Dr Lal Pathlabs is determined to reach where no diagnostic service provider has ever been By M Neelam Kachhap
The mood is upbeat at Dr Lal PathLabs Private Limited (LPL) new lab at Bangalore. Dr Om Prakash Manchanda, Director and CEO, Dr Lal PathLabs is jubilant. He has every reason to be since, Dr Lal PathLab ended 2015 on a high note, raising Rs 6.3 billion in a successful IPO on the National Stock Exchange. It also gained the distinction of being the first diagnostic service provider to be listed at the NSE, leading the way for other healthcare companies to dream big.
The Delhi-based LPL was established in 1949 by the late Dr (Major) SK Lal. His son, Dr Arvind Lal, the present Chairman and MD took over the business in 1977. Today, the group has 172 laboratories, 1554 sample collection centres (patient service centres) and 7000 sample pick-up points spread across India. “We as a company grew out of Delhi. Then slowly and steadily we grew in the northern markets,” says Manchanda who is associated with the company for the past 10 years. LPL has mastered the business model where specimens are collected across multiple locations within a region for delivery to a predesignated clinical laboratory for centralised diagnostic testing.
Diagnostic services providers play a crucial role as information intermediaries, providing useful information for correct diagnosis and treatment of patients’ diseases. The industry can be classified into imaging diagnostics and pathology testing services. LPL mainly deals in pathology testing services. Their diagnostic and related healthcare tests as well as services include; routine clinical laboratory tests such as blood chemistry analyses and blood cell counts; specialised testing services such as histopathology analyses; genetic marker-based tests, viral and bacterial cultures and infectious disease tests; and preventive testing services like screenings for hypertension, heart disease and diabetes. “With over 3,495 diagnostic as well as related healthcare tests and services offered, we believe we are capable of performing all of the diagnostic healthcare tests and services currently prescribed by physicians in India,” confides Manchanda.
A trusted brand
LPL’s customers include individual patients, hospitals and other healthcare providers as well as corporate customers. “In the fiscal year 2015 and the six-month period ended September 30, 2015, we collected and processed approximately 21.8 million samples and 13.4 million samples from approximately 9.9 million and 6.2 million patients, respectively,” informs Manchanda. At present, the company has one National Reference Laboratory in New Delhi, 171 other clinical laboratories, 1,554 patient service centres and over 7,000 pickup points.
Abundant opportunities
LPL is one of the leading players in India’s mostly fragmented diagnostic services industry. “The size of the diagnostics industry was estimated at around Rs 377 billion in 2014-2015,” informs Manchanda. This represents both pathology and radiology markets. Of the pathology market, only 15 per cent is in the hands of organised players like Thyrocare, Dr Lal PathLabs, SRL Diagnostics and Metropolis, among others. Another 48 per cent of the market, which is highly fragmented, is dotted with independent labs, and growing at a rate of 15-16 per cent p.a. The overall market for wellness and preventive diagnostics, was six to eight per cent of the total diagnostic services market in 2014-2015. “As per industry reports, the diagnostics industry will continue to grow by a CAGR of 16-17 per cent over the next three years to over Rs 600 billion by 2017-2018,” says Manchanda. Consolidating the fragmented market would provide additional growth opportunities
for the larger players as well as the smaller, standalone laboratories and centres which are opting to join larger diagnostic healthcare services chains as franchisees or as attractive acquisition targets.
Attractive financial performance
The diagnostic chain has seen positive growth throughout but has also seen rapid growth after corporatisation. “In the last couple of years, we have grown rapidly, almost 20-30 per cent y-o-y,” informs Manchanda. According to its Red Hearing Prospectus for the period of 2013-2015 the company’s total revenue grew from Rs 4,544.77 million to Rs 6,625.24 million, representing a CAGR of 20.7 per cent; and its EBITDA grew from Rs 1,004.71 million to Rs 1,588.87 million, representing a CAGR of 25.8 per cent. The company’s profit for the same period grew from Rs 556.47 million to Rs 949.97 million, at CAGR of 30.7 per cent; and their consolidated net worth increased from Rs 1,620.54 million to Rs 3,410.82 million. “In the six-month period ended September 30, 2015, our total revenue was Rs 4,077.14 million, our EBITDA was Rs 882.10 million, our profit for the period was Rs 374.65 million and our consolidated net worth was Rs 4,091.28 million,” shares Manchanda.
Building blocks of growth
The company intends to strengthen its presence in the core markets of North India as well as Central and Eastern India. “Our first focus is organic growth in the entire North East and Central India as we are well placed to take business to the next level here,” says Manchanda. “In North India, we intend to further strengthen our position by opening new, franchised patient service centres across this region in order to expand our network’s reach,” he adds. The growth in Central and Eastern India is planned through the construction of regional reference laboratories, combined with the opening of additional smaller clinical laboratories and several new, complementary patient service centres. “We are opening two reference labs, one in Kolkata and one in Lucknow,” discloses Manchanda. “The Kolkata lab is almost complete and will be operational soon. The Lucknow lab will take some time,” he adds.
The company also wants to target expansion in Southern and Western India by opening additional clinical laboratories and patient service centres. “We are also going after certain select cities where we want to build consumer facing business like we have built in the North. These cities are Bengaluru, Pune and Mumbai,” says Manchanda. “At present, the company has 18 service centres in Bengaluru and a regional laboratory. We are building a lab in Pune on similar lines,” shares Manchanda. So, the organic growth will be in two layers, first is the consumer-facing business which will be North, East and Central focused and the second is the high-end specialised business which will be all-India focused.
Second building block
The second area of growth for LPL is on-site lab management or hospital lab management.
The company plans to increase the number of hospital-based clinical laboratories that it manages by leveraging the scale and efficiency of its network to perform diagnostic healthcare testing services of these hospitals and other clinical laboratories. “We have some experience in this area and at present, we have 14 labs with hospitals,” says Manchanda. “We see great opportunity here and I want to drive this aggressively,” he adds.
The company may also seek similar opportunities with ‘polyclinics’ – which generally are consolidated partnerships of physicians, consisting of general practitioners and specialists. “Polyclinics generally have limited resources, thus presenting an opportunity for us to provide them both, laboratory management and specialised laboratory testing services,” states Manchanda.
Strategic acquisitions
The third building block of growth for LPL is strategic acquisition. The company will continue to seek strategic partnerships with key franchisees and hospitals for its future growth. “We continue to explore expansion opportunities in select cities in India through strategic acquisitions of regional diagnostic healthcare service providers who possess brand recognition among an existing patient base and healthcare providers,” reveals Manchanda. Previously, the company had undertaken strategic acquisitions in India of smaller-scale diagnostic healthcare service providers that increased its patient base, customer reach and economies of scale. “We believe future acquisitions and partnerships will provide us operating synergies and a basis for organic growth in these new regions, through the introduction of diagnostic healthcare services such as specialised testing that are in addition to those already offered by the acquired companies,” shares Manchanda. The company also believes that strategic acquisitions and partnerships will provide it with additional purchasing power with suppliers and increased economies of scale.
“We are looking at consumer-facing diagnostic labs where sharp focus on quality and standards are in line with our lab,” says Manchanda. “We don’t want to do too many of them but we are looking at some platform deals where we see scope for growth. These targets would be city-based players and we want to grow them in their respective ecosystems. We would be interested in cities like Hyderabad, Chennai and Bengaluru,” informs Manchanda.
Quality is the main differentiator
The quality and reliability of diagnostic and related healthcare tests and services are essential to the success of LPL.
“Our commitment to the quality and reliability of our diagnostic healthcare services is fundamental to our corporate brand and strategy,” says Manchanda. “We will continue to respond to the needs of individual customers and the healthcare industry by maintaining the quality of our diagnostic healthcare services and improving our turnaround times for testing results,” he adds. In addition, LPL will continue to upgrade diagnostic equipment and technology in order to increase the efficiency of its processing capacity. “We believe we gain access from our suppliers to advanced diagnostic technologies and equipment, which further enhance the quality and reliability of our diagnostic healthcare services. We will also continue to enhance the customer experience by further developing our online initiatives and leveraging our potential data analytic capabilities,” Manchanda concludes.