up demand and some due to share gain. The actual demand will be visible going forward as this is still an evolving situation with regional and city-level lockdowns still continuing. With the -- a lot process currently underway, we expect this to sustain and gain further momentum. In our Swasthfit bundled portfolio of tests continues its sales tempo, and in spite of the lockdown, we operationalized 5 new labs, including 2 in West region. As you are aware, our 3 major labs, namely, the National Reference Lab Delhi, National Reference Lab at Delhi, the Regional Reference Lab at Kolkata and Central Lab in Indore government norms and provide near real-time updates to the authorities. We have significantly scaled up the testing for COVID-19 from the previous quarter. We are also working towards ramping up this capacity by adding a few more locations for the COVID RT-PCR test. This, coupled with antibody tests and panels, is going to enhance our COVID testing offerings. We are also relooking at all our cost line items, as we believe that managing costs judiciously and maintaining high efficiency levels is going to be the need of [ the hour ]. We have undertaken several initiatives to keep our costs under check while driving volumes, and the same is visible in our cost structure during Q1. I would like to conclude by saying that we will continue to do all that is required to serve the testing requirements of the country in these difficult times, in line with the vision of being the most trusted health care partner. I would now like to hand over to Ved to give an update on the financial performance.

Thank you, Bharath, and a very good afternoon to everyone present on this call. I will now share with you some of the financial highlights. Revenue for Q1 FY '21 is at INR 266 crores as compared to INR 335.2 crores in the same quarter last year, a decline of 20.6%. This revenue for Q1 FY '21 is from serving 3.5 million patients and 7.9 million tests. COVID-19 RT-PCR test revenue contributed 21% of overall revenue in Q1 FY '21. Total number of COVID-19 RT-PCR tests conducted is 1.97 lakhs. Realization per patient for Q1 FY '21 stood at INR 760 as against INR 685 in Q1 FY '20. The higher RPP is primarily driven by COVID-19 RT-PCR testing. Normalized EBITDA for Q1 FY '21 came at INR 54 crores as compared to INR 99 crores reported in the same quarter last year, a decline of 45.5%. PBT for Q1 FY '21 is at INR 38.1 crores as against INR 89.4 crores in the same quarter last year. PAT for Q1 FY '21 is at INR 28.4 crores as against INR 59.1 crores in the same quarter last year. Basic EPS for Q1 FY '21 is at INR 3.45 as against INR 7.41 in Q1 FY '20. Cash, FDs and investment in mutual funds stood at INR 759.8 crores as at June 30, 2020, an addition of INR 16 crores in Q1 FY '21. As you know that this has been a challenging quarter for us, still, we have been able to reduce our DSOs by keeping a close check on our receivables and collections. During the quarter, we have incurred a sum of INR 12.5 crores on CapEx. That brings me to the conclusion of my opening remarks, and I would now request the moderator to open the forum for question and answers. Thank you.

[Operator Instructions] The first question is from the line of Chandramouli from Goldman Sachs.

So the first question is on the non-COVID business. So if I do some rough, back-of-the-envelope math, it looks like your non-COVID volumes and revenues are down roughly 1/3, maybe over 38% Y-o-Y. So if you could just tell us how you're thinking about that business trend that you're seeing, what the interest rate was in June for the non-COVID business. I think you mentioned pent-up demand. So how much -- the way you think about it, like how much of pent-up demand do you think can come back from some of these volumes that are lost? That's my first question.

So I think when this lockdown happened in the month of March, we were fairly clear in our mind that while a lot of time share of noise is on COVID, we were very conscious of the fact that we have to make sure our non-COVID business stays very intact. And non-COVID business was actually getting disrupted on account of 2 things. One is movements of patient was restricted. And second was, interstate movement due to logistics also was disrupted. So we put in a lot of effort starting April itself, and we saw a very smart recovery on non-COVID. I think you can do back-of-the-envelope calculation. We are back to about 90-odd percent of our last year running rate on non-COVID. And the question one may ask is that, is it sustainable. You're absolutely right. We are still unclear about where June month saw a jump of non-COVID sales because of pent-up demand coming in. There's one more factor, which some of you may not be fully aware. June is generally a lower month compared to any other month in the first half. And the primary reason for that is especially second half of June, a lot of people actually go out for vacation. A lot of medical facility also goes out on vacation. So you have a situation in the industry where you may have higher pent-up demand coming in June because of April-May lockdown and also an advantage of lower base of last year. So one has to actually be a little careful before looking at whether this non-COVID sales of 90%, is it sustainable. Now what we are seeing in the month of July, we thought probably this whole lockdown thing will settle down a bit. But we are seeing now city-wide, state-wide disruptions still continue to happen. So we probably will have to wait and watch as to how this non-COVID trend would go. But if I were to actually put a sort of a guess around this number, I have a feeling that we should hover around this 90% mark for some time, maybe around September, October, when this whole flu season picks up because this is also a time when a lot of vector-borne diseases tend to come, especially end of August, early September onwards and going till October. I think that's the time we probably should cross over this last year's run rate of non-COVID. That's particularly my sense. But given volatility around environment and everything else, it's so difficult to put a number on this. But if still I'm pushed to put a sort of a trajectory around non-COVID, I think around September onwards, we should cross this number upward. But I may be wrong because I don't know how things unfold as we go forward.

Got it. Got it. That's very helpful. Second question is around realization. So again, if we do the math, it looks like the non-COVID realization per patient is 6 26 for this quarter versus your typical range around the 6 80. So is this because you've had more business from your non-urban regions? Have you taken some action on price? Or is it purely mix?

So I think there are 3 or 4 broad trends that are emerging in these times. One trend that we are seeing is a slight reduction in number of tests per patient. That may be because of 2 reasons. One is our geographical mix has changed very sharply, because there was a time when Delhi actually was picking up on in terms of COVID cases. And Delhi also has a lot of walk-in business coming into our -- falling into our labs, and people are very hesitant to come to crowded places. So we have seen a sharp fall in our walk-in patients. So there is a change in the channel mix. A lot of walk-in business actually has shifted to a collection center or a pickup point. And we are also seeing a change in geographical mix, where rest of India has done relatively better than, let's say, Delhi NCR. So I think net result has been a slightly -- slight reduction in number of tests per patient, which has impacted our realization per patient as well.

Got it. Last question is just on the antibody tests and the RT-PCR test that you're doing. So just want to understand, with every antibody negative, I think it's mandated that there should be an RT-PCR test done. So if you could just talk us through whether you need to set up more RT-PCR capacity as you do more and more antibody tests, that will be helpful.

So I may want to correct you here. It's nothing -- it's not to do with antibody negative. It's to do with the rapid antigen negative on that, too, if somebody is symptomatic. Then only you have to do RT-PCR. So I hope I've made it clear. The antibody is a different group of tests. RT-PCR and rapid antigen test is one group of test. But rapid antigen test has a little bit of an issue because it throws off false negative. So the advisory is that if you have a patient who is showing symptoms, but is also having rapid antigen test negative, then he has to necessarily -- he or she has to go through RT-PCR test. That is the advisory.

If And if I may add, in terms of antibody, the antibody tests are the classic test which should be done is a IgG test. But what the government allowed was a mixture of an IgM plus an IgG test. An IgM tells you of the recent infection, and IgG tells you of sustainability, [ severeness ] and immunity. So here, it became a problem that if the combined test is positive, and the patient is still isn't having symptoms, then in that case also, he should go for the RT-PCR test. It is very confusing. In my opinion, the combined test of COVID antibodies should never have been introduced, but again, it was introduced. So that's the way we look at it.

I think -- yes. But I think your broad question was with RT with rapid antigen tests, do you see RT-PCR tests going up, right?

That's right.

Right. So whether are we going to increase the capacity as well? I think 2 or 3 things that we are doing, as Bharath mentioned in his comments, that today, RT-PCR testing, we are approved for Delhi, we are approved for Kolkata, and we are also approved for Indore. Now we are looking at 3 or 4 more locations for RT-PCR tests, and some of these locations are especially our large, sort of focus cities. So we are looking at expanding our testing network as we go along, because we do believe that RT-PCR test for COVID-19, we don't know what -- where the volumes would be, but we do believe it will become a part of our portfolio as we go along.

The next question is from the line of Anmol Ganjoo from JM Financial.

Yes. My question is around the COVID business. Are you seeing any trends where COVID business is driving certain parts of other business or anything you want to call out? How is that shaping up in terms of consumer behavior? Are people getting some additional tests done because you want to kind of -- you just look at business a couple of quarters down the line as on to -- is this leading to any other trends also?

I think if I were to summarize a few consumer trends that I see on -- because of COVID-19, number one is a bit of a psychological impact, which is a bit adverse in nature, that a lot of patients are hesitant to visit health care institutions. And I think all of us can relate to that. We have patients at home as well. So I think there is a tendency not to actually see a doctor, unfortunately. People want to consume health care services as much as possible online, which, in our case, everything can be done, but sample collection still needs to take place. So that's one change that we are seeing, and that is impacting channel mix, which means the demand for home collection is on the rise, and demand for, let's say, walking into a large lab format is on decline. Walking to a collection center is going to rise because it's a very small [ looking table ], 100 square foot, not too many people are there inside. So they are more comfortable going into a neighborhood collection center rather than walk into a big lab. We are also seeing -- I haven't checked on the latest trends, but everybody knows that number of OPDs actually went down sharply because our business is directly linked to number of prescriptions generated. If number of prescriptions fall then our business get impacted, though we have self testing, et cetera, but that percentage is not very large. Surprisingly, as a percentage of total business [ in swab will not be attained ], while overall table has come down, but I was actually thinking that probably [ swab spend ] as a contribution to the total business would also come down. I didn't see that. So I think clearly, one trend that I see that people -- and I'll have [ probably ] validate this hypothesis. People would definitely be careful or would want to do a screening or health checkup going forward because a lot of being said about that comorbidities is a very big risk factor. And I think it would drive some kind of awareness amongst the masses to take care of, for especially noncommunicable diseases like diabetes, et cetera. So I have a feeling going forward this preventive health should do well. But right now, there's a hesitation to visit health care institutions. They only want to go only if it is extremely necessary.

Yes. That's helpful. Just a follow-up on that. So basically, going forward, you expect that channel mix to change in favor of pickups. And in that case, the fact that we have an advantage in terms of a brand, continue to -- does it continue to have the same impact?

Yes. So yes, sorry, please finish your question.

Yes. No, I'm done. I just wanted to understand if the fact that pickups are becoming a bigger part of the market, then our brand vis-à-vis some of the new start-ups with very low capital requirements, how does that position the market share split in that case? Does our brand continue to be an advantage? And in case the market was to move in that direction, should we continue to hold onto share?

So I think that's a good point. I should have mentioned this. There's another trend that I see, that people are looking for a facility which gives them confidence and assurance on safety, because one of the fears all of us and everybody has, is that if you walk into either hospital or a lab, are you at risk of actually catching this infection? So they really want to know from the brand that you are taking care of all the precautions, not only for employee safety, but also for patient safety as well. So I think to that extent, established brands will definitely have an advantage over not-so-established brands or a local brand because they won't mind spending a little extra just to be assured of safety aspect. So I think to that extent, established brand will always have a preference over a non-established brand.

Just taking it slightly further. So in the pre-COVID times, what we have seen was that in our entrance geographies like NCR, we were not growing meaningfully faster than the market. As a consequence of these 2 changes that you suggested are beginning to take place, do you think once things normalize, it should be easy for us to grow faster than the market, in markets where otherwise you would have thought that we have achieved some kind of a saturation market share?

I think it will definitely be an advantage on rest of North, markets like Punjab, Haryana, UP, and we are already seeing some positive trends in these places. As far as Delhi is concerned, I would say -- I would look at this as a factor to hold onto our share because our base is fairly large. So I really won't put my aggressive bets on Delhi business, but I definitely put sort of a very positive comment on rest of North and other places. In fact, the other thing that has really happened for us is Kolkata Reference Lab actually has come very handy in these times because a lot of COVID-19 testing that took place there in the Eastern region has helped us to really build a very strong brand equity in that market. So hopefully, going forward, we should see a positive impact on that as well and even in the Northeast. And in some bit, small way, we've also seen some positive impact in Indore as well. It's not our parent company, but through our PathLab [ India product ], we acquired one business called Central PathLab. It is also engaged in COVID-19 testing. So I'm seeing that at city level, there is some positive benefit that's flowing due to COVID-19 testing to these setups.

The next question is from the line of Sameer Baisiwala from Morgan Stanley.

Just a question on the network. What's the sort of -- what percentage is open right now, your clinical labs, PSCs and pickup points?

Thanks, Sameer. Can I ask Ved Goel to...

Yes. So like Om mentioned, from April onward, we put a lot of effort in getting all our network operational. All our labs are operational, except for barring 1 or 2 on a city-level basis, if one day, some [ kind of flu or something ] comes. On our network, glad to say that all our collection centers are operational. In fact, that is also very good news. So we're not seeing any more disturbance on network availability at this point of time. There are a few logistics routes that's still a challenge. But to a large extent, we've overcome the supply or the chain -- the supply chain issues.

Okay. And a quick clarification to an earlier comment that non-COVID business would be, say, roughly 90% of -- in the last year base. So on top of that, should we add the COVID-related revenues? And so therefore, it could be on a total reported basis, be higher than last year?

But that's only -- I think we were discussing June as a month, not as a quarter.

No, no, no. Your comment that till September, October, it would be -- we expect non-COVID to be 90% of last year.

Yes. Right. Right. So whatever COVID -- because COVID trajectory is very, very difficult to predict right now. So as of now, we are talking about 90% of last year's non-COVID. Over and above whatever COVID comes in will be add-on to that.

Okay. And just final one on COVID testing, sir. How are you sourcing the samples? Is it still being routed through government? Or can you access asymptomatic or private people? And what's the share of public versus private on what has been done cumulatively so far?

Good question. I was expecting this as the first question, actually. So I think our contribution of COVID business in the first quarter is about 20-odd percent, 20%, 21%, of which 60% of the business actually came from government. Now it also did not come from the same government, because it actually went like, sometimes it was coming from [ Asan ] government, sometimes from Delhi, sometimes from GNK. So I think the important part is that this business is not a very sort of a sustainable business right now. We are also seeing government building up a lot of testing capacity. So that only 40% have actually come from a private, private stuff. Now private business is largely a home collection business. It's not -- patients also don't want to walk into the lab to give COVID sample or neither we would encourage that because this has a huge negative impact on non-COVID. In fact, non-COVID business -- non-COVID guys are actually right now asking, I hope that you guys are not collecting COVID here. So we have assured them that our labs are not collecting. We only do it from home collection. The second source of COVID-19 business has been also hospitals, especially where COVID hospitals or their patients are admitted. So there are -- from a private point of view, which is the 40% of business, largely coming from 2 streams, one is home collection and other one is hospitals.

But are these very tightly screened that there should be people with contacts or symptoms? Or can anyone ask for a COVID test now?

No. I think it's fairly clear. I think with the exception of probably Bombay, where without prescription people can get test done, but across the country, without prescription, we are not taking any sample at all.

I would add, according to the ICMR guidelines, you have to fit into one of those guidelines. There are 7, 8 of them. And you need a doctor's prescription. It cannot be just ordered because somebody wants this test. At least in our part of the country, they were very, very strict. Thank you.

[Operator Instructions] The next question is from the line of [ Deepak Mehta ], who's an individual investor.

So my question is, so I will continue with the last question. So you are seeing the business of COVID-19 tests coming from government recommendation and their referent. So we might see the jump in the coronavirus test once big company and IT companies get opened. So maybe a company tie up with your company or some other company for antibody tests and all. Is there any possibility? Or is there any talk in similar line to this with coverage?

Yes. Thanks for your question. I think it's -- Dr. Lal, you want to answer this?

Yes. I'll just have a quick go at it. You see that right now the phase at which the COVID-19 epidemic is -- pandemic is, is still in the early phase. Early phases, we are having 50,000 people getting positive every day. See, that is the way India is going. So it has not peaked yet. Once it goes into a plateau, then it starts coming down, then the antibody test will start in real earnest. Right now, the antibody tests, which are available, are only being done in large numbers by the government in containment zones or those red kind of areas, et cetera. So right now, there's a lot of scope for RT-PCR. And of course, as we discussed earlier, the antigen testing, which is showing a high rate of false negativity. Thank you.

The next question is from the line of Prashant Kothari from Pictet.

Yes. First of all my question also on the antibody testing only. So are you already in touch with corporates who are looking to do antibody tests on their kind of staff? Because we've seen some data coming out of Thyrocare, who have done some mass-level antibody testing. So is it a profitable opportunity to look forward to, maybe even if not now, in the next few months?

So I...

So why don't you take this question, Bharath.

Yes. I'll try and answer this question, Doc Lal. Okay. So I have a view here, which may be my personal view and the way I look at it, because it is -- jury is still out as to what is the role of antibody testing in COVID, okay? First is, it is not a diagnostic test. So we all should be very clear that it does not help you to confirm a diagnosis. Second is, let's paint a scenario. A lot of people are talking about it is a test which will help you to restart your workplace. Let's imagine a scenario. You have 1,000 people in your office, and you do antibody testing on a particular day. Now what happens if, let's say, 100 people are positive, and these positive people are IgG positive because IgM test has not yet come. So 100 people are IgG positive, so probably you will say, "Okay, these are those guys who actually had the infection. Now they have recovered. They can go inside the office." Now those 900 who are negative, so what does it mean? Are you telling them, "If you turn positive, then only you come to office or if you're negative, you can also come." If you allow them also to come, antibody test actually has not served any purpose at all. Then you are allow all 1,000 to come without even doing a test at all. So technically speaking, I think a lot of people are talking about this, that this can help you to start office. I'm still not very sure as to how does it help. One thing it does actually is that it helps you to do a [ serial ] surveillance, that if you pick up randomly, let's say, 10,000, 20,000 people in a particular zone, and then you say to what percentage of people are actually carrying antibodies, it tells you to what extent infection has spread in a lot. And that's where I go to what Dr. Lal was saying. That stage is looking far because right now, we have not -- we don't have a large number of -- large infection in the society. So I think when it peaks up, on a falling curve, I guess, antibody tests will help. The other role of antibody would be -- it's a general desire for all of us to know whether I actually have developed antibody or not. And that situation may arise once you get vaccine. People would want to know whether antibodies have developed or not. So it is that kind of test value it has. But it definitely does not have a diagnostic value. Now going forward, can it become a very large place in our portfolio? It can, but one should also keep in mind that as antibody testing picks up, there is also a rapid antibody test, which is likely to come. And rapid antibody test is like a point-of-care test, where it does not suit a centralized lab model. So it will be freely available with a small prick, you can actually do it yourself as well. So one should keep that in mind as these antibody tests come in, there could be a rapid antibody also may come as a part of portfolio.

And if I may add deeper, the -- what you have to watch out for is where the antibody testing is coming in. Right now, as Om has explained, that it is not a diagnostic test. So once you talk about immunity, so the immunity which matters, as I said earlier, is an IgG test. Those people who test IgG positive, they are in the clear. They will not get this infection, and they are not to be put under surveillance, they can actually go and start their work. And they are also good candidates to donate their plasma for plasma treatment. The guys who turn out to the IgG negative, they are the ones, especially the LGBH group, et cetera, et cetera, people with comorbidities, the elderly, who are IgG negative, they will become the first candidates to be given the vaccines. And once the vaccines are given, and the vaccines in India may be given months or day after 4, 5 months to 3 months, they even might give you a booster, and that will also create the IgG antibody. So that is how the system works. Thank you.

If I may add, Dr. Lal, one more thing that a lot of scientists are also advising that this IgG antibody positive does not mean one should have a false sense of confidence that, that will last forever, because the life of this immunity is not that long.

Yes. But that is a questionable kind of a thing. Usually, what we have seen from other viruses, once the IgG antibody comes in, it stays for a long time. And here, once those studies have been done extensively, we'll get the answer. I agree with you. I even read something like this, what you are saying.

Yes. I mean maybe just on a [ clear ] basis, I mean a lot of us, even on this call would want to kind of get [ a better stand ] at least feel more confident that [ a test kind of passed on the virus and issues ].

Absolutely, it will tell you whether you have come in contact with the virus. People who have come in contact with the virus who would -- actually, you can say with inverted commas have been infected, but they may not have suffered. So we already said that we have come in contact with the virus, you can actually develop an IgG antibody, which is good for you. And you've heard of herd immunity. Herd immunity means that more than 50% or 60% of a minimum population has been infected or they have come in contact, then the herd immunity also developed, which, ultimately, which you are actually read in the papers now, is not what India can wait for. So we have to act before that.

So I think one answer probably all of you may be looking forward is that, will antibody will become a part of our portfolio. Answer is yes. What is the sizing this opportunity will depend as to how this whole pandemic takes shape.

[Operator Instructions] The next question is from the line of Chetan Gindodia from AlfAccurate.

My question is on the COVID test that was part of our portfolio for this quarter. So it has now a sizable contribution to our revenue. So in any case, if you can give the -- what was the gross margins in this business or how has COVID testing impacted the rest of our P&L.

Actually, one is not able to put a stable margin structure around this test, as you may have picked up during the last 3 months, the price table from INR 4,500 per test has now come down to INR 2,500; in some states, even INR 2,000. But I must say, correspondingly, we've also reduced our costs very sharply as well. So it is definitely not in the negative range. But I think overall, one should say that the margins on these tests are actually lower than our overall portfolio margins. So to some extent, it is EBITDA dilutive, but we are able to cover up a lot of our fixed costs as well.

The next question is from the line of Hemant from Alder Capital.

Yes. I have a specific question on the fees to collection centers. And what I did notice was in the last few years, this has been approximately 11%. And as of last year, it was around 13%. It's been gradually going up. What I'm really trying to understand is, is it something more to do with mix change, as you had spoken a little bit earlier about more revenue coming in from collection centers? Or is it more to do with the fact that as we enter new markets, and because of competitive intensity, we need to share more with collection centers? So any insights on this will be helpful.

So I think while maybe on a quarter-to-quarter basis, I may ask to wait to do that, but in general, on a macro level conceptual plane, I think it is something to do with the business model. As we rolled out of Delhi, a lot of our sales used to come from our own infra. A lot of people used to be walking into our labs. But scalability in our model came when we actually got some network effect by opening a lot of collection centers. As the contribution of Delhi NCR is on a decline and contribution from rest of India is on the rise, so a lot of our sales actually end up coming through franchisee collection centers. While the flow of the patients is very similar to what we would see in our own infra, because even collection center also will have 2 streams. One is walk-in; another is B2B, which is pickup in and around that collection center. So as the proportion of collection center moves up in the business, you will actually end up seeing a higher payout to collection centers. Going forward, I do believe that a proportion of sales coming from collection center network will tend to rise. And that's a great way to grow the business as well, because it variabilizes your costs. In fact, we are learning this, particularly in this quarter, when our walk-in business drops and a lot of our costs are locked in overheads in our labs, it's always good to see how we can variabilize our costs. So I think franchisee model actually gives us that insurance. And it also all goes very well for us as we expand our footprint in rest of India. So directionally, this number will tend to rise as our contribution from collection center goes up. On a specific quarter-to-quarter change, I don't know. I think directionally, that's the way you should look at it.

Referring to the - an annual trend because when I look at it from the financial year FY '17 to '20, that's gone up. So maybe I can ask the question another way around. As we entered new markets, let's say, on the Eastern side, were the revenue shares to collection centers higher than what we had earlier paid in maybe similar markets?

So yes. So you are right. In fact, as we compare Delhi NCR versus rest of India, there may be slightly different revenue share, which is like Delhi has 20%. Outside Delhi NCR, it might be 20%, 25%. So that is where -- and as rest of India is growing faster and the contribution is also high. So revenue is coming from rest of India, where realization is also lower than Delhi NCR. And as a percentage of revenue, it tends to go up. So that is where one has to see.

I think broadly speaking, since our throughput per collection center in rest of India is slightly lower, just to keep the viability in mind, and also in Delhi NCR, we provide doorstep pickup service, which doesn't happen in case of outstation CCs, so we end up giving a slightly higher margin to them, so which is maybe to the extent of about 5%, 6% higher than Delhi average.

Understood. One final question on the same point. As we look at business on a longer-term basis and with the current digitization drive that you have been having, would it be fair enough to assume that B2C will become a larger proportion of your revenues? I believe some time back, you had said that B2C was 60% of your business. Can you give us some insights about how you see this trending now?

See, the way we -- I don't know. It's a great question. A lot of people are now reaching out through online booking, et cetera. But we have actually started using our franchisee network to do home collection because so far, if I were doing 100 home collections, a lot of it actually were being serviced by us directly. But since the demand in the recent past actually has gone up multifold, and it's not a scalable idea that if I build my own team of home collection because that's actually what [ it means ] the whole philosophy of scaling up through franchisee network. So we are looking at engaging with franchising quite a bit, but that engagement with franchisee has to be done through technology because we also want to control the entire experience of home collection. And leaving it loose, we may actually lose the control on the experience because in our industry, the real brand experience actually is the contact of a phlebotomist with the patient. And in some way, I don't want to dilute that. I really want to keep a very big supervision on that experience. So we are taking help of a technology, and that's where I think this whole tech business is going to come very handy here where we are able to integrate our franchisee network, where we have somewhat a direct control on the entire brand experience that happens through home collection.

The next question is from the line of Sabyasachi Mukerji from Centrum PMS.

A couple of questions. First of all, if I look at the gross profit, the gross margins, I see that this quarter, the cost of reagents have kind of gone up. What kind of steady-state percentage we can work with, if you can guide?

I think it's a good observation. We also picked it up. There are 2 broad variables that have impacted this number. One is since COVID tests, the reagent cost is very high compared to what our normal portfolio cost is, so that has contributed significantly to this number. The second reason also has been as the scale of -- as the turnover fell, the scale of testing, especially in our satellite lab, has come down. And we have seen a significant rise in our costs there, consumption costs in our satellite lab infra. Going forward, I think it will depend quite a bit on our COVID contribution to the portfolio. But if I were to carve out non-COVID, I think we should come back to our normal 22%, right?

Yes. So on COVID, we should actually mirror what we have always been doing. I think we'll have to just factor in COVID because COVID consumption cost is much, much higher than what portfolio costs are.

Okay. Okay. Second thing, and one of the previous participants actually asked. So this is much more structural in nature. So if we see kind of the change in the channel mix with collection center and pickup points revenue contribution going up probably in the 3, 4 years down the line, and walk-ins come down, do we really kind of see any kind of margin pressure going ahead?

So again, a great question. You're probably right, and I think the management team will have to be watchful as we go forward because a lot of our fixed overheads is caught up in our lab infra. Lab infra serves 2 purposes. One is, of course, of testing, which is on supply side. It also serves on fulfilling walk-in demand, which is on the demand side. If the demand is going to switch to collection centers and pickup points, so we'll have to relook at the cost structure of this lab infra and also role of lab infra. So I think that's a brilliant observation you have, and we'll have to be watchful on that. We'll have probably also -- I don't want to take a knee-jerk reaction here because it may just be very temporary in nature. Otherwise, we'll have to probably see how we provide the same brand experience on collection centers. The good news is that our franchisee management is -- has gone up many [ marches ] in the last 3, 4 years. So we are -- as we are basically focused on providing the same brand experience as we provide in the lab. Now coming back to pickup points, see, the good news is that another reason which I'm not sure right now I can't say with that kind of confidence. If the patient insists that I want Dr. Lal's report, you can collect the sample, but I make sure that you give me Dr. Lal's report. So that could be a great way of capturing that demand in any case because patients might actually go to a neighborhood pickup point or a collection center but still insisting for Dr. Lal PathLabs report because they trust in our brand. So to my mind I think that should be good enough. And that also could set up another trend of -- which we've been talking in the past is that, can these smaller players be aggregated through a collection center model. So let me not jump to that, but we'll have to probably wait and watch as to how landscape changes post this COVID. But I buy your point of first one, where the cost structure with walk-in dropping in, we'll definitely need to be watchful on that.

Okay. Okay. Lastly, if you can presume -- so if you look at kind of the July trends, how has been the share of PD prescription [ pures ] that have [ been filled ] actually kind of saw major decline in Q1? How has OPG prescription-based [ of the fees based ] and how that traction is there in July? [ see any ] trends?

I think July is showing a bit of a stable trend. What we saw a rise in June, we are seeing a similar sort of a trend here, which is fairly stable. So I -- we are not seeing any fluctuation. We are not seeing much fluctuation right now, yes.

[Operator Instructions] The next question is from the line of Harith Mohammed from Spark Capital.

Can you comment a bit about the COVID testing volumes that you're seeing currently in the month of July? Is there for the number of tests that you can share? And I would also like to understand if antibody tests are a significant proportion of the overall COVID volumes.

So on RT-PCR, as we mentioned, that 60% of the contribution is from the government. A lot of government business, by the way, comes as a spillover business because if they are certainly flushed with a lot of samples, and they are not able to meet that requirement for that day, then they think of a private guy. I think one must know that government has built a lot of capacity of testing of RT-PCR. So any business that comes from the government technically is a spillover. So it's not a regular flow that one can depend on. And what I think only one can depend on is on a private side of business, which I mentioned, it is coming from either individuals calling up and asking for home collection or it is coming from private hospitals, which, to my mind, will be a function of how this whole trajectory of infection takes place. Your second question of antibody testing, it is not, right now, a very significant component of our testing. I think most of our testing is still RT-PCR. And I would say 95% is RT-PCR in terms of value.

And is there a number per day, I mean, 3,000 to 4,000 RT-PCR tests that we are doing? Is there something like that...

I think we can do a math, we have actually said this number of 1-point...

97.

1.97 lakhs for Q1, which is 90 days. You just multiply. I think that's where it falls.

So was trying to understand if that has gone up significantly in July over [ what it was before ].

No, no, no. I think it's a -- there is a bit of a softness on that number, rather, I would say.

Okay. And could you also talk a bit about the cost that you're incurring for test on the kit -- on the testing kit as well, as there is a cost associated with PPE kits. So how much would be the total cost per kit and including the PPE kit and then have a similar cost per test for the antibody test?

So as I mentioned to you that I think we haven't shared in so much of detail on this. Overall, margins on RT-PCR tests are much less than our average portfolio margins. So to that extent, while you may see a very high turnover contribution in the first quarter, but as far as the bottom line contribution is only to the extent of that it covers our fixed cost, it really doesn't contribute too much to our EBITDA margins. As far as antibody testing is concerned, right now, the contribution of antibody is very, very small and even in antibody as well, there, as Dr. Lal mentioned, there are -- one is IgG-based test, of this total. And we believe, from a medical point of view, IgG has much higher value. This total really is a little bit of a -- we're a little unsure about as to what value it actually delivers. So right now, I would actually close the comment by saying that antibody test as a contribution to total is not significantly higher for us.

The next question is from the line of Kunal Dhamesha from Systematix.

Yes. I have just one question. So when we say the RT-PCR test is not EBITDA accretive, it's largely neutral or just covering the fixed cost. Is it the pool test that we are doing or the individual test that we were doing? And I think now the government has allowed pool testing. So can that change the economics of the test significantly?

So let me briefly explain to you about this pool testing concept. The pool testing by ICMR was allowed only if the state government agrees to that. That's number one. So it is not allowed across the country unless you have an approval from the state government. And if I'm not mistaken, there are also guidelines on this. If the positivity is higher beyond a certain level, then pool testing cannot be done, 5%. So in most places, in fact, there was a time when we did this for 1 state, where we had an approval from that state, but the moment we saw positivity going beyond a particular level, then we said that this is -- it's not allowed, and so we stopped that. So right now, there's no pool testing happening in our system. It's all individual.

The next question is from the line of Anubhav Aggarwal from Crédit Suisse.

One question is on -- you mentioned the non-COVID tests right now are 90% now. Just want to check if hospital utilizations up [ in this quarter ]. What is the B2C trend? Does this [ imply that this ] proportion is very much the same as the prior year level?

Sorry, your voice is not very clear. Can you repeat the question?

Yes. So I was saying that on the non-COVID test, you mentioned that we are at 90% level over last year. And we know that the hospital utilizations are, right now, not in normal level. So does it imply that for the B2C patient, we -- effectively, we are [ operating at 100% ] of last year level, that's right?

No, no, no. Actually, our B2C is much more adversely impacted. Okay. I think broadly, we have seen 2 changes for all 3 dimensions, if I look at it. One is the geographical mix, second dimension is channel mix and third dimension is test mix. We are not seeing a significant change in our test mix. Maybe a slight deviation towards higher test -- higher-end contribution has slightly gone up. But I really won't call it a very significant change in our test mix. What we have seen is there are 2 changes. One is geographical mix. Rest of India actually has moved up -- has done well compared to Delhi NCR. And we have 2 hypotheses there. We do believe that entire recovery may not be of our own patient base. We do believe that we are waiting for results of other companies. We do believe that we may actually have had a market share gain as well, because we do believe that we were very, very aggressive in our -- we were very sort of -- operational excellence was very high in our logistics. So we'll have to wait and watch and do this analysis, but we do believe that some of the gains of -- that we are seeing on non-COVID, it may not be the entire recovery of our own base. It may be also a share gain as well. The other thing that we are observing is a channel mix. The channel, especially the walk-in, and walk-in which actually comes from our own infra, because our own infra is a large walk-in format, whether on a daily basis, some labs actually have even 200, 300, 400 patients coming in. It's similar to a hospital kind of setup. That actually has taken a significant knock. A lot of it has actually moved into a home collection. So we have recovered there. Some of it is also -- has gone into our collection centers because collection centers also serve them as walk-in patients. But the benefit there is that you don't have a large congregation of patients there. One collection center will have about 8 to 10 patients, so maybe 15 patients a day, compared to our own lab walk-ins where it can actually go to 200 a day. So we are seeing patients' tendency to go into that area where there is a less crowd. And I'm sure I would love to hear from hospital guys. I have a feeling even in hospital OPDs may have come down. They have may actually have moved into a single doctor sort of OPD practice. So that's a change that we are observing. I don't know whether I answered your question because I was all over the place.

No. I still have one doubt. So let's say, if we were doing 100 patients last year, so when you say we are 90% of that level, I was thinking that we are doing around 90 patients now. So that 90 number should include whether you're gaining market share or the previous patient that you're doing won't -- is my understanding correct or if it isn't?

So let's say, if I were doing 100 earlier, today, I'm doing 90, one can say probably you actually recovered this entire 90 out of your own universe of 100. What I'm trying to say, it may not necessarily be true. I may have recovered 80 of my own, but 10, maybe those guys who are, in any case, not coming to me earlier, maybe going to competition may have come to me now.

Sure. So that is clear. But when we look even to, let's say, 90, we are doing now, so I was saying the B2C portion would have grown, right? This 90 it would be larger because, let's say, we were doing [ 60% ] B2C earlier then the business proportion would have grown for us now.

No, because I don't look at -- because most of my growth actually has come from pickup points. And these pickup points, I don't count them as B2C. I count them as a B2B. So my B2C components are lab walk-ins, home collection. Basically, these 2 line items, right? Home collection has handsomely grown over last year, but the base is very small. What has declined sharply is the lab walk-ins. To that extent, I think my contribution of B2C would have actually gone down compared to what I was doing earlier.

Franchisee is more.

Franchisee collection center has gone up because franchising collection center also has both B2C and B2B, but that is not very directly monitored by us because what it comes out is a one CC line item. You can call me, catch up offline on this, I'll explain.

We take the next question from the line of [ Kishor Bi ], who is a retail investor.

Yes. So I have a question on the patient database that we have. So like -- so how do you see the patient data base being utilized to [ contribute ] the revenues on the top line?

No. We have not looked at that right now. And because patient database is highly sort of confidential, we are so far very hesitant to share this information with anyone, and neither do we have any plans to do that right now.

We take the last question from the line of [ Ranvir Singh ], who is an individual investor.

Yes. My first question is that in terms of -- you had said that 90% of your revenue has recovered. But if we take out the inorganic part, which was done last year, what would be the same number in terms of the non-COVID business?

Okay. I think that's a good point. What would that be?

About 0.8%.

0.8%? Maybe a very small number. Maybe 0.8%, 1% or so.

Okay. Okay. And the second question would be that what are the operating cash flows for the first quarter? And how have the receivable days moved during the quarter?

Yes. Ved?

Yes. So I have mentioned in my opening remarks, we are able to reduce our DSOs in spite of this COVID. So in fact, DSO has reduced substantially. But there are some outstanding on account of COVID, largely which is from government, which may get delayed. But otherwise, DSOs are substantially reduced.

So if I were to sum up, 60% of the business that comes from government business, there we have some outstanding, but it's not an issue. The regular flow of collection is happening. But relatively, our outstanding has gone up on that. But if you look at on balance, I think we've managed it fairly well.

And on the question of cash -- cash surplus, we had about INR 38 crores of cash surplus on account of -- cash operations -- of cash from operations in this quarter.

Okay. So [ could we ] have also -- our EBITDA margins are around 20%. And was there any cost initiatives also done to make sure that we don't incur the impact of COVID?

Absolutely. Actually, a lot of effort has gone on cost side as well. There are 2, 3 caution we had. We didn't want to take any knee-jerk reaction on unnecessarily cutting costs. So one thing that we took care of our employees. So no cuts on that front. And there are 2, 3 areas where we did have some savings. One was the [ A&P ] because business was not happening for at least 1.5, 2 months. And then small areas like travel, of course, got cut for everybody because virtually there is no travel. And what else? Repairs and maintenance also, we had some savings. So on balance, we were able to manage about INR 8 crores, INR 10 crores of cost savings in the quarter. And -- but we were very cautious in not taking any knee-jerk reaction on unnecessarily cutting costs.

We take the next question from Sameer Baisiwala from Morgan Stanley.

Om, just thinking long term, what would be the target PSC count that you need to be a truly pan-India player? Target from the 3,100 that you have right now.

Okay. Okay. Yes. I think if I go back to my FMCG experience of Unilever -- Hindustan Unilever, I think I would rather increase the throughput per PSC rather than looking at just the number of PSC count. As I see this business is very local in nature, there are 2 parts of this business, as you guys have understood this. One is the testing pace, right? A lot of economies of scale has to come from testing, and which is what our real strength is, and it can be centralized. But the challenge lies on the collection part of the business, which has to be more decentralized, closer to patients. Home collection is making it even worse where, virtually, every guy wants home collection to be done, and it's so customized. And so that piece actually needs to be handled by a franchisee network. And I would rather try to build economies of scale at a franchisee level rather than fragmenting it. So to my mind, endlessly -- aimlessly chasing this number of PSC may not be a great idea. But obviously, it's a fine balance between what is the kind of productivity I may want to have on PSC front. But broad thumb rule that we normally follow for our lab to PSC ratio, it is about 1 to...

20.

1 to 19, 20. If I can maintain that ratio going forward, it would be a great thing to happen.

Okay. And just a last one from my side. And what happens if ICMR were to relax the guidelines for RT-PCR testing? If it's not mandatory to have a prescription or symptoms, can that demand explode or not really?

I think you probably can answer this question for yourself. The fact of the matter is every test which is reported -- which test is done has to report it. So people are very, very cautious, and do they really want to get test done. So I don't think testing is constrained by -- because you have a prescription requirement. Maybe when you ask -- you can ask this question in Bombay, because that's a great pilot city, because Bombay has taken away this requirement. I really don't know to what extent RT-PCR testing has gone up in Mumbai City. Probably that will answer this question. I also would love to hear as to what really happens if the prescription condition goes away. My sense is, it may not be.

Okay. And sorry, one final one. And when you look around the neighborhood labs, unorganized sector, what percentage do you think is really up and running or which is not?

So if I were to -- I think it's also a good question. The RT-PCR testing, and for the benefit of everybody, there are only a handful of labs. Antibody testing, I think a lot of this unorganized setup will also do that. Please remember this, if antibody test takes off, it's not only advantage large labs. It will advantage all labs. RT-PCR test only happens in large labs. If I were to take out my COVID and then look at non-COVID trajectory for our business, maybe about, 8%, 10%, 15% down for them. So let's say, if I'd be 90% of non-COVID, they would be about 70% of non-COVID. That's the kind of math probably one can do.

Sorry. So what you're saying is for non-COVID business, unorganized sector is 70% to 90% of the normal.

We may not have reached 90%, Sameer, but probably, it's not that they also would have recovered on non-COVID. It is the point I'm trying to say. One can make a guess as to what that number would be. I don't have any sort of data point. I'll try and ask this question to my field teams. But my reading is that they definitely would have recovered, may not have reached 90% level, but maybe about 70% level.

But they're all open, operational, alive and kicking, sir.

Yes, because ultimately, beyond a point, health care is -- you can't close it. How long you'll see the health care got impacted due to lockdown because patient movement was not there. The moment patient movement starts, then obviously, people have to see a doctor when there's no other option. Only thing is that only essential part of health care is active, no-essential is people are still delaying it.

Thank you very much. That was the last question in queue. I would now like to hand the conference back to the management team for closing comments.

Thank you, everyone, for being with us on this call today. I will now request the moderator to close the call. Please take care, and stay safe.

Thank you very much. On behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.