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Dr Lal PathLabs Ltd stock prices have almost doubled from March lows and are trading near fresh highs seen recently. The stock remains in favour, while looking at the improving growth prospects for one of the leading diagnostic majors in the country.

The rising footfalls at hospitals, doctors’ clinics is helping drive non-covid testing revenues as covid testing continues to contribute to revenue growth.

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The pandemic has also meant a significant shift in business from the unorganized to the organized sector benefitting Dr Lal. The company has been expanding footprint across the rest of India, while reducing its dependence on Delhi NCR, to drive growth. Its current business scenario offers significant organic and inorganic growth opportunities.

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“We believe Dr Lal would benefit the most with multiple growth levers such as the faster shift of the unorganized business to organized players in the current scenario, potential consolidation in the industry via inorganic or partnership route and shift towards home collection tests," said analysts at ICICI Securities Ltd. The company’s Q3 performance held testimony as Dr Lal witnessed a speedy recovery in non-covid revenues, which grew 8.3% year-on-year (y-o-y) during the December quarter. Compare this to declines of 37.6% and 5.0% seen during Q1 and Q2, respectively, the growth in a historically weak Q3 impressed.

As non-covid revenues normalized, the support provided by covid-19 testing helped report 38% revenue growth. The covid testing, however, is likely to have peaked out in November according to analysts and is expected to decline further in subsequent quarters. Hence, sustainability of the overall growth momentum needs to be watched.

Contribution from the rest of India (ex-Delhi-NCR) had gone up from 59% to 64% on year-to-date basis. “Our initiative of acquiring a few small-size labs, through our subsidiary, PathLabs Unifiers, has gathered momentum and has achieved meaningful scale," Dr Lal PathLabs said in the post-results conference call. It planned setting up two reference labs, one each in Mumbai and Bengaluru, and expanding the feeder network of collection centres and satellite labs, exploring both organic and inorganic opportunities.

“We like Dr Lal’s strategy of expanding its network organically in the west and south along with looking out for inorganic opportunities," said analysts at Nomura Global Markets Research. As growth opportunities abound, the company is exploring both organic and inorganic routes to fuel growth. However, the stock is now trading at 58 times FY22 earnings estimates of ICICI Securities Ltd.

These premium valuations allow limited scope for error on execution.

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