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

Good day, and welcome to the Dr. Lal PathLabs Q1 FY '22 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 Q1 FY '22 earnings conference call. Today, we are joined by 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, CFO; and Mr. Rajesh 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, Rakesh (sic) [ Nishid ]. Good afternoon, everyone, and welcome to Dr. Lal PathLabs Q1 FY '22 Earnings Conference Call. First quarter of fiscal 2022 was a challenging period due to impact of second wave of COVID-19 pandemic, which was more concerned in this time, with steep rise in case loads in a very short span of time. However, increased pace of India's vaccination drive paired with the entry of top vaccines manufactured by other countries, is helping India making headway against this virus, I should say, by all the countries, including India. The country is seeing strong demand for health care and related services. Diagnostics, as an important cog in the overall health care system, is also seeing this demand, and Dr. Lal PathLabs has been a crucial player to associate this. Our accurate, affordable and accessible diagnostic services along with efficient hub-and-spoke model sets us apart from the competition, and we are emerging as a frontrunner to fulfill the growing diagnostic needs of India. A major part of almost 2/3 of Q1 FY '22 was severely impacted by the second wave of the pandemic, and many states have forced into lockdown to contain the spread of this deadly virus. Having learned very lessons on the first phase, we were better prepared this time on crisis management. Fortunately, we are past that hurdle, but the new challenge is expected to emerge in the form of the third wave. We hope it doesn't come, but we have to be ready for it. That said, Dr. Lal PathLabs will always be there at the forefront to fulfill the demand in the country for quality diagnostics. We continue to maintain our services with high level of efficiency without compromising on quality. We have made several efforts to ensure that neither COVID nor COVID segments get affected and people receive top quality services at affordable prices. The pandemic has been boosting the penetration of organized players in a highly fragmented diagnostic space across the country. We have remained focused on adding more and more quality connection centers and PSCs to enhance the reach of our hub-and-spoke model. We are spreading rapidly across India and are establishing a firm presence in the Western and Southern India, where we lack substantial presence earlier. Aided by the technologies employed, with sharp focus on online channels, we have continued home connection of samples and have been adapting to patients' needs effectively. Offering our support and assistance to both patients as well as our employees remains of paramount importance to us and all necessary measures have been taken to ensure their safety and wellbeing. We are rigorously driving the vaccination for all our employees at company's cost to provide a safe and healthy environment to our patients and customers. Our expertise and dedication and scale has helped us navigate through this crisis and provide best health care services to patients in most difficult times. I would like to extend my gratitude to our entire workforce for their relentless efforts on assisting all our patients. The COVID-19 pandemic is sure to change the health care industry's dynamics in India, and we will play a pivotal goal in this transformation. With that, I would like to hand over the floor to Dr. Om Manchanda to share his thoughts. Thank you, and over to you.

Thank you, Dr. Lal. Good afternoon, and thank you to everyone for joining our call today. I would like to discuss the industry and how we are positioned within that and the way forward for us. Operationally, Q1 FY '22 was a challenging quarter for us. We were indeed difficult times for our employees physically, mentally and emotionally. I would like to take a moment here to sincerely thank them for their efforts. During this period, Dr. Lal PathLabs lean on accumulated learning from the previous quarters to manage operations and customer service. Lab-testing operations and home collection services were made available seamlessly during this quarter. Our revenue figures in this quarter are strictly not comparable to the corresponding quarter of the previous year. The quarterly growth in Q1 FY '22 has a combined favorable impact of lower base and significantly higher contribution from COVID and COVID allied test. These were -- there were wide fluctuations in revenue figures, primarily driven by COVID and COVID allied as demand pattern that varies week to week. We also noticed an unusual spike in a few new tests unlike earlier quarters, and these steps were actually related to COVID index. In order to provide a better understanding of these movements, we have not only provided monthly trends in sales, but also provided a split in terms of 4 groups in earnings presentations. These groups are: #1 non-COVID; group #2 is COVID consisting of RT-PCR and antibody tests; group #3 is Allied 1, which is consisting of IL-6 and D-dimer; and the group 4, which has been added for the first time in this presentation, is COVID Allied 2 that consists of 3 tests, CRT, ferritin and LDH. Fourth group is carved out for the first time since these test experienced unusual spike in quarter 1 FY '22. RT-PCR testing remains the gold standard for testing for COVID-19, and we have been able to keep up with the demand by increasing its availability across the country. As on date, we have 19 labs offering this test. Despite restricted movements, our non-COVID segment has also seen an upside with the trends that were being formed in the second half of the previous fiscal year. On strategic front, we continue to focus on widening our footprint, especially in South and West regions, both through organic and inorganic space. This quarter, we have seen an interesting change in the dynamics of the diagnostic industry in India. We believe this is a very positive development for the sector since our understanding suggests that this could further accelerate penetration of diagnostics, especially by the bar-setter. These developments will not only lead to a faster pace of conversion from -- sorry, these developments will lead to a faster pace of conversion from unorganized business to organized business in our opinion. The patient behavior is also undergoing a rapid change, where the sample collection is shifting from completely offline to online offline model. The franchisee collection centers will play an important role in providing unique and differentiated Lal PathLabs brand experience. DLP has been a company that has relied on both technology as well as physical infrastructure. The tech-enabled processes that are embedded into our operations will continue to support this franchisee network that will form the basis for our growth aspirations going forward. With that, I conclude my opening remarks and would request Bharath to take you through all the operational performance of our company. Over to you, Bharath.

Thank you, Om. Good afternoon, everyone, and thanks for joining us on this call today. I will take you all through the operational highlights of our company. In the first quarter, the country grows a brand of an unprecedented search in COVID cases. And in this context is that one should look at the performance of this quarter. During the quarter, we were able to achieve the highest-ever quarterly revenue of INR 607 crores, serving 7.1 million patients and 36% of the revenue contribution came from COVID portfolio compared to 23% in previous quarter. The overall revenue growth stood at 128%, led by a low base of Q1 last year, and a high core contribution in this quarter. Serving 7.1 million patients were possible due to a growing pan-India network of labs and collection centers, including in Tier 2, 3 and 4 cities. We performed COVID RT-PCR test at 19 labs across the country, and Allied test, more than 50 labs in the country. Last quarter, we performed 11.4 lakh RT-PCR, which is more than double the number we did in Q4 FY '21. Revenue per patient increased from [ 7 16 ] in Q1 last year to [ 8 16 ] in Q1 current year, mainly due to higher contribution from COVID Allied test, along with increase in tests per patient in non-COVID segment as well as some channel mix. Traffic -- a bunch of test offering, Super Specialty portfolio, including the genomics division, continued strong growth momentum. Revenues from DLP generated home collection leads led to a revenue contribution of 13% and almost half of the revenue came from COVID and Allied test. Home connection services for the need of the area and initiatives on digital technologies, partner and people investment programs really came to the fore. We continue our expansion in the South and West market and are pleased to share that we have commenced pilot operations at our Bangalore reference site during the quarter. In addition, we have also commenced operations at 6 satellite labs in Southern region in cities, namely Madurai, Pondicherry, [ Kolbi, Kovalam, Karin-Magar ] and Kakinada. In the Western region, we have started operations at the satellite lab in Borivali and Vashi and the Mumbai Reference lab work is also in progress. On the digital front, we have revamped and relaunched a feature-rich patient app and most initiatives are in the pipeline. I would also like to take a moment and thank the entire DSPS team who are variously delivered human service during these times in spite of personal challenges. With that, I would like to invite Ved to take you all through the financial highlights for the quarter end review. Thank you, and over to you, Ved.

Thank you, Bharath. Good afternoon, everyone, and thanks for being on this call today. Before sharing financial highlights of Q1 FY '22, I would like you to note that Q1 FY '22 is not strictly comparable to Q1 FY '21 due to national-wide lockdown in Q1 last year and significant contribution of COVID and COVID Allied test in this quarter. I'm now sharing some of the important financial highlights. Revenue for Q1 FY '22 is INR 607 crores as compared to INR 266 crores in last year same quarter, a growth of 128%. Before going further, I take a moment to explain the COVID portfolio. Revenue from COVID RT-PCR and antibody tests in Q1 FY '22 is INR 105 crores, which contributes to 17% of total revenue. As mentioned by Dr. Om earlier, we had seen unprecedented demand in some other tests that is CRP, [ Hurricane ] and [ Al DH ], which we have classified as COVID Allied 2, in addition to COVID Allied 1 that is IL-6 and D-dimer earlier. Revenue from COVID Allied 1 is INR 74 crores and COVID Allied 2 is INR 42 crores, a contribution of 19% and 7% of total revenue, respectively. Therefore, total COVID portfolio revenue in this quarter INR 221 crores, which is 36% of total revenue. Revenue realization prediction for Q1 FY '20 is INR 860 as against INR 760 for Q1 FY '21. The higher realization is aided by COVID Allied test, geography mix, channel mix and higher temp per patient for non-COVID business. Normalized EBITDA after eliminating the impact of stock-based compensation and CSR expense in Q1 FY '22 is INR 199 crores as compared to INR 54 crores reported in Q1 FY '21. PBT for Q1 FY '22 is INR 179 crores as against INR 38 crores in Q1 FY '21. PAT for Q1 FY '22 is INR 134 crores as against INR 28 crores in Q1 FY '21. Basic EPS for Q1 FY '22 is INR 15.87 per share versus INR 3.45 in the same quarter last year. Cash and cash equivalents at the end of June 30, 2021, is INR 1,153 crores. We are pleased to share with you the Board of Directors of the company have approved an interim dividend of 60%. That is INR 6 per share of INR 10 each. In spite of COVID wave challenges, we have continuously serviced our patient through improved availability, test menu expansion, automation and digitization of our processes. This enabled us to improve overall efficiency and productivity and provide superior experience to our customers. That brings me to the conclusion of my opening remarks, and I would now request the moderator to open the forum for Q&A. Thank you.

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

Congratulations on great set of numbers. Firstly, is it possible to share the number of patients and number of tests for the non-COVID business? I mean that will be very helpful.

Non-COVID, correct?

Yes, non-COVID.

So however, I will say some numbers, but I'm not qualify with that. We don't have something called non-COVID patient and COVID patient because at times, they all get mixed up after a patient is diagnosed of COVID because a lot of tests are also coming from non-COVID portfolio as well. But having said that, we -- our numbers are for not -- yes. So COVID is about 2.34 million and non-COVID is 5.9 million, adding up to 7.05 million.

Okay. Got it. And secondly, I mean I just wanted to understand, I mean like Q1 FY' 22 for non-COVID business, is this that it was quite normal? Or would there have been some impact because if I look at, let's say 2 years alike in FY '22, which is a normal quarter. So the non-COVID revenue has grown at around 7%, 7.5% in Q1 FY '22. So was there still some impact because of the lockdown in all this happened during Q1 FY '22?

Yes. I think so non-COVID in Q1, my sense is a little subdued because -- especially later half of April and first half of May, certainly, there were a lot of restrictions on movement, et cetera. If you notice the month-wise split that we have given, if you see our earning presentation, so 133, 116 and then 137, right? You see these 3 numbers? Usually, if you -- if I notice earlier trends, when I see last 15, 16 years, May has never been lower than April. First, May actually have 31 days, so you get 1 day extra sale as well. And June actually is 1 of the lowest months amongst all the 3 months. So technically speaking, I think I see a huge sort of a softness in non-COVID number in May. That primarily happened because we were at its peak in terms of COVID at that time. So I would say that overall, on balance, non-COVID business, though it's doing well from our perspective, it could have been higher if it was a normal quarter.

Okay. That's really helpful, sir. And sir, lastly, in your opening remarks, you mentioned that, I mean you see that there could be a possibility of part of an organized market to organized market. I mean does that end that lead to, I mean the higher growth for companies like us? We generally look at 14%, 15% growth on annual basis. I mean can actually go up from these kind of levels for the non-COVID business?

So I think the reason I say none shift will be higher, I think there are actually 4 variables that are operating right now. And let's just wait it out as to how it pans out in the future. One is lot of technology, especially consumer is trying to consume the diagnostics nowadays online. I think some of these smaller players may find really difficult to operate in that format, so they may want to align with us. So that's 1 level of shift which may happen. Second level of shift is, which I foresee, is that with the growing competition, there could be a lot of pressure on manpower as well. If the salaries start going up, it will put further pressure on the profitability of some of these smaller guys. So I find an unorganized player, it's not that they will actually get reduced in terms of numbers. I think the new format of partnership may just emerge between larger players and smaller players is what I see when I make this comment between unorganized to organized.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

I just wanted your perspective first on the 2 major developments that happened or rather development that happened from a many perspective. You need to comment specifically on the -- what's happening there. One is the farming [indiscernible] being was announced, at least the founder stake, then also add high-tech deal getting called off. So just from an M&A perspective, what's happening? Are valuation multiples now sinking in to another level, especially with more diagnostic IPOs as well? So just what your thoughts on the M&A for this space.

So I may not have a specific comment on these deals, but broadly and generally, I can definitely say that when we speak with lot of these unlisted players, they have expectations of listed multiples. When you had time sit down across the table, you find that there is a bit of a valuation expectation mismatch as to what one is expecting and one actually where we feel it should be. So I think broadly speaking, given this volatility in overall trends in sales, and that's why we have tried to be as clear as possible in our earnings presentation so that everyone has an idea how these numbers are panning out on month-on-month basis and also split between COVID and non-COVID. I think this non-COVID and COVID mix-up is actually creating a bit of understanding issue. So I think once this whole thing settles down by really in the next few quarters, we should be back to a normal sort of a function.

I'm just following up on this, right? I'm not only talking from an immediate perspective, but also from the disruption that, say, an aggregators were entering the space to bring in. Do you foresee -- I'm just looking at your realization, [ 8 60 ] versus this one, which even if I do non-COVID realizations, I think we are up, right, Y-o-Y. So just trying to see, could there be heightened pricing competition, aggregators? I know we talked about this in the past from a private perspective, but how are you thinking about how you will be pricing your products going forward?

Perfect. I think that's a good question. So first is, is the industry moving in the direction of digital? I don't know whether to use the word disruption or not, but definitely, it's becoming tech unable, I would say. There's no doubt about that. We have been investing in this area aggressively in the past and our spend further have gone up, and we will continue to invest in this era. So as a team, we are prepared to actually take the whole organization in this direction of being making it technical. And the reason it's becoming technical because the consumer behavior is changing. Where it was completely offline, now it's a combination of both online and offline. I think it's important to note that the customer journey starts online, but it falls on offline because there is a collection part, which you can't substitute with online. And I'll take a little bit of time on explaining this whole home collection as an operational process in the entire value chain. It's not only important from a customer experience perspective, it's also extremely important from a quality perspective. You must have heard from Dr. Lal saying in the past that 70% of heather in diagnostics actually happen in pre-analytical phase. So this phase is so important, and that's actually one of the reasons why normally we don't scale up that far because if you scale too fast, you actually compromise on this step, and that actually can affect the core of this brand, which is related to activity of results. And to my mind, there are 2 pillars on which this business can get differentiated. One is, of course, the formal side of it, which at times most of us tend to feel the digital these consumer apps actually provide a better service. So we are equally prepared, and we have recently launched our app, which is also as good as anybody else can think of, especially from our digital companies. But the most important part of this business is the medical side of it. Because at the end of the day, you must know that value-wise diagnostics is about 3% or 5%, but it -- from a patient perspective, the value is worth 70%. So 70% of the decisions are based on diagnostics. So there won't be any customer who is willing to compromise on the quality. We believe that our brand is actually so strong in terms of medical value compared to anybody else, and I think that will definitely working afterward. So to sum it up, definitely, consumer behavior is moving online and plus offline, and we believe that we are fully fit to take on that. Now coming to these changes, how it will affect the market. I have already said also that I believe this will definitely accelerate the growth because more dollars will be spent on promotions. And as we rightly extent there will be price competition as well, which is perfectly fine because you see the results. As the revenue grows, this business has a huge operating leverage. So we should be able to manage it. We haven't taken price increase for the last almost 5, 6 years, but we've been delivering the results financially as per the expectation. So on balance, I think higher growth should be able to compensate from whatever competition you see on the pricing.

Got it. Last question is on the West and the South strategy. So you're largely going to commercial through the regional adjustments last. Just can you give us some outlook in terms of how you're approaching this market and these are not your stronger home markets, right, so what could be differentiated here? And how could you actually take on some of the income rates?

So South and West, both organic and organic routes will continue. We have the pathline unifier where we acquired labs. And on organic front, we are putting these 2 reference labs. One is already in a pilot stage in Bengaluru, and Mumbai is already work in process. So we will continue to focus on both organic and inorganic.

The next question is from the line of Vishal Biraia from Aviva Insurance.

So how has the cost of collections changed in the last few months?

Cost of?

Collections? From the home collections?

Are you talking-- sorry, are you asking about revenue or?

How has the cost of collections changed in the last few quarters?

On home collection specialty, you are asking?

Yes, sir.

So we don't track -- don't disclose this separately. I mean there is some bit because the cost, 1 is pure collection cost, which is logistics and power costs, but there are other light costs also, which is not specifically contributed or mentioned to the...

I think as Ved rightly said, we normally don't track this way. But since you asked this question, I'm just letting you know. I think you gain somewhere, you lose somewhere. I think where you lose this productivity of phlebotomist because if it's a walk-in, the same phlebotomist can collect 20, 30, 40 samples, but through home collection, it comes out about 8 to 10 per day, so that's where you lose. But where you gain is that you don't have real estate cost, you don't have other maintenance cost. So I think net-net, my sense is it will be even season actually. I don't think there will be 3 other costs.

The next question is from the line of Pooja Bhatia from Morgan Stanley.

Just wanted to get your perspective on the cash deployment strategy since we now have a sizable chunk of INR 1,000 crores. Any exciting inorganic opportunities your way?

So our strategy for cash utilization will continue to be what we have mentioned in the past, which is 3-pronged. We will continue to pay dividends, which we have been doing. We will also continue to invest behind technology, and technology would go both in the areas of medical because we buy a lot of high-end instruments, and we are investing behind Ivy and also new infrastructure that we normally put about INR 15 crores to INR 20 every year. And third is, of course, we will continue to look at inorganic opportunity. So that's our stated strategy on exploring the ops.

What is the kind of investment that we've already done in the tech initiatives that the company has taken?

So Bharath, do you want to take this question?

Sure. Thank you. On the tech side, there are 2, 3 sites, we look at tech. One is, like Om mentioned, on the consumer side. And second is on the whole area of medical side. On the consumer side, we just talked about getting the new app in place. There is a lot of other work happening to get a truly digital experience going on because like Om mentioned that there is a physical angle also to the business. So how do you combine the -- how do you get to the new figure experience with some programs we are running to get that shaped up? There is also what's happening on the medical side in exploring collaborations on AIML usage in medical science. So that is the second area that digital technologies can really play a role. And there's also a lot of work which is happening around logistics and so on in terms of how do we get out of optimization, prediction, et cetera, going around. So -- we are actually implanting digital across every single element of our business, be it partner management, be it logistics, be it drive operations or on the consumer side.

Is it possible for you to quantify?

We haven't separately shared this number in the past. So I think directionally, I would want to say that we are significantly upping the investment in this area. We'll probably, going forward, see if it makes sense to separately highlight that.

But capital allocation, Pooja, it's -- every year, we are spending about INR 40 crores, INR 50 crores. It may be a little more going forward, but not substantially.

So I think there are 2 more areas, which in case you want to a little more. I think the -- we have 2 sort of what we call those software links and ERP.

Yes, we have these 2 big software. So they are also up for renewal or whatever new version. So there's another area where investment will go.

The next question is from the line of Nikhil Mathur from AMBIT Capital.

My question is building on the tech side -- the tech investment that you are currently undertaking. If I look at the user experience that Bharath talked about, trying to enhance that an app have been done as well. So can you share some more details what kind of a user experience are you looking forward to that a customer can get from this [indiscernible] service online? Can it be like that you get to move of lobotomy can track a sample, whether not so in the system you get better understanding of what the path is. And also you can put that data on that path so that there is easy recur the data increase and some of the repeat has had to be. So what kind of a user experience are you understanding from the half, if you can share some details on that?

Yes. So I think I'll ask Bharath to talk about this, but I must tell everybody on this call, I know that there are various types of customer base we have. So I think 1 set of customers all of us, including me and all of us on this call. But I was doing some analysis, 60% of our customer base is above the age group of 40, 45 and they come from all kinds of POPs socioeconomic classes. So everybody is not sort of an app literate or [ vital ] literate. So you must keep that in mind that every customer that we serve is not very, very app friendly. So I'll give this to Bharath to talk about what other features we have on our app.

Thank you. So from an app perspective, we offer the facility. So what is the home collection channel, which we have a lot of features built on the app. For example, today, you can book a test completely paid from multiple payment gateways and get confirmed a slot in the kind of -- for the home collection operation. You can also track a phlebotomist who is going to come to you, et cetera. We're also sitting at a real-time control tower in the background, which will enable us to track as what level is reaching and then put a backup plan in case something really isn't working on this count. So there is a lot of initiative which we can do on this count. Couple of more projects which we are doing, which are like I mentioned on the physical side, I may not be in a position to reveal them exactly at this stage because they are competitive by nature. Once we launch them, we'll definitely share the details with you.

And you can also see all your old reports on the app.

Okay. And there's another question. So now if you're seeing that many of the health tech and other specialists on the dialysis side of the broader outpacing market in health care. Do you [indiscernible] this? Perhaps maybe the phlebotomist is kind of limited in the wider country, and that can lead to some sort of fit for the bottom and a system-wide higher employee costs. So any particular risk do you see if many of the existing business players are actually be aggressive in the diagnostics?

Yes, I think it's a good question. I must tell you that it's not that we haven't faced low price competition in the past. We have had players who actually sell these stress at 1/3 the price. So -- and we have also tried on our own also in some markets in pilot, so just because your price is lower doesn't mean customer is going to come to you because there is something more because people are looking for value. So pricing is an important variable, but it is not the only variable that you must keep in mind. Second, what was the second part of your question?

Whether there's limited phlebotomists in the country and if there's a fight for the tool, would that be a [indiscernible]?

That's a great question. And I do believe that competition for quality manpower will go up. not only for phlebotomists, but even for management as well. So I think we are going to see some aggressive sort of people trying to approach employees from other companies. So I think that's an important part of it. Let's see how it pans out, but we are acutely aware about that sort of a disruption.

This fine. So in case you were able to build founders' excise, whatever the company ends up having, would you still need to do an M&A? Is M&A really one of the largest pieces to kind of drive consolidation or growth from a company standpoint over the next 3 to 5 years?

I think so because, as I mentioned earlier, the creating this medical brand is not that simple. That's because you're a tech enabler, you are a digital company doesn't mean that patients will come to you. So there is a power of a brand, which has been for many years in that city. I think M&A will still continue to make sense. But M&A also is good quality sort of a process in governance. And I think more important, the profile of the customer base. The higher B2C component is what is very important, so the short answer is M&A will continue to make sense according to me, especially in those areas where our presence is weaker.

The next question is from the line of Nitin Agarwal from DAM Capital.

On the business in the quarter, the non-COVID business, I mean how close to the normalized business where we are this quarter? Or was it meaningfully impacted by -- rather it is by the COVID this quarter?

I think it was impacted by forward the number that we've shown here is [ 3 80 ], something, [ 3 86 ], right?

[ 3 86].

Yes, as I mentioned earlier, May was quite soft. And I would expect at least some more number there. So if I add normalized on that, I think it's more or less in line with what I would have expected for the quarter. And hopefully, in Q2, it should actually improve as we go up. But to answer your question, we did see a bit of softness on non-COVID this quarter, primarily in the month of May.

June would be refined as sort of a reasonable normal month for the business from a revenue run rate perspective?

No, no, no. Normally actually June is not a very high month. I know for different reasons, some last 2 years, everything has gone upside down. But generally, June is a vacation month, most medical professionals tend to go on leave. And prescriptions come down. I know if you buy exact pharma, probably you will see that as well. So June generally is not a very high month. It's actually -- it starts picking up from July onwards.

Okay. And secondly, on the non-COVID realization, we saw a spike which came through in the initial few quarters. Has it -- the realization on noncorporate business now stabilized or is still at the valuated levels?

There is still a lot of volatility on non-COVID realization, and it's primarily happening because of -- as infection is very high in the system, you tend to see higher number of tests being prescribed because you're visiting doctors frequently and you have a lot of complications, et cetera. So I think we are still not able to see a stable trend. There's a very high volatility on revenue per patient, primarily due to higher tests being ordered per patient. So I think it's not giving us a very clear trend. And this morning, we were doing this exercise is leading from 5% to 10% to 12%, with wide fluctuations that are happening. So I really won't like to comment right now on this because of this factor.

And 1 number you gave in one of the earlier questions was the number of non-COVID patients, you have said was 5.9 million for this quarter.

5.9 million, yes.

Okay. And lastly, on a more broader level, you talked about setting up the reference labs in Bangalore and in Mumbai and starting work around that. In just the last several years, that organized diagnostic companies have been very strong in their own specific regions. And I guess that's the way it has really played out so far. With some of the moves that some of you guys are making in terms of trying to enter into credit where the incumbents are more strong in, how do you -- what's your own sense on how does the incumbent respond to some of -- to these initiatives?

I think if you look at 1 quarter or 1 year, it sounds like that. But if you look at our journey of last 15 years, as we were in 2005, nearly 90% was very unsure. Today, LCR is just about 37%, 38%. So we have actually gone out of the LCR and expanded out to the Rest of India. But the trick here is that you go spread yourself too thin, then that cluster grows that 1 week follow and that's what we do.

The next question is from the line of Saion Mukherjee from Nomura.

Sir, just 1 question on the financials. Now since there's an impact of COVID. So if you look at from a quarter 1 FY '20 perspective, I mean what is your assessment, sir, for the long COVID business? As things normalize, how would be the EBITDA margin looking? Because we we're doing margin, let's say, around -- lower than the current levels. So let's say, 27%, 28%. Now we are at 30% plus, 31%. So how should we think about margin as profit volumes subside in the subsequent quarters?

I think it's an excellent question. And all the time, we just keep looking at answers for this question in our data. And we keep separating the effect of COVID out of it because we believe that it's an event which is coming, and it's also the baseline and there are spikes in this. But the thing is that because of COVID restrictions, movements, et cetera, non-COVID is also a little soft. My gut says that we should come back to a trajectory which used to be in COVID times on the revenue side. On the margin side, maybe Ved can comment on that. What do you think?

I mean we are getting operating leverage because whatever coming additional, so very high operating leverage, which we are getting because of nature of our fixed overheads. And as we are now focusing Rest of India, which is growing faster. So we also -- looking non-COVID or pre-COVID level, which was ended at 25%, 26% normalized EBITDA margin. So I think we are able to maintain that going forward also. But this is something unusual, it is not something these kind of high margins is...

I think the point he's making that there's still some leverage in this business because as the business is shifting through franchisee collection centers, I think our real estate costs are going to come down. Scale is going to give us a little more benefit on cost per test. So I think we should be able to manage the margins going forward as well.

Okay, sir. Just on a business perspective, I mean just to understand the mix. So let's say, quarterly, you're doing INR 400 crores of revenues. I mean how much -- 1 segmentation, I was looking at how much you're generating online through your platform or maybe to your other platforms, online platforms? And second, like is there any like the top 10 tests are is proportionately a high proportion of your revenues. If you can give some color on the test concentration and online/offline mix of the non-COVID portfolio.

Yes. So earlier, we used to track business in 3 distinct segments. One was walk-in. Second was through our franchisee. And third used to be our pickup points, which are direct pickup points where we go and pick up the samples. For last sort of couple of years, we have now started tracking home collection separately. Since you are asking about online sales, this online actually has different components because one could be that somebody who has booked online, who has paid online or asked for a home collection and the report is also delivered online. So that's facing the ultimate online experience. But we also believe that there is a segment that somebody can book the test online but may not pay. But the patient may prefer to come to our lab, give the sample and pay there. So that is also another online component. Third, online could be that somebody just called up on phone because, as I mentioned to you, everybody is not comfortable with the app, but they just call up and book it there and ask for a home collection. That could also be considered as online. So I think all -- there are various types of groups here, but we are all putting it in 1 group called home collection. So that is what we've now started tracking. From now onwards, we will have 4 groups: home collection, walk-ins, franchisee and pick up points. And let me also tell you that franchise we also do their own collections, right? So at times, it's difficult to know what their number is, but there is a LPL-led leads, LPL-generated leads are also forwarded to our franchise, so that we put in home collections also.

And sir, the breakup, if you can give, do you have numbers like a breakup across these 4 segments?

Broadly, I think we have already indicated that close to 13% of our business is coming from home collection. Further split, I think at this stage, we are not in a position to provide. But as we refine these numbers, we'll share with you going forward.

Okay. Sir, just 1 last question. I think this was asked earlier about competition and the transactions that we have seen for farming out Thyrocare, for instance. Now we had seen competition before, now the issue is the players were coming in, and there are other online players, as you know, who are also getting aggressive. So there, first, they have deep pockets with a lot of funding. And they are really trying to acquire customers and trying to give a very holistic outpatient experience, which includes consulting, diagnostics and pharmacy. So that's the value proposition with a lot of funding and a decent brand as well. So don't you think this environment is very different from the kind of competition that we have played, we have seen in the past? And to that extent, it's a new challenge we are facing at this point.

I think so. I tend to agree we can't write it off. It's a new challenge. It's a challenge as you rightly said. Horizontally, we are actually full stack in terms of medicine, in terms of consulting, in terms of diagnostics. Then there is also a -- within diagnostics, I think there are 2 very important. It's offline and online. So that also is there. So what we are respond right now is that we actually increase our online capability so that this stack is taken care of, which is vertical stack in terms of off-line capability we already have. Online, we believe, we have made significant progress, and we'll continue to move with times. So in terms of horizontal part, which is medicine, et cetera, right now, that is not on the card. But as you rightly said, it's a new landscape. We have to be aware about it. We'll keep watching the whole thing as it goes.

So is it also possible that, let's say, any of the other online players just like Thyrocare was brought out or partnered with -- is it possible for Dr. Lal, given the ground presence and infrastructure that Dr. Lal already has, is that something which you think is a decent possibility?

We have franchisees. So we have close to about 3,600. We have 3,000-plus franchisees. We have close to nearly 10,000 pickup points. I don't know exact number. So we work with partners, so we believe that partners really add a lot of value. And I think that's how this whole fragmented market, 1 can scale up and that has been the formula. But I think what we have also ensured that we track end-to-end customer experience, as Bharath mentioned, that we are developing an oversight where the customer experience is fully tracked to our control towers. So we also work with partners as anybody else.

The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

Yes. Thanks for all the support given these testing times, and breakup of revenues has helped in getting a better picture of understanding what is happening. So that is helpful. If I look at the COVID revenues, we have seen a 3.5% increase almost sequential as well as on a year-on-year basis. What we understand is second wave was far more urban-centric rather than rural. So have these revenues come from major of the metro city, is that correct understanding?

First of all, thank you, Prakash. We try to do the best we got in these times. Number 2 is that, like we mentioned in the opening comment, Delhi LCI did really well for us this quarter because of concentrated geography. But we also got a lot of samples from interiors of India across, let's say, UP, Punjab, et cetera. So it was fairly wide and we also started to do testing in 19 lakhs or RT-PCR about 15 lakhs or a light tens. So it was a broad-based kind of numbers which came through on the COVID as well as on the non-COVID side. Just not the simple urban or rural India, but a very broad-based source of revenue for us.

And maybe because you're saying North did well, so not contribution would have increased as compared to what it was to [indiscernible]

Marginally, because the Rest of India business has become really resilient now. They have their own labs, infrastructure, et cetera. So they also did really well this time.

And if I look at the presentation this time around D-dimer, IL-6 were much higher. So is that because of the severity of the cohort which we saw in the second wave as compared to first year? Is that right understanding?

Prakash, it's a good question. It is now fairly well accepted that the second wave was much more severe than the first wave because it was -- the Delta virus was at play. And many reports, you would have also read that the infectivity cycle or the rate severity was almost 50% more than the first wave. So when you suffer more or the patient suffer more, so the body also inside is showing different changes. And if you know one, obviously, you've heard this term known as cytokine storm, et cetera, so more and more, the body reacts to do intimately changes, and those states are the ones which went up. Which is first phase by the nature of the first phase, which was basically the Wuhan virus, the original virus. Second phase was the British virus. And the third phase is this Indian virus, the Delta, which is a serious default. So we don't know. The only thing that I can say for the future is that because the vaccination now is picking up, it is quite possible that the severity of infection will become less, so we keep our fingers crossed.

Okay. Okay. And assuming possible that kind of a scenario, obviously, some of these tests will subside in terms of what kind of trajectory we had seen because of the content, the higher variant of the virus.

Yes, of course. In fact, that -- keeping that in mind, we gave a month's play. So it gives you an idea how these work.

That really helps use that obviously. Sequentially, if I look at the margin trajectory, there has been a 280 bps kind of improvement in the EBITDA margin. So is it fair to say COVID and non-COVID business both have seen a margin improvement due to the operating scale, which we've seen? Because earlier the COVID kind of business was much lower in terms of margin. So is that also tried to think [indiscernible].

Actually COVID tests are much more centralized in nature. So relative overheads are less. So as the revenue grows, we certainly see a huge operating leverage giving us a benefit. I think that is what has happened in this because before steady, our overhead has not grown the way revenue grew in these 2 months. And we were all overstressed, right? Every 1 of us was working 24/7, which is on a longer-term basis, not sustainable, right? Just that huge stress available.

Right. Right. And lastly, for your increased patient volume, and I'm guessing, because large part of the quarter was pretty severe. So home collections would have been pretty buoyant. So have we scaled up the team or the work which we were doing on the franchisee labor integration and training, did that help scale us volumes? Did we outsource some of these collections? How did we manage? Because if you think of it, there has been quite a rapid scale in terms of the patients and the number of tests.

I think, Bharath, [indiscernible] you speak on that.

Yes, Prakash, you're right. 2 to 3 things happen. One is that given the intensity of the way which starts the productivity per se also increase. So there is 1 factor of the number of collections, the day stretch for a longer period of time, like Dr. Om mentioned that people are really literally working 24 hours. So the collections went late in the evening, et cetera. #2 is that we had opened up COVID-dedicated centers.

And by the way, this COVID testing is non-fasting. So there's no time pressure, right?

Yes. So that is really what drives the productivity because you can keep taking samples till late in the evening in the night also doesn't really matter. #2 is that we have opened a lot of COVID-dedicated centers, wherein we are able to take a lot of patients going through not necessarily to home collection from an overall volume perspective. And we have opened the sale centers all across the country so that we are able to get a lot of samples, get the efficiency of operations going on. And serve as many people as possible. The third part is that our franchisee partners really stood up along with us in serving the nation at this point of time. A lot of tech enablement was done for them to kind of get the leads from us and go to the patient's house and collect samples or even manage their day-to-day business via the integrated portals we have now in place. Yes.

So some of the base work also was a critical factor in terms of the integration and managing the scale?

Yes, yes. This was not a single day affair. This was pointed downwards.

Yes. April, May throughput was so high.

The next question is from the line of Shaleen Kumar from UBS.

Sir, just a bunch of question, like if I look at the ICMI data, my COVID test is not coming out. They are hovering around same level of 1.8 million, 2 million per day. So is it like, are they more in a tier to tier 3 city where we have a limited presence or we probably like started to retain our number? And second, just want to understand from you on the psyche of the patient as well as doctors, given behind the flu season, right? So how the psyche is working now, like are doctors able to identify that this is a normal flu and not a COVID? Or is it like because of what we have gone through, such a brutal second wave, nobody wants to take a chance? And then it means that COVID is there with us or at least in our memory is going to stay with us for some time.

So I really on the first question, I believe we won't have too much of color on ICMI on data, but clearly, we are seeing a declining trend. And there are 2, 3 reasons where the tests are coming. One is the travel-related testing is to be -- it is still happening. The other illness-related testing, that actually has sharply come down. Third is geographically, where are your presence is stronger in the incidence is lower, then the tests is down. And I think right now, if I recollect maybe some states and South Kerala is higher.

[indiscernible]

Maybe those states will have a little bit of higher testing. So in general, we have seen it's completely related to incidents of cohort. Now your second question on the flu where the doctors are able to differentiate. I don't think flu season has yet started to that extent, which normally happens maybe [indiscernible]. Yes. See, right now, any fever, which is even flu, but the doctor would first say that let me first rule out COVID. Because what is obvious in front of you what people now you -- remember when we said that it has not gone -- I mean the third stages tab, et cetera. Now the third wave that now you can't differentiate from where you got it. So at that point of time, the first thing which has to be rolled out is a COVID infection. So irrespective of the fact whether you are having flu after all, COVID virus is also -- it's a virus. So the doctors are very, very sharp on this, and especially when there is steady consultation, the doctor will definitely say to still get your COVID test done. And for the patient is very good because he just picks up the phone or whatever, computer. And he calls the person's home. COVID testing, by and large, more than 90% has been done in home collection. So this is the first thing, and people have been pleasantly or unpleasantly surprised, I should say, that they never thought it would be COVID, but it does be COVID. So that's the way the disease is.

All right. So Dr. Om, do you think at least for some time, this trend is likely to sustain like people just want to rule out COVID? It becomes a part of the normal diagnostics?

It's data. It will become like an endemic. It's gone from a pandemic to an endemic. In Singapore has already announced this that they no longer think it's worldwide and pandemic group that's kind of a big thing. But it will become like the other viruses, which you yourself have mentioned like influenza virus, like the HIV, the HCV, HBV, that they'll keep on simmering in the background. And whenever the patient has to be -- I mean for a few years, this will definitely happen. The first test which will be asked for would be a RT-PCR. And I must also inform at the same time that there are expert groups all over the world, the X-Chan, public at school and Howard. So they -- they've gone -- even they are predicting that now, the testing will move to the home. It will be safe testing on a rapid antigen test, which has now become very common. And moreover, it will also happen every week. Imagine that the virus is going to stay with you, so people are also getting used to it. So every week, they are saying, you should get -- or you yourself should do the test. So we don't know where it is going to end. In my opinion, it's very much like the S curve or like the assigned curve in technology. It goes up and goes down. The moment it goes down, people relax, the unlocking happens and it comes back again. So it is a seesaw kind of a virus.

So I think, Shaleen, the way you look at it is that there will certainly be a baseline certainly will keep happening over every month. And then there will be spikes. So this is what we have seen in this. So I think that's the way we look at it. And it sinks like a ship. So sometime RT-PCR antigen and your home diagnostics, new technology will keep coming. I think one will have to keep an eye on this as to how it's moving. But in terms of testing, there will be some baseline testing, which will happen on a monthly basis, both driven by IDSA and also maybe a travel-related. That's the way I would look at it.

The next question is from the line of Kunal Randeria from Edelweiss.

My first question is on prospect. Sir, do we expect as the world normalizes, India normalizes to grow faster than what it used to so? And if you can give us some sense on how much the realization would be higher on prospect versus the rest of everything?

Prospect will be about, let's say, 20-odd percent higher than the rest of the business. That is a normal trend we have seen in the past.

Right. And growth expectation, do you expect it to grow much faster than what you're currently doing it?

So it hopefully has been actually been growing faster in the portfolio or overall numbers since the time we launched it. And we continue to expect that to continue to go at a very healthy pace even in the times to come for 2, 3 reasons: one is that there's a growing awareness of health and preventive testing is -- will pick up; #2 is that it offers a very good value for people who do routine testing for either a specific condition or what is the prescription sales for. And it's just a combination of tests which we can use for better information. So yes, we will see -- we'll continue to see a good trajectory in source print.

Sure, sure. Sir, just 1 more question on the recovery of your business. So is it fair to understand it's broad-based? I mean are you growing from the recurring part and elation areas like not brand is especially strong? Is the growth faster over there? Or is it on account of the country are probably growing at the same rate?

I think it's going faster in Rest of India as well. So not only just in lark alone. So I think the first response will be broad-based. Given the base is slightly lower in the other parts of the country, I think you're seeing higher growth rates in Rest of India.

Right, right. And sir, just trying to get your opinion on 1 more thing. So after this farm, maybe kind of acquisition of [indiscernible], do you think going forward, there could be another business model where, let's say, an e-pharmacy side exclusively with a diagnostic company? Is that something which you believe when acquiring it outright?

Yes, of course. I think that's the way I look at it. And all the e-commerce players, they generate leads, right? They're aggregators. To my mind, they have to partner with people like us, that all needs to be done. So if they are into -- they are aggregating formats, the manufacturers of pharmaceutical company at the back end, I think the same way they should aggregate diagnostic companies also. Because in the front end, they own the customer, I think it will definitely be a great help to us in those markets where our physical infrastructure is less. So to my mind, it's a combination of both offline and online has to go together. It's a partnership model to my mind that works best for everyone.

Sure, sir. And then am I to understand that you will be open to a partnership where you are sort of the exclusive partner. I mean if I go to an aggregator, I probably only find Dr. Lal over the next weeks?

We are -- we don't say no to that. We work with them, with many of them today also. They work with us today because on their side, they go and ask sort of a lag because if they don't have a plan, they don't make customers, so they also want the traffic. So I think it's -- we have to coexist.

Sure. How much of the business would be coming from them currently?

It's not that significant right now, and we probably are not in a position to share as well. But to my mind, we are very clear that going forward, we will partner with them. Basically, it should commercially subset our agreement. I think anything else would look.

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

Yes. Congratulations in a great set of numbers. My question was could you just give us a realization on both the non-COVID and COVID side of things? And is there continued pricing pressure on the forward set still? Or is that now stable?

So on this COVID, we have given the realization. So it was -- if you remember, it was started from 3,500 or so. Nowadays, it's hovering around 750 or so. So continuously, I mean this is the average of COVID RT-PCR antibody. But if you see, going forward, there are states -- some states even have lower price, which is as low as 40p or 500. So on a stand-alone basis, I don't think realization of this RT-PCR is going to stay here. But along with RT-PCR, what we have seen and what we are doing is netting all other tests also. And that is where the leverage is coming. Along with this COVID testing, there are few other tests which are coming, and that's where might be this realization on an overall basis is where we have hovering around 7 or 7 50.

So I think a broad question, which is there in everybody's mind, that COVID pricing trend actually has seen a sharp downward turn, right? But I also must say that the costs also correspondingly actually has seen a downward curve as well. So it's not that prices have come down and then you've lost out on profitability. Prices are also coming down, so are costs. Now has it stabilized? I think we are nearing that zone. It's a little bit on a decline side. But last couple of months, we have seen a stable trend in terms of realization on COVID side. The point which Ved is trying to make is that when we get a request for a cohort or COVID-related test, along with that, there are a few more tests which are ordered. That's how a leverage section, and we are able to steer it through.

No, that is super helpful. And just 1 last question from my side. Is there any guidance on the COVID-related going forward? Like how is July trending? Is it more in line with June? Or has it declined further from June levels, if you could give any guidance for the next quarter in terms of COVID-related tests.

So I don't think we would want to give any guidance on the COVID test because it's highly unpredictable. I don't know really what happens. But precisely keeping that in mind, we gave you a split between April, May, June, so you can clearly make out so how the trend would be.

The next question is from the line of Rahul Jeewani from Ingrid Capital.

I missed most of the call, but -- so sorry if I'm repeated -- repeating any question, but I just had 1 question, patron. So essentially, given the way this COVID is moving, obviously, the earlier thought was that it might taper off earlier, but it's not happening. And obviously, that's been -- that's bringing a lot of cash flow and a lot of high volumes and good numbers for across all diagnostic chains. Just wanted to pick your brain as we enter into next 12 months and fiscal '23, '24. Obviously, the base is getting heavy, right, because of COVID. Would you agree that non-COVID volumes as the feeling is that the health care spend and overall awareness is going to be much higher because of this COVID pandemic in India and globally. Will non-COVID be able to offset the higher base and still grow on those numbers into '22, '23, '24 going ahead? That's the only question I had.

Well, we will have to -- so it's a great question. So that will have to probably work and see how it goes. But our efforts are continuing in terms of widening our footprint. So we are not letting that effort go down. For South and West is a big gap area. And I'm actually -- I was doing some analysis and first time I see the West has contributed in double digits for us this quarter. So we will continue to widen our footprint, and we believe that will definitely help us build non-COVID base. And COVID actually has been helpful as well in -- for us entering into new markets. So we will continue to expand our footprint because market is fairly large.

Got it. Got it. And 1 booking question I had, so the new reasonable vessels last split come in Bombay, is it already done? Is it open?

No, we have started our Bangalore operations. Mumbai work is in process because I think there are certain licensing requirement on that is best in place and we will start our work.

May I have the location, please?

That's what I'm saying. Right now, since I have those licenses in place because I think of this what you call commercial change of --?

Change of use.

Change of use license unless that is in our hand, we can't say tell you the location.

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

Thank you, everyone, for being on this call today. And I wish all the best, and you and your families be safe and have. Thank you.

Thank you. Goodbye.

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