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

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

Thank you. Good afternoon, everyone, and welcome to Dr. Lal PathLabs Q3 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 Goel, Group CFO; along with Mr. Rajat Kalra, Company Secretary and Head of Investor Relations. I would leave you with a standard 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 also available on stock exchange website. I would now like to invite Dr. Lal to share his perspectives. Thank you. And over to you, sir.

Thank you very much. Good evening, everyone, and welcome to Dr. Lal PathLabs Q3 and 9M FY '22 Earnings Conference Call. I will walk you through the key initiatives and share an update on the industry landscape. I'm glad to share that we have completed the acquisition of Suburban Diagnostics. With this, we have become one of the leading players in the fast-growing western region and endeavor to take our share even further. The objective is to leverage the expertise and capabilities of both the companies to deliver accurate diagnostics with better patient experience. Given the onset of COVID over the past 2 years, there is a marked change that we have seen in people's behavior with respect to health awareness and hygiene. People are taking more precautions, being vigilant and adopting healthier lifestyles. Diagnostics has played an important role in helping people keep a track of their health, while we have been actively engaged in providing our patients with high-quality diagnostic services, which has become synonymous with our brand name. As I've mentioned in my previous calls, the pandemic has helped bring about a significant change in the diagnostic space, testing the pedigree of the unorganized players. This has helped accelerate the shift to organized and national diagnostic chains, which follow stringent safety protocols and have foolproof processes in place. The need for accurate diagnostics paired with permission for COVID testing being granted only to select players will now -- will most certainly continue to act as a catalyst for this shift. Dr. Lal PathLabs' reputation and pan-India presence puts it in the right position to expand further. Our hub-and-spoke model are a combination of our laboratories, collection centers and PSCs enables us to maximize our potential for expansion without compromising on patient satisfaction. As a process, our team tracks latest technological innovations. And we deploy them on a timely basis to stay ahead of the curve when it comes to digitization. Through this, we aim to ensure a seamless and convenient experience for our patients, allowing them to book tests and receive the reports at a touch of their fingers on their smartphones or iPads or laptops, et cetera. The last 2 years have been a roller coaster ride for us as well as for the industry of the fact of the 2 or 3 waves of COVID, I should say. I am glad we swiftly navigated through these challenges and offered our patients and employees all possible help and support to combat this contagious virus. We must take all precautions learn from the past and make sure we remain conscious of our health. With that, I would like to hand over the floor to Om. Thank you very much.

Thank you, Dr. Lal. As always, thank you, everyone, for taking the time out for this call. I hope all of you are keeping safe and well. In my comments, I shall talk about strategic focus areas. However, before that, I want to reflect briefly on the last 2 years of progress. As you all know that we started Q1 of FY '21 with a lockdown that adversely impacted non-COVID business in that quarter. In the same quarter, we had introduction of a new test in the portfolio, that is RT-PCR. The revenue from this test partly offset the decline that we had due to non-COVID business. That was caused due to various disruptions. Next, then we experienced gradual recovery of non-COVID business throughout the fiscal year '21. At the same time, one also saw the rising trend of RT-PCR volume and decline in price per test as notified by state government's time to time. Then came in a huge spike in quarter 1 of FY '22 due to severe COVID wave, though resulting in the highest ever revenue contributed by RT-PCR and also by a new group of COVID alike test like IL-6 and D-dimer. COVID Allied tests primarily went up due to significantly higher doctor consultations and hospitalizations. Then in subsequent quarters, one has seen tapering off of COVID revenue, both for RT-PCR as well as COVID Allied test, this trend got further accentuated due to gradual decline in realization per test as well. In summary, I would say that given very high degree of volatility, both on a monthly and quarterly basis, we should analyze our financials on a full year basis, not on a quarterly basis. On our part, we have made -- we have tried to make the information as visible as possible by giving monthly and quarterly split between non-COVID RT-PCR and COVID Allied tests. Directionally, my sense is that we shall continue to experience month-on-month unevenness in sales pattern for a few more quarters, both in absolute figures as well as growth rates given the varying base of last year. Therefore, it will be important to do any analysis on an annualized basis. Now let me come to strategic areas that we are focusing. Structurally, our business is now taking a shape of 2 verticals. Vertical 1 is LTL organic and vertical 2 is LPL inorganic, which is newly acquired assets like Suburban or smaller companies under PathLabs Unifiers, which is our fully owned subsidiary. We shall continue to drive both these pillars of growth in times to come. Second is, right from the beginning, our efforts have been to continue to build non-COVID business, which we believe is a more sustainable business, while at the same time, meeting the sudden demand surges of COVID happening quarter-on-quarter basis. Number 3, we are enhancing access of our services by strengthening omnichannel approach in cities and pursuing HUB lab infrastructure in Tier 2 and Tier 3 towns, whereas during pandemic, offering home collection is the right approach, and we are putting in place a process to meaningfully address this requirement from a section of patients while ensuring quality of service and care. At heart, we remain a very well networked chain of labs interlinked by technology ]. We have demonstrated the ability to -- ability of this approach to grow volumes and have been doing this while maintaining pricing for the past 3 to 4 years now. We will be spending our energies on augmenting our brand infrastructure. That's the lifeblood of our model. The consumer connect in diagnostic services is paramount. It will be the prime objective to work with our franchise partners to bring the DLPL and Suburban Diagnostic brands closer to the patients. The pandemic has inculcated awareness about evidence-based testing in the population. The natural flow of samples towards wellness and preventive categories is also building up. We continue to support the trends to our response based on scale of network and integration with technology. With that, now I would like to invite our CEO, Bharath, to continue this conversation. Thank you.

Thank you, Om. Welcome to our call today. I honestly hope all of you and your dear ones are keeping healthy. I will take you through the business highlights, including Suburban Diagnostics, which became part of our organization with effect 12 November 2021. In Q3, we served 6.6 million patients, leading to a revenue of INR 497 crores, representing a growth of 9.8%. COVID and Allied tests contributed to INR 59 crores, that is 12% of the overall revenue. The contribution of home collection to total sales in the quarter is at 10%, with significant contribution from our franchisee partners. Our non-COVID revenue of INR 438 crores registered a growth of 28% over quarter 3 FY '21. The strong growth in revenue is led by patient volumes, which registered a growth of 25%. The higher growth is also favorably impacted by lower base in last year due to COVID-19 pandemic. I'm glad to share with you that our non-COVID business sees further acceleration in growth momentum as compared to Q2 FY '22. This is in line with our stated direction to bring back our growth rate to pre-COVID levels. Our service enhancement and market activation programs, including new lab and collection center opening, along with strong patient and channel partner marketing programs, continue to make very good progress. We recently opened labs in Bhagalpur in Bihar and a very difficult terrain of late. During the quarter, we have successfully integrated artificial intelligence and prostate cancer reporting, leveraging FDA approved technology. This combines the strength of humans and machines to bring unparalleled patient care. Our Swasthfit bundle program continues to do well. And we are also making good progress in our high-end testing programs, notably oncopathology, led by a combination of interventions across multiple departments and technologies, including the use of AI technologies. We remain committed to realizing the potential of health care through timely, accurate and quality solutions to patient needs. With that, I would like to invite Ved to take you all through the financial performance. Over to you, Ved.

Thank you, Bharath. Good evening, everyone, and thanks for being on this call today. Firstly, I'd like to mention that we have completed the acquisition of Suburban. Accordingly, results for Q3 and YTD includes Suburban with effect from 12th November 2021 and are not strictly comparable with previous years. I'm now sharing some of the financial highlights for the quarter. Revenue for Q3 FY '22 is INR 497 crores as compared to INR 452 crores in last year same quarter, a growth of 9.8%. However, non-COVID revenue increased by 28% in Q3 FY '22. Revenue from COVID and Allied tests in Q3 FY '22 is INR 59 crores, which contributes to 12% of total revenue against 24% in Q3 FY '21, a decline of 47%. Realization per patient for Q3 FY '22 is INR 747 as against INR 824 for Q3 FY '21. The lower realization is due to the reduction in COVID RT-PCR realization. Normalized EBITDA after eliminating the impact of RSU, CSR and onetime acquisition expenses in Q3 FY '22 is INR 142 crores as compared to INR 145 crores reported in Q3 FY '21. Normalized EBITDA margin for Q3 FY '22 is at 28.5%. Reported PBT for Q3 FY '22 is INR 82 crore. Normalized PBT after eliminating the impact of onetime acquisition expenses and notional depreciation as per Ind AS 103 on consolidation of Suburban for Q3 FY '22 is INR 113 crore as against INR 129 crore in Q3 FY '21. Normalized PBT margin for Q3 FY '22 is at 22.7%. Reported PAT for Q3 FY '22 is INR 58 crore. However, normalized PAT after eliminating the impact of onetime expenses on account of acquisition of Suburban and notional depreciation is INR 84 crore as against INR 96 crore in Q3 FY '21. Normalized PAT margin for Q3 FY '22 is at 16.8%. Net cash and cash equivalents after adjustment of OD against FD at the end of December 31, 2021, is INR 331 crore. 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 Shaleen Kumar from UBS.

So sir, and bunch of questions. When I was looking at your P&L, the margin compression is largely on account of employee cost, and interestingly, not on account of gross margin. So how should we read this? Is it because of Suburban that is -- or is there a change in strategy here?

Yes, Shaleen, this is Ved here. You are right. This account -- largely on account of Suburban. So that was not in the base. This year, the Suburban personnel cost is also added in this.

So sir, so going forward, how should we assume this cost like? There is a -- there will be operating leverage here? There's opportunity for you to rationalize it? How should we see this? Or is this just for the modeling purpose? Or is there a chance for -- you can decrease it, or how should we see it?

Yes. So definitely, there is -- because of this COVID, there are certain areas where we have infused certain manpower. As this COVID is subsiding is -- and there is opportunity where we have to look, which are the costs, which are the areas where we can optimize this cost.

So Shaleen, this is Om here. So I think, particularly to Suburban, we clearly look at this as not a cost reduction exercise, but we look at driving top line growth. So we will try and improve the productivity of the entire asset by driving growth. However, in the short term, there will always be a challenge of recalibrating our manpower costs because some of these costs also got added because of COVID in the last 6 to 7 quarters. And Suburban COVID contribution is very high compared to what we have in LPL. So we'll have to really see how it pans out, But I would actually say that we will look at revenue growth as a way to really reduce this percentage cost.

Yes, the operating leverage.

Operating leverage, yes.

And Ved sir, this depreciation, again, since you -- so is there any onetime in depreciation over here? Or again, this will be the base going forward?

So this will come because this is intangibles and goodwill, which we have acquired in this acquisition, largely for the Suburban. And this will be over a period of, let's suppose, next 5 to 7 years to be write off as per Ind AS-103.

Right. So no one-off there. Okay. Okay. No, I understand there'll be a portion of amortization here.

Yes.

Yes. And so because we see that there is a reasonable amount of non-COVID revenue, even in the, whatever, 48 months of Suburban, part of it because of Omicron hitting Mumbai early? Is that the right way to think?

Significant amount of COVID revenue, you mean ?

Yes, sorry. COVID revenue, yes. Like a higher amount of COVID revenue than your -- than on a standalone level.

I think there are 2 factors. One is Omicron may be there, but it's not that to a large extent. But it is primarily due to international arrivals in Bombay. Suburban has a contract to service passengers at the airport, Bombay Airport -- at Mumbai Airport. Then there are 2 kinds of tests they do. One is RT-PCR and there is Rapid PCR. So they have a contract to do Rapid PCR, which now, of course, the pricing has come down very sharply to, I think, 1975 or so. In earlier days, during -- just before the transition, this pricing used to be 4,500. Now there is a very large component of that also has come into this. So as I mentioned in my comments that the whole thing is so uneven on a monthly and weekly basis. We have to really see a much longer time horizon to understand these figures. But overall, [ Suburban is .

By that saying, to at least in near term, COVID contribution will remain higher in Suburban, right? Even -- and as more and more international travel starts, so -- while the pricing may come down, but some element will still be there.

See, the way to look at COVID according to me is the following. I may be wrong as well, is that there is something called baseline revenue that will remain in all the companies. Now where does it settle down as a baseline, one has to see. And there are 2 components to this baseline revenue. One is the travel-related testing and other is medical-related testing. And in medical, also, there are 2 further components, whether it is diagnostics driven or whether it is hospitalization-driven. In wave 2, we saw a lot of testing driven through hospitalization as well, which actually was very unique to that wave. It has not happened in Omicron at all, which was all the IL-6, D-Dimers things like that. This time, we haven't seen those tests at all. Now then we are left with only diagnostic-driven testing. But even that, contour is also changing because lot of rapid antigen test is coming which is home diagnostics. We have seen in Omicron a lot of that testing happening. I don't have a data point to support that, but that's what one has heard about. So I think there are a lot of moving parts to these COVID numbers. On the travel side, my sense further is vaccination-driven kind of arrangement happens between the various countries, then you may not have RT-PCR test requirement also, the way it has happened in domestic travel, because from one state to another state, you don't need RT-PCR test because you just need to show a vaccination certificate. It's quite possible that countries may have an arrangement that as long as you are vaccinated, you don't need RT-PCR report. Do you understand what I mean? There are a lot of these moving parts which are there. Even for us, it's becoming very difficult to predict the demand for this COVID going forward. I think the sense that I have is, as a management team, we'll have to assume certain baseline revenue. To me, that baseline revenue is definitely not what the current trends are. It's going to be lower than that. And then we have to budget for these spikes. Nobody is wishing for those spikes at all. But if at all that happens, we'll have to prepare our systems to meet that demand.

Understood. Just last question from my side, and then I'll join back the queue, sir. So because of Omicron, it is more related to the current quarter, was there a lot of disruption in our non-COVID segment? And also in a B2B segment where because of elective surgery, pushed out. So should we expect that in the fourth quarter?

So yes, see January actually -- January is the lowest month out of all the 12 months. Though normally, we say that Q3 is the lowest quarter, but actually, Jan as a month is the lowest. Now it is a little bit impacted by -- I found at that this time, it was a bit of a self-imposed lockdown because everyone was anxious and they want to move out. And Northern region has seen a little bit of severe winter as well. So I think it's too early for us to comment on non-COVID trend because -- as we just come out of this winter, we come out of the Omicron wave, we have yet to see that in the next 2 months, what really happens. My experience suggests that whatever demand that never got service will always now come back in the later part of this quarter. So I think it's a bit early. But having said that, yes, non-COVID definitely got impacted because of self-imposed restrictions on movement.

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

On digital health front, there has been user acceleration during COVID. So how much do you think can be retained given that mobility restrictions are getting normalized and people can actually walk into a physical pharmacy store and for diagnostics say to a collection center or a lab? How much of this is there to stay?

This is Bharath here. You're very right. When Omicron or any such wave hits, a lot of digital properties get used up. For example, people book tests on app, Google searches go up, et cetera. Also, the installed base of the app also goes up during this part of the time. However, the good news we have seen is that whenever the wave goes back, then the digital property adoption continues to be at a higher level than the past. It may take a temporary kind of drop down while it continues to remain at a very high level compared to the past trends. Number two is that Dr. Om mentioned in his speech of our omnichannel approach, which is to provide a seamless movement of patient traffic and information flow between app, physical store, et cetera. So that is really what we are focused on perfecting that model so that we are able to seamlessly provide services across app, across website, across the physical stores, the franchise or our own companies. So it's basically an omnichannel play, and it is not an either or play for us.

So Bharat, just to add to that. On the omnichannel front, like we know that we are sort of entering into a new era with the emergence of online aggregators. And a lot of these have built presence across the value chain, which is e-pharmacies, tele-consultation. And they do have target of growing more than 30%. So if we have to really grow more than mid-teens, mid- to high teens, then do you think there is a necessity -- there is a need for us to also build presence in those areas?

This is Om here. I would respond to this sort of a thing that is happening in the market in 1 simple way. There are 2 responses that we have. One is augment our own digital property, which is what we are doing, so that the consumers or patients who want to access Dr. Lal Pathlabs directly on its own digital platform, we should actually be there. The second is we also fully well know that there are a lot of players who are coming which are full stack models and they are not only offering diagnostics, but they are offering other services. And it's quite possible that they may grab or they may own the customer to start with. In that case, our response is that we would partner with them and we would stay connected with these guys. I think we are already listed on some of these platforms, and we won't hesitate to stay to partner with these guys.

Understood. This is very helpful. And just one more, what percentages of tests are being conducted through your online platform at the moment?

So there is actually -- this category has still not evolved to a fully online model because people can book an appointment online, but they are still unsure about which tests to choose between 3 tests of let us lipid say profile. So there is still a call center or a physical intervention which happens. So you must look at this percentage in various legs of the journey, in terms of what is the interest generation, what is the final output coming in the funnel form. So at this stage, it is not a very significant number, but I said, definitely a growing trend.

I think it's not a very well-defined group of calls that are coming in, but I think one directionally, definitely it's going up.

Yes, indeed.

Is it rapidly moving up? I don't think so. But directionally, it's going up. But is it disrupting the entire trend? I don't think so.

Okay. And on the new labs in Bangalore and Mumbai, any update on these?

Yes. So Bangalore, we have an update. Bharath, do you want to talk about it?

Yes. Bangalore, we're very pleased with the progress we are making. In fact, the lab has now fully settled in. The test menu is significantly expanded. We almost doubled the number of tests we were doing vis-a-vis the past. So it's been a good, what we call journey for us in Bangalore. The task is still not over. There is still miles to go. But to say the very least, we are very happy with the progress we're making.

And Mumbai lab is on track. I think basically, with Suburban coming in, we're looking at the whole strategy for Mumbai City. We will see whether this lab -- how it is utilized, whether it is by LPL system or Suburban, we'll decide as we go along.

And one last, if I may. With Suburban acquisition, the West contribution has gone up to 28%. Is it right?

What contribution, sorry?

West region contribution.

West region? Yes, you're right. You're right.

And how much would be Delhi NCR now?

Delhi NCR, it is about 33 point something, that is roughly 34% for Q3.

Okay. I think Q3 is not fully loaded for Suburban. So I think we don't have exact number because Suburban number is only for half of the quarter. But broadly speaking, we would take about 30-odd percent for Delhi NCR, is the number that we have. And rest of North India is about 27%. So this will make about [ 57 ], and that number used to be about 70 earlier.

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

Just the first one is on, help us disaggregate the 6.6 million patients into COVID, non-COVID, please.

Do you want to answer that? So we -- Shyam, we've done 5.6 lakh patient RT-PCR tests and rest are non-COVID patients. However, there are overlaps there. There are mix there along with the non-COVID patients, there are COVID tests also. But as a stand-alone pure, pure RT-PCR is 5.6 lakhs.

What is happening is that these days, unlike the first wave and second wave, COVID tests have actually mixed up with non-COVID tests. So it's become very difficult to segregate whether that patient is a COVID patient or a non-COVID patient. So of course, it's becoming a little bit complex. But otherwise, what Ved just mentioned, those are exclusive RT-PCR tests that we have done, which is 5.6 lakhs.

Got it. So just trying to understand the point you said that it's difficult to look at non-COVID at this point of time. And the trends are not very clear. I just did get a 2-year CAGR on Dr. Lal's non-COVID sales, which is about INR 413 crores with 2 years back. It seems to be 12%. Is that something that you think is right? Or is it way, way off? We had a 15% growth pre-COVID. So I just want to understand how we should look at that particular line item, even a 3-year or 5-year view is also helpful.

I think if you just go back before this COVID happened when we stopped our mid-teens as a -- like 13%, 14%, 15%. Now we also haven't taken a price increase for the last 4, 5 years now. So my sense is that's the best way to look at it what is the positive rub-off of COVID or non-COVID, one has to see as we go along. Because a lot of testing has already happened now, and there's always a gap. It's not something people just get tested every now and then. My sense is if I were to -- if I'm pushed to put a figure on this, I think the mid-teens could be a good way to look at it. Somewhere it could be on the lower side. Sometime, it could be on a higher side.

Got it. And again, I did extend this expense to realization per patient and volumes. But -- so it looks like it's still all volume-driven, subtracting that 5.6 lakh from 6.6 lakh, and then looking at historically, that seems to have grown closer to the 13%, 14% volume growth. So it seems to be mirroring what we had 2 years back. Is that right? Is that conclusion correct ?

I think that's where we are also probably seeing the trend. Maybe we'll wait for 1 or 2 more quarters to see how it is. But I think it's fair to say it's all volume-driven [indiscernible].

Got it. Second question is on Suburban and integration. How has it gone? Do you have full access now to this being once it's a subsidiary? Any -- I know there are some contingencies that are still there on a full year fiscal basis. So if you could just update us on what you have seen so far of the business. And I think it's 50 days, right? So the 28.5% normalized EBITDA margins could actually be lower if you assume a full 90-day, if you were to do some kind of a pro forma. So help us understand Q4 margins or anything that you want to guide on margins.

So I think with the margins, I'll give -- hand it over to Ved, but overall, our approach so far has been a bit of a soft touch for this asset, because as you rightly mentioned, that there is some payout linked to the fiscal performance. And as a part of arrangement, we have said that the current management team needs to be given enough space, not to disturb them, so which probably will go till 31st March. We are just trying to understand what are the levers for growth as we go forward. I think to that extent, we are connected. And unfortunately, due to Omicron, our movements also were restricted to Mumbai City. But overall, it's been a little bit of softness to the whole thing, and we are just trying to understand what the levers for growth. As far as the margin part is concerned, I'll ask Ved to take this question.

Yes. So not specific Q4, but going forward, I'm just telling you, Shyam, that we all got operating leverage because of COVID, COVID [ light ]. As we are moving -- going forward, moving pre-COVID level on our top line, especially on non-COVID basis, so as our margins shall be in the line where we used to have 26%, 27% normalized EBITDA margins. So those kind of...

I think his question is Suburban is going to impact.

So I'm coming to that. Suburban is over and above is -- obviously, we know that Suburban has a lower EBITDA margins. The idea is to optimize. But as Dr. Om earlier mentioned that real driver is the revenue growth, not the cost efficiency effect.

So I think the Suburban business has clearly demonstrated that this has a huge operating leverage. And we saw that last 2 years as the COVID business went up for them, their margins also certainly improved. The only challenge is whether COVID business is sustainable. We all know It is not. So there is definitely a situation where the margins will tend to go back to where it came from. But we know that there's operating leverage, and the idea is to drive volume growth, and that's how we'll improve these margins.

The next question is from the line of Nikhil Chowdhary from Kriis PMS.

Sir, I have a couple of questions. Sir, are -- I wanted to understand INR 438 crores of non-COVID revenues, how much is through Suburban? Because I wanted to understand our own non-COVID growth -- like we have reflected 28% of non-COVID growth year-on-year. I wanted to understand how much is due to our own LPL.

So non-COVID from Suburban is 24.7.

Understood. So we have still grown at a very healthy rate. Non-COVID has been a bit lower. Like was it due to the disruption at that other lab that we saw? Bombay Lab was shut was some 8 to 10 days. Was it due to that? Or like is there something else?

So you are talking about that 28% versus 21% of stand-alone LPL. That's what you're saying?

No. I was asking about Q-on-Q, like we have shown one chart on page -- like on Slide #8 where our Q2 non-COVID is INR 448 crores and Q3 is INR 438 crores. I wanted to understand the Q-on-Q non-COVID growth, degrowth like of 3%.

That's because quarter 3 is generally a lower quarter. Sequentially, it is always lower than the Q2.

Yes, yes, I understood. Also, sir, wanted to understand, are ad spend strategy, like we don't advertise in television, newspaper or Facebook ad. I wanted to understand because we have been seeing even Metropolis doing it, even the new age startups doing it, although we have been showing good growth, but will it not profit the growth even more if you do the advertisement we are taxes company having 30 -- INR 330 crores of cash on balance sheet?

Bharath here. We do advertise digitally if it can be on digital, including Facebook, et cetera, depends on the TGA and the city selection. So possibly, you may not have seen it, but I can assure you that we are a significant advertiser on the digital platforms, inclusive of doing even below the line activities. So we haven't cut our marketing spends. We have continued to sustain the spends.

Okay. Okay. Understood. And sir, last thing, like I wanted to understand more on the Suburban integration. Sir, I feel like Suburban has got 200 centers, correct me if I'm wrong. Why can't we probably -- like why are we waiting for some 1 or 2 years? Why can't we just put like the Dr. Lal Path company below the Suburban banner, like the hoarding like, automatically our brand presence increases by 200 centers. Like why are we waiting for 1 or 2 years to probably show that you already -- like Suburban is part of Dr. Lal.

I think it's a debatable point, whether it's infra that helps you to grow, whether it's a brand pool that helps you to grow. I think jury is still out. I think Suburban is a much stronger name in Mumbai City. So while Dr. Lal will continue to operate the way it's operating. So we are not pulling out that. But we'll probably -- we are thinking through as to how do we leverage -- how do we get the synergy out of the 2 assets but everybody can have a view on it. But my personal view is that we need to go after this market through Suburban in an aggressive manner because that brand has a strong pull.

Yes, sir. I understand. But just probably, like below the hoarding we can just put a Dr. Lal Path Company, so dual branding happen any which way, is the revenues comes from the Suburban or Dr. Lal it will anyway be consolidated.

I'll take your input, and then we'll discuss it.

Okay. And sir, last thing, sir, I have been seeing Suburban also having a collection center next to Dr. Lal. Like I understand we have discussed this question last con call also, like the cannibalization of the sales, why can't we probably have some strategy like have a 1 kilometer distance, and if the, say, Suburban prices are, say, 10% to 20% higher to Dr. Lal, then the patient, it's finally little bit expensive, why not deviated to the nearest Dr. Lal Path center sir?

I take your point. What I'm saying right now, what you're seeing is not by design. It's actually by default, where that's the way these companies operate because they were competitors. So we will consider these inputs and then go forward.

[Operator Instructions] The next question is from the line of Nitin Agarwal from DAM Capital.

On the -- I think we've had this question coming up every now and then. But I guess it's from a competitive activity perspective, at least, there seems to be a reasonable aggression in terms of lot of the new entrants being a lot more aggressive with their marketing spend, margin promotion. In your assessment, is this impacting the market dynamics in any way because they seem to be advertising a lot of lower prices, lower costs as the primary things of getting customers in. And how do you see this thing playing out? Does it -- do you think this is going to go on for a while? Or this is a short-term -- short-term NPA phenomena?

Yes. I think it's a great observation that you have. I know that there was a bit of a pause for the last 4, 5 years before COVID that competitive intensity actually it went down a bit because fee funding was not taking place. Suddenly, due to COVID, we have seen resurgence of new competition, whether it is pharma companies coming into this, hospital guys coming into this, or new age companies, also a lot of start-ups are coming in this space. My view is, yes, so the competitive intensity will put pressure on pricing, which in any case I have been saying for the last 3 or 4 years, that's why we built our business more through volume-driven growth rather than the pricing-driven growth. Now your next question, is how do I see it happening is, I don't know your guess. My guess is as good as yours. My sense is that a lot of this euphoria is also due to COVID. And as COVID is settling down, and whatever is left, it's also such a low prices that there's hardly any margin in this. Some bit of it will get cleaned up in next 10 to 12 months this is what my sense is.

Okay. That's helpful. Secondly, when we -- when you look at the dynamics of industry, especially in larger cities, this is where most of the incremental competition seems to be coming through. I mean again, when the proposition that most of these guys are coming through. Are these gain in the tests? Or is there a larger test screen offer -- or these are essentially guys that are looking to just gobble up the lower end of the market along with [ specific ] combinations.

So first of all, what I would like -- this is Bharath here. What I would like to share with you, like we shared in the previous commentary, is that we have a very well-diversified network to sustain our growth engine. We are just not 1, 2, 5, 10, 20 city player. But we actually have now a pan-India presence setting across all population status. That gives us the growth engine which is required to run our company and keep it growing. Number 2, is that we have been constantly upgrading our test menu and service levels across all elements, be it logistics, be it turnaround times, whatever it takes. So we have been investing a large amount of time and effort behind a HUB lab program, which has actually shaped up very well. So given all these things, I don't think we are really concerned about either very worried about, let's say, competing in large cities -- or, let us say, even in the smaller cities of India. We have a presence which we are able to leverage using technology to be a pan-India player.

That's helpful. If I can last one. One big recurrent theme for the space -- organized diagnostic space has been that the organized guys will meaningfully take market share from the unorganized guys. In your assessment, I mean, how much of that is actually playing out? Particularly in a lot of industries, the pace of shift from unorganized to organized guys is accelerated. Have we seen similar trends happening in the -- in diagnostics where the pace of access that the shift is accelerating in recent times?

Yes, I think. So some of these competitors that we are talking about coming -- entering into the market, they are just grabbing a lot of business from unorganized players. I'm not fully familiar with pharma industry. I think all you guys cover pharma industries. There also, a lot of the small, small players exist who enjoy some 2% market share, 1% market share or 0.5%. So -- but they are still in their own right, large enough to be called as organized players. So I do see that in next, let's say, 5 to 10 years, emergence of more number of so-called organized players competing with each other than organized versus unorganized. I think unorganized sector is under a lot of pressure, and they're going to be even under more pressure as the competition comes in.

The next question is from the line of Stallion Asset.

Yes. So I just wanted to half on the Suburban thing again. I just wanted to understand what is your broad next 2, 3-year strategy on the Suburban part. And if you could also give an idea whether the margins will see a J curve turnaround or will it eventually catch up to the company level margins that you have maintained, over 25%, 26%, going forward?

So first is, as we mentioned that -- right now, as we talk, Suburban as an asset is sitting on a very high turnover of COVID. And we don't know how it's going to pan out going forward. In all probability, it's going to sharply decline. So that's one fact we should actually factor in as we go along. Now as it declines, there's a possibility of this company margin to go back to where it came from, which is much lower than what our LTM margins are. But what the COVID experience has thought us that if you are able to build scale in this company, there is enough operating leverage and you can improve the EBITDA margin in Suburban. So that part is now fairly clear, which is what we have seen in the last 2 years progress of this company. So the first strategy would be to really drive growth of Suburban in the next 2 to 3 years. Two, to see if there is operating leverage without adding additional costs and we improve the margins. And in all probability, I feel this is possible, and we will drive top line growth in Suburban in select pockets.

Understood. Sir, just like continuing on the same, right now from the looks of it, Suburban is looking like it has a run rate of INR 200 crores on a yearly level. So can we expect this to move like somewhere around INR 500 crores in the next 3, 4 years? I'm just trying to understand where your focus will starting be -- will it be on scale? Or will it be on margins? What would be your priority be on the same?

Scale, scale. We are entering into a market where we don't have a size sort of a share -- so we'll focus on scale.

Understood. And so the numbers that I've mentioned, is that possible ? Is that kind of growth possible?

See, now if you look at 12th of November, data says INR 49 crores we've added, right? You can see that for the quarter, it's roughly about INR 100 crores. Now 100 x 4 is 400. Now the only problem is half of it is COVID. So we'll probably do an adjustment, but it's possible, right? Why not? We'll aim for it as we go along.

No, I was mainly talking from the non-COVID portion only, I was like removing the COVID portion for that.

So the way I look at it is very simple. Any NCR for us is more than INR 500 crores. Okay? This brand is a very strong brand, and Mumbai alone is a very large market. This actually is the catchment area for this brand easily in the entire Maharashtra. And Maharashtra is one of the most prosperous state in India, a very high potential. So at least, we are fishing the right pond. If we get our act right, it's possible. Why not?

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

Yes. One question on Suburban asset after you've taken over, has there been a good amount of price increase taken on several of the tests for the company?

In Suburban?

Yes.

No, not to our knowledge, at least not after we've acquired.

Okay. And the second question is on your preventive test program, the Swasth program. After all these aggregators have really ramped up on this preventive test, have you seen some impact on the volumes for the segment for yourself?

No, no, not at all. The big question, but I don't think we have seen any...It's none.

Our Swasthfit program continues to grow at a handsome rate.

The next question is from the line of Prashant Nair from AMBIT Capital.

Sir, just a couple of questions sort of mainly on top of it. So I remember you mentioning back when you were initially going into the Eastern part of the country that INR 100 crores to INR 150 crores is kind of the inflection point beyond which growth in the region can accelerate because you have that presence on the ground at that point in time. Now does that apply to Mumbai as well for Suburban, which is probably excluding COVID more or less in that range? Or would you look at it slightly differently in this market because it's a bit more competitive.

I actually look at that hypothesis for Suburban even more because the profile of Suburban is more a consumer-facing brand as per my understanding as of now versus East region where profile of that inflection point actually has very large B2B component. So I think this holds true for suburban that it has a very high B2C component. But having said that, as you rightly mentioned, the competitive intensity is also equally high. So you have one headwind and one tailwind. So we'll have to see as to how we maneuver this, but I do look at this as a strong consumer-facing brand, and we can build a great franchise going forward.

Right. And one follow-up question. So when you mentioned that revenues is the main focus and scale is the main focus here, can you outline the key things that you would focus on in order to gain share? So would it be pricing-led or expanding testament? I mean how -- what would be the dominant focus here in terms of trying to gain more shares? Because there are multiple labs operating here.

There are many levers to grow. And obviously, I don't see pricing as a variable. So that's something which I -- we'll have to probably study as to what the competitive benchmarks are for pricing. We don't look at that. Test wise, yes, we are, as I mentioned in my opening comments and answer to one of the questions that we will definitely widen the test menu for Suburban because in any case, before Suburban our plan was to open a big central lab, which is currently on, and we will leverage that asset for both Dr. Lal PathLabs well as Suburban, which means that test menu will get widened for city of Mumbai. So Suburban doesn't need to outsource high-end test, which it is doing through some other labs. That answer is one. Second is, I think everybody is talking about technology, digital, this asset is very nimble. So that could be another variable for us to really experiment something in the city of Mumbai and then enhance service levels. I think that's the way I look at it.

And just a final question from my side. So the additional payout that may get triggered for Suburban. That is linked to absolute EBITDA, right, not a function of whether it is coming from COVID or non-COVID?

It's all inclusive. So it will be total. It really doesn't matter where it's coming from.

The next question is from the line of Rushab Doshi from Proinvest Nirmiti Investment. [Operator Instructions] And move to the next question, which is from the line of Lavanya Tottala from UBS.

Yes. So I just want to check on, do you see higher contribution from the bundled packages like Swasthfit, with increasing awareness just like the way you see stickiness of digital adoption, even after COVID wave decreasing? So do you see the same trend of higher contribution of the Swasthfit, going ahead?

See, our contribution from Swasthfit is actually more or less steady. So -- because overall table for the business goes up or down, the contribution from Swasthfit is varying between 15% to 16% all through at least the last 6, 7 quarters. So I'm not seeing any sharp either jump or decline in Swasthfit. It's a very steady trend that we are observing. I think if I got it right, your question is as the COVID wave is receding, will we see an impact on this number? My answer, yes, my answer is probably no because even pre-COVID also, we had a similar sort of a contribution coming in from Swasthfit. And if at all pointers are that it could be slightly higher as well, because people normally go for annual checkup, et cetera, and invariably annual checkups happen in the month of March because that's the time you get your -- I think there are some tax benefits also, people get, right? So we have seen a slightly higher contribution coming into Q4. We'll have to see as to how it stands out.

Okay, okay. And one question. So as I could hear in the con call before that there is conference around selecting the correct test through the online portal. So do you think that having more standardized or a particular segment if they someone is going to test for diabetes or the lipid profile, having more number of standardized tests would that help increase online adoption? Do you think that, sir?

This is Bharath here. We do have a set of tests, which is aimed at various disease conditions, be it diabetes, hypertension, cardiac risk profiles, et cetera. So we already have those steps, and we continue to do well as a part of our Swasthfit program.

Okay. Okay. And one last question from my side is like, how do you plan network expansion if -- in terms of labs and collection centers, increase in number of them over next 1 year.

See, I think we outlined our strategy of expansion of labs very clearly to go down the pop setup and then widen the test venue in the region as much as possible. But it's a decision based on economics. We just don't want to -- we want to keep an eye on the operating margins at unit level all the time. I think this ratio between lab and collection center is very important. But I think the broad strategy is to keep on widening test menu in the region as much as possible through these HUB labs is our strategy.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

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

Thank you. On behalf of Dr. Lal PathLabs that concludes this conference. Thank you for joining us, and you may now disconnect your line.

Thank you.