Dr Lal PathLabs pulls up its socks as competition mounts

Dr Lal PathLabs, India's largest diagnostic chain, said it is focusing on doubling volume, improving operational efficiency and realisation, and investing in digitalisation and brand promotion to battle competition. Om Prakash Manchanda, its managing director, told ET in an interview that intensifying competition and price war will definitely "upset the apple cart" in the near term.
"In a hyper competition scenario, where price increase is going to be difficult, I will be happy if I am able to hold on to these prices. But costs are going up every year, so how do we really manage profitability," Manchanda said. "I will definitely use volumes as an important lever to offset rising costs. In our business there is an operating leverage, there is the benefit of economies of scale."

Gurgaon-headquartered Dr Lal PathLabs and other diagnostic chains are feeling the heat due to the big drop in demand for Covid-19 testing, competition intensifying with the entry of e-pharmacies, web aggregators and pharma companies into diagnostics, resulting in a price war at a time when inflation pressure is high.

In FY22, Dr Lal PathLabs reported a revenue of ₹2,087.4 crore, of which about a fifth came from Covid RT-PCR testing.

To achieve scale, Manchanda said, the company will expand both organically and through select acquisitions, especially in southern India where its presence is small. About 7% of Dr Lal PathLabs' revenue comes from southern India, compared with more than 60% from the north, 15% from the east and 14% from the west.

To strengthen its foothold in western India, the company acquired Mumbai-based Suburban Diagnostics in October last year for an enterprise value of ₹925 crore and a cap of ₹1,150 crore. Coming during the peak of Covid-19, Dr Lal PathLabs paid 18.5x of Suburban's FY22 audited earnings before interest, taxes, depreciation and amortisation (Ebitda), making it a costly bet. "Mumbai is a difficult market--there are deeply entrenched players and we realised that we will not be able to crack," Manchanda said.

"So Suburban was an option. We saw it as a strategic asset; we didn't want to let this go, as this was our best chance to establish ourselves in the Mumbai market."