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

Ladies and gentlemen, good day, and welcome to Dr. Lal PathLabs Q3 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 from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and welcome to Dr. Lal PathLabs Q3 and 9 months FY '21 Earnings Conference Call. Today, we are joined by senior members of the management team, including Honorable 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. Let me share our disclaimer here. Some of the statements made on today's call could be forward-looking in nature, and the actual results could vary from these forward-looking statements. A detailed statement in this regard is available in the results presentation, which has been circulated to you and is also available on the stock exchange website. I would now like to request Dr. Arvind Lal to share his perspectives with you. Thank you, and over to you, sir.

Thank you very much, and good afternoon, ladies and gentlemen, and thanks for joining us today. My best wishes for the New Year. I wish 2021 brings in prosperity and good health for everybody. The global pandemic has reached a crucial phase where several vaccines have been developed by leading players across the world, and many of them are gaining approvals everywhere. India, too, has approved various vaccines and, accordingly, inoculations have started. We wish this brings hope and business momentum gets fully restored for the broader economy. Overall, we have witnessed a steep decline in the number of new COVID cases across the country and a sharp improvement in recoveries. In line with this, we have seen our business make further progress in returning to normalcy and our non-COVID business has seen a sharp recovery. While COVID tests continue to be significant contributor to our performance, we are making further inroads to grow our non-COVID business through menu expansion, deeper penetration in existing markets and selective inorganic acquisitions in newer markets. I believe this is working well for us, and we remain confident and realize our growth objectives. Time and again, we have ensured that, as a leader, we constantly improve our processes to provide top-quality diagnostics and seamless experience to customers. Our digital infrastructure is helping us to continuously innovate as well as simplify processes, thereby keeping costs in check and giving us an edge over our competitors. This pandemic has made people more aware of the importance of good health. With increased spend on preventive tests, the diagnostic industry in India is ripe for growth. And organized players such as Dr. Lal PathLabs are very well placed to carve out substantial market shares for ourselves. Providing our patients with quality, timely, accessible and affordable diagnostic services by leveraging technology will continue to be our top priority, which will help to maintain our position as market leaders. With that, I would like to hand over the call to Dr. Om Manchanda to share his thoughts. Thank you very much.

Thank you, Dr. Lal, and good afternoon, everyone. I take this opportunity to share my thoughts on the industry, our company initiatives and how our strategy is evolving to steer our brand forward. The country is gradually returning to normalcy in many ways. India's health care services sector, too, is also on the same trajectory. Right from the beginning, our effort of keeping simultaneous focus on both non-COVID and COVID business is paying off. This quarter, we have seen growth in our non-COVID revenue. And we believe that the growth trajectory of non-COVID revenue is back on track. Despite series of price reductions of RT-PCR test, we remain focused on optimizing cost structure and per test realization by way of managing revenue mix, thereby ensuring the sustainability of COVID testing. Early month of this quarter, that is quarter 3, October and November months experienced sharp rise in COVID testing. However, now we are seeing declining trends, especially from December onwards, which is contributed by both lower realization per test as well as lower patient volumes. The current trend suggests that the contribution from COVID test is continue to -- will continue to decline. Our efforts to broad-based revenue mix between various geography continue to yield results. Contribution from Rest of India, that is ex-Delhi NCR, has gone up from 59% to 64% on a YTD basis. We continue to strengthen the service delivery, especially in the area of home collection, through our franchisee partners. We have concurrently augmented our online assets in order to enhance accessibility for patients. With an integrated technology backbone in place, we were in a position to manage consumer shifts from direct walk-ins to home collection and franchisee network. As an industry leader, we try to stay ahead of the curve when it comes to technology and innovation, which is geared towards improving the quality of services for our patients and providing them with a seamless experience. We continue to stay focused on filling few strategic gaps in our business that I have spoken even earlier as well. One of them is expanding our footprint in South and West of India. Our initiative of acquiring few small-sized labs through our subsidiary, PathLabs Unifiers, has gathered momentum and has achieved a meaningful scale as of now. We also plan to further increase our footprint in these markets by rolling out full stack of infra and capability, including 2 reference labs, one each in Mumbai and Bengaluru. We will continue to build feeder network of collection centers and satellite labs, both through organic and inorganic means, to support these reference labs. With that, I conclude my opening remarks and would now request Bharath to take you through the operating performance of the company.

Thank you, Dr. Om. Hope all of you are safe and in good health. In Q3 FY '21, we built upon our recovery trends, especially in the non-COVID business. We recorded a total revenue of INR 452.4 crores, serving 5.5 million patients. This number is inclusive of INR 98 crores, derived from the COVID portfolio of tests, including IL-6, D-dimer and antibody, apart from the RT-PCR tests. In Q3 FY '21, we did around 5.3 lakh RT-PCR tests. Our non-COVID business came back to growth curve with an increasing 8.3% growth over Q3 last year. Our Delhi NCR non-COVID business has now equalized last year's revenue, and Rest of India shaped up well on both volume and value metrices. Our growth in non-COVID business was led by Swasthfit bundle test portfolio and our superspecialty test portfolio. Recent metrices are also registering robust growth. We are focused on building upon these further and reaching our pre-COVID growth rates as soon as possible. As we look forward, we continue to remain focused on executing our geographic expansion plan, accelerating further capability buildup around high end test portfolio and digital. To sum up, I would say that we're getting back to pre-COVID level kind of business momentum and expect this to positively continue as the vaccination program has commenced. We, at our end, will remain committed to providing the best possible diagnostic service at affordable prices to all our patients in an efficient manner. I would request Ved to give an update on the financial performance.

Thank you, Bharath. Good afternoon, everyone, and thank you for being on this call today. I will now share with you some of the important financial highlights. Revenue for Q3 FY '21 is at INR 452.4 crore as compared to INR 327.9 crore in last year same quarter, a growth of 38%. Revenue contribution from COVID RT-PCR, antibody and Allied test in Q3 FY '21 is at INR 97.5 crore, which is 21.6% of total revenue of Q3. Revenue realization per patient for Q3 FY '21 is higher at INR 824 as against INR 688 for Q3 FY '20. The higher realization was aided mainly due to COVID contribution. Normalized EBITDA after eliminating the impact of stock-based compensation and CSR expense in Q3 FY '21 stood at INR 144.6 crore as compared to INR 88.9 crore reported in Q3 FY '20, a growth of 62.7%. PBT for Q3 FY '21 is at INR 128.9 crore as against INR 73.4 crore in Q3 FY '20, a growth of 75.6%. PAT for Q3 FY '21 is at INR 95.9 crore as against INR 54.9 crore in Q3 FY '20, a growth of 74.7%. Cash, FD, investment in mutual funds as at the end of Q3 FY '21 is at INR 932.6 crore. Basic EPS for Q3 FY '21 is INR 11.44 per share versus INR 6.56 in the same quarter last year. I'm pleased to share that the Board of Directors of the company have approved a second interim dividend of INR 6 per equity share. This is in addition to earlier interim dividend of INR 6, which has already been paid in last quarter this year. As disclosed on our last Q2 call, the company's wholly-owned subsidiary, PathLabs Unifiers Private Limited, has acquired 100% business in Bindish Diagnostic Laboratory, Jamnagar, and 70% stake in ChanRe Laboratory Private Limited Bengaluru. Both the deals have now been completed. That brings me to the conclusion of my opening remarks, and I would now request the moderator to open the forum for question-and-answer.

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

My first question is on the non-COVID trajectory. So I think the non-COVID business seems to be up about 2% to 3% on a sequential basis quarter-on-quarter. And if I look at -- if I back out what the non-COVID realizations are, those also seem to be sort of flat quarter-on-quarter. So just trying to understand, your non-COVID volumes, is it fair to assume that they're up about 2% to 3% sequentially?

Yes. I just want to highlight one thing that Q3 normally is the lowest quarter for us. If you look at earlier trends, Q3 always used to be lower than even Q2. So it's probably the first time we are seeing some sequential growth in Q3 over Q2. So that's 1 point. In terms of the numbers that you mentioned, are these numbers correct?

Yes. Yes.

I think yes, yes. These numbers are correct.

Got it. Got it. That's helpful. And my second question is on home collections. So I'm just trying to understand from what you're seeing at your end, in your physical locations, is there still some kind of aversion for patients coming to the physical location to give their samples? Is home collection still a large part of -- it was 9% to 10%, I think, of your total revenues last quarter. So just trying to understand what is home collection as a percent of the total mix in the context that whether patients are still preferring home collections? Or they are happy to start coming back to the physical location?

So I'll try give you a bit of a qualitative answer on this. Whether people are still hesitant to come back -- come to the lab? Answer is yes. Whether the extent of reduction what we saw earlier and what we are seeing now? There is a revival in that. It's still not back to normal. There is some increase in our walk-in patients, but still not to the level where it used to be. So it's fair to say that there is some reluctance for people to come. Number 2, where has that business gone? It has actually -- in our assessment, it has gone to 2 different channels. One channel is of home collection and another channel is to our franchisee collection centers. And probably our hypothesis of franchisee collection centers is that it may further be split in 2 parts, their home collection as well as their walk-ins. I get a sense that their walk-ins have gone up because there is not too much of overcrowding in our collection centers because it's a very small place. And you can actually form a queue. Only few guys are waiting. And plus, they have also started doing home collections. So that's fundamentally the way I see consumers shift. Now as far as the home collection as a percentage of business is concerned, you must know that a lot of COVID [ hospitals are all ] actually driven by home collection or driven by government business because we were not entertaining, to a large extent, the walk-in business of COVID. Now since COVID actually has sharply declined, one may see that home collection as a percentage of turnover also has sharply declined. So I think what we should analyze is that what is happening to home collection for non-COVID might just give you an idea to what extent the shift has happened. Maybe, Bharath, if you can highlight what is a non-COVID home collection test?

We have seen about a 40% increase in pre to post COVID era in home collection for non-COVID.

So if I was doing 100 home collections earlier, now that number has gone up to 140. And this is taking out the COVID impact because COVID obviously has sort of home collection. I want to take that out, so that we get a good analysis of where the home collection is shifting.

Got it. Got it. And just a follow-up on this, the non-COVID home collections. What would that be approximately as a percentage of total non-COVID business?

Ved, do you have that number?

Just a minute.

Just give us a second.

Sure.

6%.

About 6%.

For the quarter.

For the quarter. If I include COVID, then the number will look higher. We are deliberately trying to take that out so that we don't want to give a wrong picture.

The next question is from the line of Rakhi Prasad from Alder Capital.

First of all, congratulations on a good set of numbers. I just wanted to follow-up on this home collection part, wherein you did say it's currently at 6% of the non-COVID business, the non-COVID home collection that is. Where do you see this trending towards in -- over the course of the next couple of years? Is that something that you're trying to focus on to build that channel? That was my first question.

Yes, yes. So if you look at trend perspective, I have a feeling that home collection as a percentage of business with time will keep on moving up. And I also get a sense that this business will keep going up only for those players who are established, branded and trusted players because if it's an unknown brand, 1 customer may not be very comfortable in calling that person home. So it is advantage actually established, regular, well-known brands. The shift to home connection will only happen through a trajectory way if that person has experienced your -- either as a walk-in customer or as a customer or a franchisee collection center. So point number one, home collection will keep growing. Will it become belly of the market? I have my doubts, whether overnight it will become a very large business. The reason for that are 2. One is the brand experience in home collection to provide that consistently, it is going to take quite a bit of time for many of the players to achieve that. Second is what is likely to happen is that people will try and finish those jobs, which can be done online. Say, for example, I can book online. I can pay online. Maybe I'll just come to the facility to give my sample and walk out. So the length of stay for any customer in an outlet may just sharply reduce and the rest of the activities will move digitally, is what I feel going forward will happen.

Okay. So the other question I had was on Rest of India. So you did mention that Rest of India is about 64% of the business now. So what would have -- is this a result of volume growth or realization growth? If you could give some color around this increase in the share of Rest of India?

Right, right. It's actually largely due to volumes split..

Volume led only.

It's primarily volume led. Because our realizations in Rest of India relative to Delhi are lower. So the volumes have to grow much faster to give us this number. So it's primarily volume-led.

The next question is from the line of Rahul Agarwal from InCred.

Congratulations. Again, good set of results. I had 2 questions. Firstly, it seems like if I just reduce the RT-PCR volume number from the total number of patients, it looks like the volume growth has been quite low -- very low single digits, 1.5%, 2%. I don't really have the antibody test number with me. But -- so could you provide some more color as in what's really happening with the non-COVID recovery? You mentioned in the remarks that it's quite sharp. But though my sense is it's more driven by realizations, which is more driven by the Allied COVID activities plus the higher share of home collection. So could you give some more understanding on how should one think about the non-COVID recovery in 4Q and going forward, please? That's my first question.

Actually, when I use the word sharp, I use it for a sharp decline of COVID, rather sharp recovery of non-COVID. I would say non-COVID is recovered. You are probably right. If you look at last 3 quarters trend, first quarter non-COVID business was down almost 30 -- almost 38% in the first quarter. Second quarter, I think in the last call, we had mentioned that it was down about 2%. But what we have done is that we have taken out Allied test from this calculation, because we found that IL-6 and D-dimer are 2 tests where the trends are moving up. So it was not really right comparison. So we have taken that out into COVID numbers. So our non-COVID business was down minus 5% in Q2. That business now has -- is up by 8.3%. And your observation is that the volumes are almost flat, right, for this quarter for non-COVID?

Yes.

That observation is right, but we hope to see that in Q4 the trend-wise, there is a recovery which is happening. And probably your inference is correct that it is more due to revenue per patient going up in Q3 for non-COVID. And I think it's also important for me to mention here is that this business is also moving lot towards packages rather than single test. So there are lots of these innovations that are happening around post-COVID packages, health checkups, et cetera, which have much higher realization. So you will see the value growth -- my sense is value growth would always be a little higher than the volume growth going forward.

Right. But it seems like the Swasthfit was a lower percentage to non-COVID, right? I mean overall basis quarter-on-quarter. Like second quarter, it was 17%. This quarter, it was 13%. Is that correct?

So the 13%, I think is calculated because we've included COVID base into the one. If you take out COVID out of the base, then it will still be 17%. That's why some of this COVID is actually alerting these ratios, percentages. So one has to little be careful when we compare these numbers. So if I take out COVID from the base, the contribution of Swasthfit to non-COVID is still 17%.

17%. Perfect. Got it. And secondly, 1 question on the service network and lab. What's really happening in terms of how is the progress on lab additions and service center additions in 9 months? Could you give some color qualitatively on how have you progressed on that? Obviously, first half was a bit suffering because of lockdown. But how did the 3Q went? And what's the plan for 4Q? Along with that, if you could just highlight the CapEx numbers will be helpful.

So I'll answer this question in 2 parts. I think one of the part is that it may not actually be visible to the outside world, but we have been through a very, very high level of operational stress in the last 9 months. One stress has been to manage this COVID load, which was primarily at home collection, and that too also dealing with a lot of anxious customers. So that was one stress at one level. Second stress was that, as a company, a lot of our resources are deployed to cater to walk-in business, which suddenly shifted to either network or shifted to home collection. So -- and the home collection customer is actually very digitally savvy customer because they are expecting you to -- the comparison is not with any other health care player, but comparison is with any other e-commerce companies from any other sector. It's not just health care. So I think, operationally, a lot of us were very busy in setting that right. And I'm happy that despite upheavals, we have actually been able to manage our business reasonably well. Second is you asked about expansion. We also have seen that this whole COVID situation has benefited us organically in some markets. Normally, we don't share region-wise split, but there are certain regions where we have seen much higher growth rates compared to what we used to see earlier. So I'm seeing that COVID has benefited in some markets for us, where we were not that -- our market shares were not that high. So taking a queue from that trend, we have now decided to go a little more aggressive on organic in South and West. And we are going to open 2 central labs, 1 in Bengaluru, 1 in Mumbai. And we want to build a feeder network of collection centers and few satellite labs in these markets, which might take another 5 to 6 months of time, and that is what our capital expenditure plan is going forward.

Just a smaller question. Ved, if you could help me just with the antibody revenues or realization or a volume number, please?

Just a minute.

We have not given the split there?

So we have given the split. We have given the split in the earnings PPT. Just a minute.

So if you look at in the earnings presentation, this time, deliberately, we have split RT-PCR, antibodies and IL-6 and D-dimer.

COVID Allied. Yes. So it is on a COVID Allied. COVID includes both RT-PCR and antibodies.

Okay. It's included.

Yes. If you could just split that, please, the COVID number?

So I'll give separately. I don't have...

Okay. No problem.

We'll give that. It's a little detailed stuff, but we have those numbers with us.

The next question is from the line of [ Nikhil Chaudhary from Kris PMS ].

Congratulations on a good set of numbers. Sir, just 1 question. Could you guys like split the home collection and the normal walk-in on the operational parameters? Like how does the cost vary for us and like same [Technical Difficulty]?

Ved, do you want to take this?

I missed that question.

Okay. Let me take a crack on this question. Home collection cost actually has 1 major impact compared to, let's say, the walk-in patient. If like what -- when he's sitting in a lab, on an 8-hour shift basis, he can collect, let's say, for example, 40 samples in a day. The same person in a home collection setting can only collect about 8 or 9 or average would be 8 patients. So you're talking about a productivity drop of roughly from 40 patients per day per person to about 8 patients per day per person. So to cater to the same customer number, I need to deploy 5, at least 4 more phlebotomists. Now the challenge in that is not only just economics, but challenge also is of operational because brand experience that phlebo can provide versus now a new phlebo that I hire in home collection, actually, your brand experience has dropped. That is where the challenge lies. And since these are COVID times, a lot of our phlebotomists are also very hesitant to go to home collections. And then it becomes a little more challenging and because we end up paying them more. So that is 1 cost that goes up when you shift from walk-in to a home collection. But there are a lot of savings also coming because walk-in business has real estate costs. This does not have real estate costs. Walk-ins has a lot of these walk-in area, customer care counters, et cetera. This may not have it. But here, the challenge is because we are a legacy traditional brick-and-mortar setup now in a transition to become a digital company, so we are now moving into those consumer apps. People are booking online, paying online, all that stuff. So there is a transition that is going on. So on balance, I would say, if you lose a customer on walk-in, you also save a lot of cost of servicing that customer because servicing a walk-in customer is nearly about INR 250, INR 300 per patient. Now that number in a home collection setting would actually drop because you're only incurring a cost of that home collection boy. And that normally is about INR 100, INR 150 per this one. But you have to set the system right to provide the same brand experience that you normally provide in a walk-in setup. I think that is, to me, the biggest challenge than the financial challenge.

[Operator Instructions] The next question is from the line of Sunil Poonia from HDFC Bank.

I just wanted to have a sense on the non-COVID revenue based on the test split in term of specialized, routine and wellness. So have you seen any dip in the wellness or some wellness revenue, which is currently noncapped? Or do we see some recovery in it?

See, on a percentage basis, Swasthfit is 17% of the total business. So from a contribution, we don't see any Swasthfit revenue dip. The second is on the higher piece, we have to do a detailed analysis. But this time, we have seen marginal increase in revenue per patient. And that actually is flowing from our contribution of high-end business going up. So we do believe that in these times, high-end business is growing faster than, let's say, a normal use business.

[Operator Instructions] The next question is from the line of Sriraam Rathi from ICICI Securities.

Sir, firstly, I mean, this COVID Allied test, particularly the D-dimer and all, so I mean, is it fair to assume that some part of this is actually recurring also in the normal course of action, without COVID also?

I think it's a good question. We also do not know. But if I were to pick up last 1 month trend, I do believe that as RT-PCR and other tests are dropping, so is IL-6, D-dimer as well. In fact, when we saw that dipping trend, we decided to split it and show it separately. But there is definitely a question to be asked that are there any tests post-COVID likely to come up, which right now, it may be hidden in normal routine test, et cetera. But definitely, IL-6 and D-dimer, my sense, is will also follow the same trajectory as RT-PCR. Decline may not be that sharp, but definitely it's going to decline as well.

Okay. Got it. Got it. And secondly, I mean, in terms of any potential acquisitions. I mean we have not done any acquisition as of till now. I mean though recently we saw that one of the large player has done one acquisition in the South India. I mean what -- I mean did we also evaluate that particular asset or I mean or what is keeping us, I mean, slowing this pace?

Yes. Yes. So I think we definitely evaluated that asset. So it's not that we were not evaluating it. There's nothing holding us back. Our strategy for inorganic still continues. And for that, we have especially created a vehicle of Unifiers. And I'm happy to share that today, on an exit rate basis, we have a very meaningful turnover that has emerged in that vehicle. And so we were very conscious of -- to what extent we go. According to us, that asset, we had certain figure in mind, and we just stick to that, and that's how it happens.

Okay. Okay. Got it. Got it, sir. And sir, lastly, on the -- I mean, this quarter, obviously, we have seen like 8% sales growth in the base business. I mean is it possible to share like exit run rate like in the month of December? What kind of growth it would have been like 15% plus or minus something like that?

For -- you mean to say, non-COVID or COVID?

Non-COVID, non-COVID, normal business.

I would not really highlight month figure because these numbers on a month basis sometimes can be misleading. The reason being, in 2019, 2019 winters were very severe. So suddenly, if I tell you a number, it may have a base benefit also. So I would hold on to month figure. It's better to actually see a little longer term. All I can say is that relatively a trajectory of non-COVID recovery is promising. We'll have to wait and watch what is our industry trends once their results are out. But overall, we feel confident that because COVID is on a decline, we want just stay focused on non-COVID recovery as much as possible. As we are sitting right now, we are feeling confident that we are probably back on track.

[Operator Instructions] The next question is from the line of Bhagwan Chaudhary from Sunidhi Securities.

Sir, when you say there is a sharp decline in COVID tests base, so can you quantify that at 50%, 60%, how much is down?

I think it's about -- if it was 100%, now it's almost 40%.

Okay. And how do you see that...

That decline I'm seeing actually on a weekly basis also. So that's why it may be even low. But I think it's about 1/3 of the business, what it used to be at peak level.

And do you think through that some portion of it is going to stay for the next year given that management is also suggesting that COVID is going to stay?

This is Dr. Lal here. Bhagwan, I can tell you that many senior doctors in India have predicted that there can be a resurgence of COVID any time around February and March. And that is one of the reasons that they have said that please do not throw caution to the winds. Please maintain all those kind of precautions, which you all know of. And they are expecting it. And in foreign countries, if you've noticed, whether it is a different strain or something else, but these are continuing. So you cannot throw your defenses down. This is quite capable of bouncing back.

Got it, sir. Sir, my second question related to the non-COVID business. You suggested that we are seeing a promising recovery. So do you think through that whatever has been because of this COVID, are we going to get some benefit out of these COVID conditions into the non-COVID business side for the longer-term perspective?

I think it's a little difficult to comment on that. I think when I say our non-COVID recovery is promising, the one major advantage that I see is that we are able to cover up a lot of our fixed costs from the gross margin that we create from non-COVID. Because COVID pricing has gone down so low that I just have to survive on gross margins. So the reason why we want to see non-COVID recovery as fast as possible because it helps us manage our P&L better. Otherwise, at the current COVID pricing, it may unnecessarily strain our bottom line. If you're saying in terms of whether current situation will help our non-COVID business? I think jury is still out. I really -- probably it's very difficult to comment right now. Because there are reports at times I keep reading and hearing that post-COVID complications are also on rise. So I just don't know how it happens, but we are focused on the operations as much as possible. I think if we get that piece right, obviously, whatever happens in the environment will flow back to us.

The next question is from the line of Anurag Purohit from Anived PMS.

Congratulations on a good quarter. My question is regarding the prospective reference labs of Mumbai and Bangalore. In comparison to your Delhi and Kolkata, how would these labs be? And what would be the CapEx and the time line for same?

Yes. This is Bharath here. Our CapExs will be broadly -- what we're trying to do in these 2 labs is to create a new model of reference lab, which is slightly different from what we have in Delhi and Calcutta. That is part one. Part 2 is, from a time line perspective, we do look forward to these labs going on stream -- let us say, at least 1 of them by first half of this year, if not early part of the second half of the coming year. Number 3 is that in terms of capability, this lab will compare very well to what we have today in Calcutta. It may not necessarily mirror exactly what we have in Delhi because of various other reasons, but our intent is to build it towards a Delhi kind of model. That is what I can share at this point of time. But we're very excited that we are going to launch these 2 labs and the whole suite of satellite labs, collection centers and the whole stack of market activation program to be building these 2 geographies.

Okay. So when you say the new model compared to the existing reference labs, would it be in terms of the test menus or possibly operational or in terms of what?

The operational angles because we got a lot of automation going, we've got a lot of design thinking going into these labs. And that is something we'll have to possibly wait and watch a bit more of time.

The next question is from the line of Subham Rajgaria from WestBridge Capital.

Firstly, congratulations on a great set of numbers. My question is regarding market share. So you mentioned that home collection might be favorable for the ones who have a brand name. Do you think that has -- in the recent time that has led to gain in market share for the organized players. And even within organized players, has it led to gain of market share for Dr. Lal?

Indeed, on both counts. If you go back to our previous investor calls also, we have said that because of our ability to service the market through better operational metrices, we have gained share in the past, and we believe that it will continue in the future as well.

Sorry, I actually stepped out for a minute, but I want to add. It might be just repetition. I think there are 2 thought processes, which are going in my mind. One is that with COVID coming in, the legacy businesses -- old businesses are undergoing some kind of disruptions. As a company, our DNA is to grow the business organically and be a little bit nimble and very agile to change our processes to suit the new environment. So just putting all our -- just depending only on 1 thing of just inorganic in South and West, we just decided that we want to pursue both. And that's why we have decided to now put more effort behind organic as well in South and West. Keeping that in mind, we are opening these 2 labs. And our experience of East has been very encouraging, and we feel a little more confident now than what we were before.

The next question is from the line of Harith Ahamed from Spark Capital Advisors.

As we've entered the phase of vaccination, do you expect volumes of certain tests like antibody testing or checking antibody titers, these kind of tests gaining prominence in a post-vaccine world? Are you seeing any such trends? Or do you expect any of these tests gaining volumes?

I think antibody testing post vaccination sounds very natural to go up. My view is it will happen in multiple ways. I think, first, it will be in a surveillance format where you may want to check in large scale to prove that, yes, immunity is developing. And that, to my mind, actually would be more driven by certain agencies rather than private players. There could be individual patients like you and me curious to know whether I have built antibodies or not. To that extent, I presume it should go up. It also will go up if you and I want to go for a health checkup. If somebody is saying, okay, antibody tests because the same sample, which is actually going to do your health checkup, and you might as well say, I'll just do this antibody also for me. I think overall antibody testing will go up. Whether it will translate to a big upside on revenue, I'm not so sure because it will just get consumed in overall repertoire of testing is what I feel. The second is antibody testing, maybe Dr. Lal can add to this, I think it's more amenable to point-of-care test as well. A lot of rapid test to come up. It's also much more democratized than, let's say, RT-PCR testing, which is only done by fewer labs, while antibody testing can actually be done with a wider number of labs. So it will be much more spread out. So I think banking on seeing a big upside on antibody may be a little bit misplaced at this stage.

Yes. And if I may add, Dr. Lal here, Harith. Scientifically speaking, what you are saying is make sense. But once the vaccine has been given, well, people will be in a different kind of a mode that they would say that, okay, now we can step out and that déjà vu or that happiness comes, et cetera, et cetera. So my take on this is that though antibody tests are technically feasible, they should be done, but the people may not -- they will say they are okay now. Let's forget about it. Very few people like very highly trained doctors they might say that let's go and find out if this vaccine has been of any effect, et cetera, et cetera. But I think it's going to be a close call thereafter once the vaccine has been given.

I think it's also a bit behavioral if you look at -- you and I have been through vaccinations, but I don't know whether I've ever checked my antibodies after that.

Yes. And on your point that these tests are more democratized at, how is the pricing holding up? Have you seen a pressure on that front because more labs are offering antibody tests? Or are you able to hold on to the pricing?

Actually, my reading is antibody is not a way of life. So it's a sketchy sort of a thing. I think we -- there is no -- nobody is actually giving -- providing any lens from government side to look at what's the pricing on antibody, except maybe say a few states. I think people are -- it's just a market pricing, which is prevailing in antibody testing. It's only RT-PCR where there are notifications coming in.

Okay. And my last question, looking at the RT-PCR volumes for Q3, we've seen a significant jump versus the second quarter. So just trying to understand what drove this increase? Is it a greater -- higher number of cases in our focus markets? Or is it that we got more aggressive or are we focused more on RT-PCR tests? So what exactly drove the sequential increase in RT-PCR volumes?

No, no, no. Actually, it's basically outside-in driven. We have not tried to influence this flow. And if you remember, Delhi saw a surge in the month of October and November, I think that led to this increase. So now it is settled down. So it's just back to -- it's mainly market-driven because there was a surge in Delhi that time.

[Operator Instructions] The next question is a follow-up from the line of Rahul Agarwal from InCred.

Just 1 quick question on this code of social security. So essentially, my understanding is it's applicable starting 1st of April '21. Any rough cut estimates, how does the staff costs actually behave next year? Generally, we have about INR 270 crores of staff cost annually. So will this number will have a major impact there?

You're talking about wage code, wage code, right?

Yes, yes, yes.

Yes. So Rahul, though this rules are there now in place, we are in the process of evaluating what will be the impact. But certainly, there will be impact. And this is not for us, everybody, because there are some dramatic changes in the definition of wages, particularly in terms of gratuity or leave and some PF kind of impact will come, but we are in the process of evaluating this.

But could it be like a major impact, like 10%, 15% incremental to normal increments you give?

Actually, we don't know, honestly speaking, because there is a onetime impact, which will come, and there is also a recurring impact. I don't think we are fully prepared to give you a number. But all we can say that there will be impact, which is not only for us as a company, but for entire system, right?

Yes, yes.

Yes.

[Operator Instructions] Ladies and gentlemen, as there are no further questions, I now hand the conference over to the management for closing comments.

Thank you, everyone, for being with us on this call today. I wish everyone stay safe and healthy. I would now request the moderator to close the call. Thank you very much.

Thank you. Ladies and gentlemen, on behalf of Dr. Lal PathLabs, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.