Broker’s call: Dr Lal Path (OutPerform)

Target: ₹2,884

CMP: ₹2,266.50

Our recent interactions and channel checks across North India reveal a likely rise in competition in the region and potential change in market dynamics. This poses a risk to DLPL as the company enjoys leadership in the market and generates c62% of its revenue (FY23) from the region.

Reduce target multiple for DLPL to reflect change in competitive landscape. Since last one year, DLPL’s stock returned 18 per cent vs Metrohl’s 37 per cent – mainly due to a valuation rerating, in our view.

We believe lab network expansion and addition of business partners are key to B2C volume growth of diagnostics firms. While network expansion may hit near-term profitability, we see this is essential to build a sustainable offline business. This includes investments towards building an adequate sales force and regular CME (continuing medical education) activities for medical practitioners.

We think the change in the competitive landscape could hurt DLPL’s prospects. Hence, we tweak our FY24-26 estimates and reduce our target EV/EBITDA multiple to 31x (34x previously) – the average of its past two-year valuation. Consequently, we lower our TP to ₹2,884 from ₹3,181. We maintain our Outperform rating given favourable valuations