Dr. Lal Path Labs is coming up with its IPO next week. The promoters and private equity investors of the company are offloading part of their holdings. So, no fresh capital is actually being raised. In the grey market, there is a huge impetus to this company. The e-forms of Dr. Lal PathLabs are being sold at Rs. 1100. That’s quite a premium price!
Before investing in the official primary market, let’s know about this company and its IPO details.
About the company
From 4 to 5 patients a day to 40,000 patients every day, today – it’s a long, long journey. The story of Dr. Lal Pathlabs begins at the end of Indian freedom struggle. During partition, Dr. S. K. Lal’s family moved to Delhi from Lahore. He was a trainee doctor at army’s unit, studied pathology at Armed Forces Medical College and started a lab. Later he also went to Chicago to polish his pathology skills. During that time, the concept of private pathology clinics was rare.
Dr. Arvind Lal, Chairman and MD, joined Dr, Lal Path Lab after his father’s death. The business magnified as new technologies and new people came in. Franchisees, professionals were appointed, accreditation from various organizations was attained, private equity investment was gained and now it’s going to be a listed company.
Business operations/ summary
The prime business operation of Dr. Lal Path Labs is conducting diagnosis and other healthcare tests. For useful information and treatment of the disease, these tests are extremely necessary. The kinds of tests, Dr. Lal Path Labs, offers are:
- Routine tests (like blood tests)
- Specialized tests (such as bacterial infection and viral tests)
- Preventive tests (e.g. screening of diabetes, heart disease, etc.)
Ultra-modern and computerized apparatuses are used for carrying out over 3,368 various tests, which they offer. In FY2015, the company tested 21.8 million samples from 9.9 mn patients. The client base includes individual patients, corporate customers and hospitals & other healthcare providers. The corporate customers include insurance companies, etc.
The business segment, however, can be diversified as Pathology and Radiology.
Infrastructure and services to offer:
- National Reference Laboratory: It is the connecting point (hub) for its entire network spread across the country. Opened in July 2010, in New Delhi, it has 7253 sq. mtr. of laboratory facilities. It is internationally accredited by CAP.
- Clinical laboratories: 164 clinical labs (mini hubs) are strategically located (at metropolitan, tier I & tier II cities). Test requests and related specimens from Patient service centers and Pickup points are sent here.
- Patient service center: aka collection center, collect specimens and send them to clinical or national reference lab, depending on the type of test to be conducted. Individual patients come here with test request prescribed by physicians.
- Pickup points: this is a third party service. Other labs, hospitals, nursing homes, etc. collect and deliver specimens from patients to clinical labs of the company.
- Hospitals and clinical laboratory management: in-hospital clinical labs are established and managed by Dr. Lal Path Labs, in the hospitals which do not have licenses or resources to drive on-site clinical labs. Similar concept is formulated with other labs, wherein the company operates the lad but does not own them
- Home collection service: collects specimens from patient’s home or office.
- International operations: the company has no labs outside India. However, in compliance with ICMR guidelines to import test samples, the company receives test samples to its clinical labs from UAE, Oman, Qatar, Nigeria, etc. and all neighboring countries.
The overall healthcare market includes healthcare delivery market (hospitals), pharmaceutical sector, diagnostics industry and healthcare insurance. Dr. Lal Path labs comes under diagnostics and with little barriers to entry, diagnostic healthcare service industry is extremely competitive in India.
Diagnostic service acts as an information intermediary, which has a smaller but a vital role to play. Earlier doctors used to rely more on clinical assessment i.e. they treated the ailment based on their own skills and expertise. Gradually, things have changed and now, the dependence on these tests’ results is a lot more; as it acts as evidence to treatment.
The demand for diagnostic industry in India is rising as doctors now prefer evidence-basedtreatment, there is a lot of demand supply gap (lot of patients and less doctors to treat them), more people getting health insurances, disease profile has changed (cardiac diseases, diabetes, cancer, hypertension, etc. have grown, thus enhancing the need for diagnostic facilities). Increase in population and life expectancy also soar the demand of this industry.
Financials of the company
Below is there Income statement for the last 5 years.
Based on this prices of the IPO, At higher end of the price band, the company would trade at EV/ EBITDA of 27x FY15 and 24x 1HFY16 and as far as P/E in concerned, it is around 46-47 times. There is no peer company which is trading in the market but pharma and hospital like Fortis can be made comparable to them and they are trading at a ratio of around 58 times.
Disclaimer: This article is not an investment advice. We are not authorized to give investment advice nor do we provide it on this website. In case you are interested in investing, I would advise you to contact your advisor for the same. We cannot be held liable for any loss arising due to investment made as per you article.