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Edited Transcript of LALPATHLAB.NSE earnings conference call or presentation 8-Nov-19 12:00pm GMT

Q2 2020 Dr. Lal PathLabs Ltd Earnings Call

GURGAON Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Dr. Lal PathLabs Ltd earnings conference call or presentation Friday, November 8, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Arvind Lal

Dr. Lal PathLabs Limited - Chairman & MD

* Bharath Uppiliappan

Dr. Lal PathLabs Limited - CEO of India Business

* C. A. Ved Prakash Goel

Dr. Lal PathLabs Limited - CFO

* Om Prakash Manchanda

Dr. Lal PathLabs Limited - CEO & Whole Time Director

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Conference Call Participants

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* Chandramouli Muthiah

Goldman Sachs Group Inc., Research Division - Research Analyst

* Dhruv Jain

* J. Madhavi

Narnolia Financial Advisors Ltd.,Research Division - Research Analyst

* Keshav Lahoti

Angel Broking Limited - Equity Research Analyst

* Manish Poddar

* Neha Manpuria

JP Morgan Chase & Co, Research Division - Analyst

* Nirmal Ambattuparambil Gopi

IDFC Securities Limited, Research Division - Research Analyst

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Pankit Shah

* Prakash Kapadia

Anived Portfolio Managers Pvt. Ltd - Principal Officer

* Prashant Nair

Citigroup Inc, Research Division - Associate Director of India Equity Research

* Pritesh Chheda

Lucky Investment Managers Private Limited - Analyst

* Sameer Baisiwala

Morgan Stanley, Research Division - Executive Director

* Saurabh Jain

SSJ Finance & Securities (P) Ltd. - MD

* Sriraam Rathi

ICICI Securities Limited, Research Division - Research Analyst

* Tushar Manudhane

Motilal Oswal Securities Limited, Research Division - Research Analyst

* Nishid Solanki

CDR India - IR Manager

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q2 and H1 FY '20 Earnings Conference Call of Dr. Lal PathLabs.

(Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Nishid Solanki of CDR India. Thank you, and over to you, sir.

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Nishid Solanki, CDR India - IR Manager [2]

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Thank you. Good evening, everyone, and a warm welcome to Dr. Lal PathLabs Q2 and H1 FY '20 Earnings Conference Call. Joining us today are Honorary Brigadier, Dr. Arvind Lal, Chairman and Managing Director; Dr. Om Prakash Manchanda, whole time Director and CEO; and Mr. Ved Parakash Goel, CFO. We also have with us, Mr. Bharath, CEO India Business; and Mr. Rajat Kalra, Company Secretary and Head of Investor Relations.

Before we begin the call, I would like to highlight that some of the statements made on the call today to be forward-looking in nature. Actual results may vary from these statements. A detailed disclosure in this regard is available in the results presentation, which was shared earlier.

I would now like to request Dr. Arvind Lal to share his perspectives with you. Thank you, and over to you, sir.

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Arvind Lal, Dr. Lal PathLabs Limited - Chairman & MD [3]

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Good evening to everyone on the call today. I'm pleased to share my views on the performance of the company and the road ahead. We have continued to deliver strong performance quarter-after-quarter, backed by a proven hub-and-spoke business model and emphasis on driving quality to attain scale. This has made us the leading diagnostic player in the country, and I'm glad that we have further strengthened our leadership position in this space. Higher patient volumes and sample growth is a testament to our positive growth momentum, and we remain on track to make further inroads on this to focus on accurate and affordable diagnostic services with emphasis on expanding the test menu and geographical presence.

Overall, I believe that the future of diagnostic industry looks to be bright in India. And there are ample growth opportunities available for a national level player like us, which enjoy customers' trust through a long-term track record of accurate test and decades of experience in diagnostics. The positive shift in market share from the unorganized to organized, more technology in health care, global policies like Ayushman Bharat Pradhanmantri Jan Arogya Yojana and a rising awareness regarding diagnostics as an important first step in treating diseases in Tier 2 and Tier 3 cities will benefit the industry, at last including Dr. Lal PathLabs.

Further, I'm pleased to share with you that the Board of Directors of the company have approved an interim dividend of 60%. That is INR 6 per share to the equity shareholders of the company.

With that, I would like to hand over to Om to share his thoughts and updates on the operational performance.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [4]

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Thank you, Dr. Lal. I'm pleased to announce another quarter of operating results for the company. To share quick highlights for the company, our revenue for the quarter was INR 365.6 crore, an increase of 15.1% year-on-year. For the half year, revenue stood at INR 700.8 crore, up by 14.9% compared to first half FY '19. In Q2 FY '20, the patient volume on a visit basis is at about 5.3 million, a growth of 12.1%. And for first half FY '20, patients served is at 10.2 million, a growth of 13.9%. Tests per patient have gone up to 2.45 in the quarter as compared to 2.34 in the same quarter last year. As we strive to broaden our presence, the contribution from rest of India has been increasing, and it now stands at 59%. The growth of rest of India regions in Q2 FY '20 is at 20.2%. Our focus is on driving our top line growth through volumes organically as our network expands.

One factor that I wish to highlight is that the contribution from our network has been improving at robust rate. This is crucial to capitalizing on operating leverage in our system. Our bundle package Swasthfit continues to gain popularity with our patients, and its contribution now has increased to 15% of our overall revenue. Our growth strategy is to strike a [medium] balance between penetrating deeper into existing markets and expanding into newer markets, especially in [West region]. The country is underserved by quality and trust for the diagnostic service provider. We would like to be known as the leader in adoption of best practices in the [large unorganized space]. Our approach to growth remains measured as reflected by strategic smaller acquisitions that we have completed. These are essentially partnership with trustworthy local brands and doctors who are very closely aligned to India e-commerce as well as values. On our broader plan, we continue to evaluate meaningful opportunities to add capabilities at a reasonable level by way of inorganic means, but again, our approach is really prudent and well deliberated.

With that, I conclude my opening remarks and would request Ved to give an update on the financial performance.

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [5]

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Thank you, Om. Good evening, everyone, and thank you for your participation on this call. I would like to share with you some of the important financial highlights. Revenue for Q2 FY '20 is at INR 365.6 crore as compared to INR 317.5 crore. In last year same quarter, a growth of 15.1%. Revenue realization per patient for Q2 FY '20 is at INR 687 as against INR 669 for Q2 FY '19. Normalized EBITDA after eliminating the impact of stock-based compensation, CSR expense and impact of Ind AS 116 in Q2 FY '20 stood at INR 104.7 crore as compared to INR 90.5 crore reported in Q2 FY '19, a growth of 15.7%. Normalized EBITDA margin for Q2 FY '20 is 28.6%. PBT for Q2 FY '20 is at INR 102.3 crore as against INR 88.1 crore in Q2 FY '19, a growth of 16.1%. The company has exercised the option under Section 115BAA of the Income Tax Act as introduced by the Taxation Law Amendment Ordinance 2019. The company has remeasured income tax and deferred tax provisions for 6 months ended September 30, 2019. The applicable income tax rate is now reduced to 25.17% from 34.94% earlier. We have recognized the impact of this change in the results for Q2 FY '20. Accordingly, PAT for Q2 FY '20 is at INR 81 crore as against INR 57.3 crore in Q2 FY '19, a growth of 41.4%.

Cash, FDs and investment in mutual funds as at the end of Q2 FY '20 is at INR 782 crore. EPS Basic for Q2 FY '20 is INR 9.77 per share versus INR 6.91 in the same quarter last year.

Further, as you are aware that the company's wholly owned subsidiary PathLabs Unifiers Private Limited has acquired a 70% stake in APRL PathLabs Private Limited, which has acquired the business of [Masat Amin] Pathology. This acquisition will help us to further strengthen our presence in the State of Gujarat.

That brings me to the conclusion of my opening remarks. And I would now invite the moderator to open the forum for question and answer.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Chandram Muthiah from Goldman Sachs.

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Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [2]

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So first question is on the patient volume growth. You reported 12.1% for this quarter. I understand last year, the patient volume base might have been a little higher for some of the promotional schemes you've rolled out in East India. So if you remove that from the previous year base, what would your patient volume growth for this quarter have been?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [3]

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Our patient base is [about a tier up]. Operation base would expand at the 120 basis points. Patient growth rate [would] (inaudible).

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Arvind Lal, Dr. Lal PathLabs Limited - Chairman & MD [4]

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(inaudible) about 13.2% if you adjusted for the [BT] activity that we (inaudible).

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Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [5]

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Makes sense. Makes sense. That's helpful. Second question is just on guidance. You've made 3 acquisitions so far this calendar year. And if we -- if I just do some rough math, and if we were to assume that these acquisitions were to contribute in the back half of the year, it looks like a benefit of about 50 basis points to 1 percentage point on the overall growth. This related to your guidance of 14% to 15% top line growth. Would this be in addition to the original guidance made at the end of the previous fiscal year?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [6]

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We actually don't really give guidance for the year until last quarter. I've mentioned that we really don't want to make a -- put a figure around what we'll do until year end. But as our strategy has been -- some of these smaller acquisitions are part of normal day-to-day sort of business that we do. So unless there is a very large acquisition, there is not any material impact on the way we are looking at the market. But however, on the long-term basis, we believe that we should be in the phrase] less than 2 to 3 years per [second].

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Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [7]

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Makes sense. Make sense. Just related to this bid, you mentioned about the tax rate coming down to 25.17%. Is that the full year tax rate that we need to assume for FY '20?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [8]

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Yes. The 25.17% is the effective rate for the full year. So whatever the first quarter -- in fact, we are already incorporating this quarter.

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Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [9]

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Right. Right. And just last question is on the other expenses. So if I look at your other expenses, it looks like it's been sort of flat Q-o-Q while revenues have grown 9% Q-o-Q. Last 2 years, I don't think you've been able to control other expenses. That's why I'm just trying to understand how you've been able to control other expenses this quarter?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [10]

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So last year, we had some extra expenses on marketing expenses on the engagement and on retail kind of activity. This year, comparatively, it is low.

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Operator [11]

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The next question is from the line of [Sayed Kasad Rabu] from Bajaj Holdings.

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Unidentified Analyst, [12]

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Sir, congrats on the good set of numbers. As I understand from your opening remarks your [superior] leadership position [based on] 3 factors. One is the network. One is your profession [acting] with Dr. Lal (inaudible).

So in terms of the best practices, can you highlight 2 or 3 key features? You mention the best practices that you follow versus [peer] (inaudible)?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [13]

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So as a result comparisons from peer group, I would say, but some of the practices that we actually follow is that we focus on 3 key areas: One is the quality; and taking the service; and third is making sure that our price value creation is competitive. So on the quality front, many of our Labs are CAP accredited as well as NABL accredited. So there is a very, very sharp focus on quality and very sharp focus on service side of it. We are investing a lot behind technology so that patients can download their report on the net or on the move or through our app. They can book online and pay online. So there is a lot of investments going in the area of technology. At the same time, we actually try to leverage scale as much as possible so that our price value creation remains competitive.

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Unidentified Analyst, [14]

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In terms of accuracy of your results, like what set them apart from (inaudible) local diagnostic companies? Like, what are the recent parameters that you can highlight?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [15]

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So I think at the broad level of this call, there are 2 or 3 things which are very important because many of these labs have similar sort of make of analyzers because most companies supply to all labs. But what really makes the differences in good quality lab versus not-so-good quality lab is control and calibration. Calibration for every machine has to be done on a daily basis. That's where I would say that some of the smaller labs may cut corners and may not do calibration on daily basis. That may lead to fluctuation in the results. I think that's a very important area. How we monitor that is by running controls at regular intervals. As for the protocol, we also do a lot of proficiency testing where a [counter] sample is checked at some other location. That's how we establish quality.

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Operator [16]

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The next question is from the line of Sriraam Rathi from ICICI Securities.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [17]

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So firstly, what was the contribution of Northern region this quarter? And how would have that grown in the quarter?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [18]

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Contribution from Northern region, I think we have basically started making a sort of split between Delhi NCR and rest of India rather than North or the region. So our rest of India contribution has gone up to 59% compared to 57% last year same quarter. So essentially, it means that, this is a point we've been consistently mentioning, that while if we grow good in Delhi NCR it's a bonus, but we want to make sure that our company is not standing on one leg. And we're happy to share that we continue to do very well in rest of India market.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [19]

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Sure. Got it. Got it, sir. And sir, secondly, from the last 2, 3 quarters, we are noticing that the realization per sample per patient has been quite stable. So does that mean that the declining situation is over now behind us? And so there could be a possibility of some growth on the realization also?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [20]

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I personally won't bank on this area because it gets fluctuated. This depends on multiple variables. Of course, the contribution of rest of India does make a big difference. Mix between B2C versus B2B also makes a big difference. A contribution of Swasthfit versus non-Swasthfit makes difference. But overall, I would say that our business really has to go through volumes than realizing per patient. So give and take, here and there, some quarters, you will see fluctuation, if the new value tests are lower. That's why you see this value going up and down. But personally, if you ask me on a long-term basis, I really won't -- we'll see that very high improvement on revenue per patient.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [21]

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Okay. Got it, sir. And sir, lastly, more from the broader perspective that there has been a lot of talks that keep on happening on the price cap -- possibility of price cap from the government. But I mean just wanted to take your assessment, or I mean what would be your view on that? Because there are also multiple labs at a level above which offer lower cost test. So I mean, what would be your assessment on that?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [22]

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So we don't have -- yes, please carry on.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [23]

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Because this creates a lot of uncertainty from the future growth perspective of a company like Dr. Lal. So that's why I want to get your view on that?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [24]

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We don't have any fresh information to share because what I shared last time is what we gather from the media. Now as far as the pricing is concerned, I keep implicitly saying that this is that part of the value chain where the quality is more important than the price. Overall, contribution of diagnostic in the health care cost is not more than 5%. So I think on this area, one should focus on quality because if you get this wrong, downstream costs of implication on somebody's life can be much higher. And market forces in this space is so much that it is highly competitive space. So already, if you adjust for inflation, actually prices are going down over a period of time. So I would say that need of the analyst to really look at the quality aspect around price. However, any move from policymaker is concerned, we don't have any fresh update. As far as the risk is concerned, that continues to remain as it was before.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [25]

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Sure, sir. Sure. And sir, lastly, I mean anything you're hearing from the regulatory perspective basically to regulate the laboratories and all.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [26]

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There is some amount of regulation already in place because Clinical Establishments Act that exists, many of the states have now started adopting it, and require a fee license for a lab, which is, in some ways, ensuring that some bit of regulation has already started falling in place in [many states]. So you require a fee license now to operate labs in many states.

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Operator [27]

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The next question is from the line of Pritesh Chheda from Lucky Investment Managers.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [28]

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Sir, I didn't understand your comments on the flat cost that we have seen in the first half. And what is the outlook there? And I see a bit of seasonality in your business in the second half. So if you could comment because also the other part here is, should we take this 26%, 27% margin as representative of full year? Or your second half has a seasonality? And [what is leverage] for Q2.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [29]

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Second half [indeed] lower than the first half. As we said that we don't exactly comment on the year outlook, but if you look at last few years' trends, second half generally tends to be lower. And overall, margin if we study for the last 16, 17 quarters, we will notice that second half margins were also slightly lower than the first half. So I think one can apply that and fill it out as to how it is.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [30]

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And usually, what should be the cost base rise for you for a 14%, 15% top line growth, which has a 12%, 13% patient growth?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [31]

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So as we've been saying that we don't want to really -- we want to make sure that the entire growth in the company is aligned with the volume growth. So our cost structure should ensure that whatever normally increases there and also [around] growth business expansion. So I actually would say that it should be in line with what we do in volume.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [32]

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Okay. Expense growth should be in line with volume.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [33]

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Yes.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [34]

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And lastly, on your expansion side. So what is our capital expenditure? And usually, what kind of expansions do we take in terms of reach or point, touchpoints, et cetera, which itself brings you the growth?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [35]

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So we generally have INR 30 crore, INR 40 crore kind of maintenance CapEx, unless until we do some any mega project. So this is how we are looking this year or the next couple of years. It's about INR 40 crore, INR 50 crore of CapEx.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [36]

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And normally, the split between IT and instruments on...

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [37]

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New labs.

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Arvind Lal, Dr. Lal PathLabs Limited - Chairman & MD [38]

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New labs. These are 3 big areas where the capital expenditure gets consumed.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [39]

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But you do not set up distribution infra along with it? Or that usually is franchised?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [40]

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Collection infra -- sorry, not distribution. Collection infra is franchised out. So there is no capital expenditures involved because whatever CapEx is required, [I believe it] also is incurred by the franchise.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [41]

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What is the usual collection infra group in terms of number of touchpoints or particularly your -- the metrics is captured.

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Arvind Lal, Dr. Lal PathLabs Limited - Chairman & MD [42]

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Our connection center infrastructure grows at about 10% to 12% a year in number of unit terms, but each one has a cycle of maturity.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [43]

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So that basically translates into your 12% volume growth?

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Arvind Lal, Dr. Lal PathLabs Limited - Chairman & MD [44]

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No, no, no. That is where the majority [calculates] every unit there with same kind of curve.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [45]

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Okay. Okay. Okay. But your greater than 3 year correction infra would be growing on the LTL basis, right?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [46]

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Yes, same-store growth.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [47]

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What do you mean by it?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [48]

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Same-store, same-store.

Like, which is very much same-store growth and that definitely would be around 9%, 10%. [Letting] as far as value growth is close to 13%, 14%, 15%, this is around 9% or 10% will be like-for-like.

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Pritesh Chheda, Lucky Investment Managers Private Limited - Analyst [49]

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Okay. And the balance 3% comes from expansion in...

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [50]

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Yes, absolutely.

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Operator [51]

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The next question is from the line of Prashant Nair from Citi Bank.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [52]

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I had one question on your -- the M&A that we have seen recently. You seem to have done a few more acquisitions in the last few quarters than you've normally done in the past. And not all of them have been in your traditional strong -- like, either North or East. So is this a conscious decision to put more capital at work and expand a bit more aggressively? Or is it just going to -- when you've got some good assets all around the same time? Which -- how should we look at this?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [53]

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So Prashant, if you go back with our stated strategy, we have always been saying North and East are our core markets for organic. South and West are for inorganic. In South and West, we've had 2 focus cities, which is Pune and Bangalore, and it's in line with that strategy that we are looking for a possible consolidation of M&A targets in these markets. So there is nothing new. It's more in line with our stated strategy of looking at inorganic in South and West.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [54]

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All right. And just one more question. Have you taken any price hikes this last quarter? Or does it continue to be rebalancing, depending on [what you think in each market]?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [55]

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I think we shared in the last quarterly call that we took some price increase in Delhi NCR. It is very marginal and nothing very material, but we did take some price -- I would say price rationalizing. Some places, we dropped it. Some places, we took it up. But net-net, I think there was a bit of increase in the DNCR. And we took this in the month of June.

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Arvind Lal, Dr. Lal PathLabs Limited - Chairman & MD [56]

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June and July.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [57]

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June, July, I think we took that price.

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Operator [58]

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The next question is from the line of Keshav Lahoti from Angel Broking.

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Keshav Lahoti, Angel Broking Limited - Equity Research Analyst [59]

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Congratulations on a good set of number. I just wanted to check now that with this tax cut that essentially puts more money in the company's hands, which can ideally be reinvested back in the business. So how would you -- would you be looking at doing price cuts or something like that in order to take away market share from the unorganized sector? Is that an option?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [60]

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See, cash flow was never constrained for us as a company. So I'm not sure that extra cash is going to make our life different or our strategy very different because we always had cash. As far as the pricing would be concerned, it will increase your path to operating performance, in any case is not favorably impacted. So we continue to look at our operating as we were looking at before. So I'm not sure as to -- unless we have some good assets, a good sort of -- we don't want to change something for the sake of changing it just to use our extra cash. So we will be very prudent in terms of where we invest. I think, to my mind, does it change our strategy, no, answer remains. We will continue to operate as we were operating before because cash was never a concern earlier also.

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Keshav Lahoti, Angel Broking Limited - Equity Research Analyst [61]

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I just also wanted to check because that is a type of consolidation which is going on in the industry, given that we have a lot of private equity [base] players, who haven't really been funded for quite some time. And I'm talking about probably some of the smaller second and regional players. So would it be fair to say that at this point of time, some of these smaller players' business would be coming under pressure? And at some point of time, you will have enough acquisition opportunities, especially in your preferred market of West and South?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [62]

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Yes. So in any case, that strategy was there before also, and we'll continue to operate that way. But we won't honestly be chasing that asset just because we have extra cash. If there are good assets, we will definitely invest. That, in any case, has happened before also.

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Keshav Lahoti, Angel Broking Limited - Equity Research Analyst [63]

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Also given the fact that we are also acquiring a lot of scale at this point of time, which gives us a broader period of time, which will also give us some amount of additional competitive advantage. Do you -- are you looking at now becoming a bit more aggressive in terms of your growth strategy? And would you be looking to -- in terms of becoming more aggressive in order to accelerate growth from whatever, the last 3, 4 year average of around 13%, 15%? Or are you -- would you be looking to accelerating growth further from year on?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [64]

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So my response to that is, it's not that -- my response to this question would be that we'll definitely be looking at larger geographical presence. I think in the last 3 years, post our listing, we have focused quite a bit on the East. While we continue to focus on East and North, we would want to put extra effort in other parts of the country. And I think as Prashant asked this question earlier, that West region, we have done a couple of acquisitions. So our focus now will shift to, more to these markets to see how we expand our presence in noncore markets.

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Keshav Lahoti, Angel Broking Limited - Equity Research Analyst [65]

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And a final question from my side. These acquisitions which you have done this year, what would be the total contribution in terms of absolute number to the top line? And how much have you paid for them totally, for these acquisitions?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [66]

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I think if you annualize it, because we may not have the entire annual impact this year. But if you were to annualize it, my sense is about 1.5% contribution [deliver] to top line. And in terms of how much we paid, it was?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [67]

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We paid about INR 49 crore for...

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [68]

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About 70% for this. So we don't have exact numbers on [this]. Maybe offline we can take this question and give you a correct answer. I don't want to get [an error] on this.

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Operator [69]

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The next question is from the line of Prakash Kapadia from Anived Portfolio Managers.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [70]

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As a customer, if I book a test through the call center, I am charged with collection charges. If I do it online, that is waived. So why this anomaly? And pricing seems similar, be it online or through the apps. Any thoughts on [this difference in] pricing?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [71]

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So [there but at here], we are trying to decide as fast as possible and move people to online. So on the app, there is lot of new features like time slots, et cetera. So every call which comes to us costs us a certain sum of money and a follow up and so on. But digitizing it, they're able to move to a relatively self-service options. It's better for the customer and better for us also to operate. And that is something that is really incentivized to move as much as possible to a digital system.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [72]

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But no thoughts on differential pricing.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [73]

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It is a promotion being run to encourage digital movement.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [74]

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Okay. If you could share some of the app downloads till now, some number. What are we trying to increase the download of apps because I think that will ensure lot of stickiness to our brand.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [75]

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Yes, you're absolutely right. We are focusing a lot on the digital adoption. However, I would be very cautious of downloads as a metric in our business. What we are really trying to improve upon is [of our] active customers commonly are on the app because app download can be very different in many other industries. We would like to put a metric around a number of our current customers on the app, we can create a stickiness for us. The exact number on this, I don't have it readily available, but we can share it you in a different way.

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Unidentified Company Representative, [76]

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[On an email let's say].

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [77]

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Sure. Sure. And if you could also comment on the Calcutta market, what has been the trajectory in terms of patient volumes. And Delhi NCR, any impact on the dengue season, positive or negative? And currently, what is happening in Delhi? Any impact on footfalls or business? Because we hear and see a lot of things on the negative side in Delhi specifically.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [78]

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Okay. You're asking 3 questions. So first question is East India. So it continues to deliver good growth. So it's on volume, [400 minimum] or 24%. And in value terms, it's about 20%. So it's higher than what we have done -- sorry, this is first half.

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [79]

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(inaudible)

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [80]

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(inaudible) Sorry, I mentioned [last] quarter. So the first -- the volume trend is 20% and value also is 19.6%, about 20%. So that's the kind of growth trend. As far as Delhi NCR is concerned, this year, what I've seen a healthy season compared to what normally one sees. And that's a trend which continues even now also. Any decision from a perspective of [reactor bonding] via air pollution, I have no comments.

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Operator [81]

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The next question is from the line of Nirmal Gopi from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [82]

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This is Nitin here. Sir, just to reiterate, you mentioned that for the quarter versus the 15% overall volume growth, 20% was in rest of India. And what was the number for NCR?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [83]

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So our NCR growth in terms of value was about 8%. And so that's how our average came out to be 15-odd percent for the quarter and the company.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [84]

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Okay. But [appeared] the size of this growth, which is more sort of skewed toward the ROI, the rest of India market sort of has come with an improvement in patient realization. Any kind of common understanding, are you speaking about that your rest of India market business has a relatively new realizations. So how do we reconcile that?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [85]

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So I think, last year, Q2, we had a lot of promotion done, and we had a lot of free patients and that brought down the revenue position. But this year, that has gone away from the volume and so this year the revenue position going up. So I won't really read too much into RPP going up in rest of India. But I think the question is still valid that rest of India is driving our growth because there is a very focused effort that we are putting in, in making sure that our geographical footprint grows because we do realize that Delhi NCR is a smaller market. It's just about 4, 5 crore population block, while rest of India is huge. And we need to make sure that our collection center network, lab network grows in rest of India. And these efforts have been going on for some time. I think the question is to ask is that how are we able to manage our EBITDA margin, despite this proportion moving to much higher to rest of India. So that's where, as a management team, we are [putting] now for their entire infra we expand outside, it's productive and calibrated to the extent that we don't have adverse impact on EBITDA as we go forward.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [86]

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This is just taking a point up from there. And this is a fairly commendable job that your management has done in terms of the overheads which are there because the growth in overheads, for the last few years especially, has been fairly muted. And this was around the time when, as [Isad] mentioned, the ROI [digest of] India business has meaningfully scaled up over this period of time. But when you look at -- again, in the context of the rep -- the cost base which is there, and the phenomenal work that you've done on it over the last 2 years, less than -- and which leads to -- has led to a lesser increase -- I mean the cost has grown less than the revenues over the last 2 years, especially in the first half of this year. I mean how much scope do we have to optimize this cost base even going forward? I mean will it still continue to lag the revenue growth as we go forward?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [87]

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Yes. Our operating expenses tend to go up if you increase the lab infra. So we are looking at ways and means of making productive and which essentially, we're trying to see how we take advantage of scale. So in a very calibrated manner, we identify markets where we drive growth because spreading ourselves too thin can create this issue. So if you go line by line, there are many areas like rent, et cetera, we have been able to become more efficient. So a combination of all this put together, we're trying to manage this. But I think the key issue is -- or a key thing that is required to be managed by us, as a proportion of rest of the year growth, how do we make sure that we don't [bother] our margins. And that's where we continue to focus on and use scale to our advantage as much as possible.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [88]

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And is there a sort of difference between rest of India and Delhi would be obviously at the -- is there a major difference at the gross level also in these 2 businesses segments? Or it's the largely the difference comes -- is there a larger scale impact? The fact that you operate in Delhi at a smaller -- in a more compact scale, it lends itself to a better EBITDA margin.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [89]

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Yes. These 2 businesses are slightly different because if you look at our -- Delhi is our business. That's where we started, which is more walk-in. There is a very high footfall. A lot of facilities are balanced by our own infra. But as you go to the rest of India, that's where we start leveraging our franchisee network. And it's a lot of costs is actually borne by franchisees far than on our P&L.

So -- and lot of it is actually -- I know B2B sounds a little negative, but it is basically through partners we get a lot of business in rest of India. So I see that these are 2 different kinds of profile of businesses that we have in one company. So if that answers the question...

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Operator [90]

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The next question is from the line of [Sarem Salekh from Icarus].

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Unidentified Analyst, [91]

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[Just question. If any adjust for one contain the growth which you mentioned. So as around 13.2% growth rate].

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [92]

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Sorry to interrupt you, can you repeat the -- couldn't hear you properly.

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Operator [93]

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Sorry, we seem to have lost his line. So we'll move to the next question, which is from the line of [Sumit Chanvwani] from Daiwa Asset Management.

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Unidentified Analyst, [94]

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So you're just highlighting on the cost part of it from the rest of India. So at what point of time are you going to benefit from the operating [synergy] and start to incur higher CapEx or setting up of regional labs or [some setup of labs] in West and South markets. Since you're not doing a lot of acquisitions and increasing the scale from there. So at what level do you start incurring CapEx for that?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [95]

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Actually, this is quite a complex calculation because we are also seeing very high level of automation that's coming in this space. So one is able to actually manage testing at a very high sort of capacity with very low manpower. So I don't have an off the cuff any number to share with you, but I don't think that's a major challenge. But what we are seeing is that cost of processing is actually going down because automation is going up. And what it means is that you don't require a large space, you won't require a large manpower, and machines are able to do -- very high throughput machines are able to actually do testing at a very low cost. So that's how we are able to manage our cost structure.

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Unidentified Analyst, [96]

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So -- no, I am coming from the point of view that we started with the East lab, and they started to shift the volumes from Delhi to East lab. So at what point of time you'll look at a critical volume as [least and] you require original lab in the West or South or...

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [97]

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So I think we probably are re-looking at the way our model of East and North has been because these labs are close to 60,000, 50,000 square foot lab. We are now able to manage it in a much smaller space. So we may not require that kind of expenditure as we have seen in East going forward.

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Operator [98]

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The next question is from the line of J. Madhavi from Narnolia Financial Advisors.

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J. Madhavi, Narnolia Financial Advisors Ltd.,Research Division - Research Analyst [99]

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So my first question is regarding the number of clinical labs, PSPs and PUPs. So if you can share these number as on date, that would be helpful.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [100]

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So we don't give numbers on a quarterly basis. As of March [2019]...

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [101]

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200 labs.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [102]

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200 labs we have as of March 31, 2019 because these numbers are very dynamic. We want to make sure that we don't end up [coming around further] direction, and we will now give a final number as of March 31, 2020.

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J. Madhavi, Narnolia Financial Advisors Ltd.,Research Division - Research Analyst [103]

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Okay. Okay. Sir, so as on FY '19, we had around 200 clinical labs. If you can share how much of these are owned labs and how much -- how many of these are franchised?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [104]

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Okay. Primarily, they are all owned by us, with the exception of a few franchisee labs. I don't know the exact number, but they are in the area of like Jammu and Kashmir and (inaudible) also there -- maybe low single digit. But our strategy is to have our own labs and franchise out PSCs. And all -- most of our PSCs like 95% PSCs would be franchised out.

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J. Madhavi, Narnolia Financial Advisors Ltd.,Research Division - Research Analyst [105]

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Okay. So sir, as of today, how many PATs are owned by us.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [106]

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So 2,569 is the number as of 31st...

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [107]

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Owned by us.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [108]

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(inaudible) So as of today, we have [2,469] (inaudible) franchise as of 31st March, 2019. And of that, about 90 odd are owned by us. So it's a very small number.

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J. Madhavi, Narnolia Financial Advisors Ltd.,Research Division - Research Analyst [109]

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Okay. Okay, sir. And my next question is, how should we see the growth in the number of [PSPs] and PUPs in the next 2 to 3 years?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [110]

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So as Bharath mentioned, that close to 10% to 20% growth, once we've seen these PSCs because our focus also is to see that same-store growth or throughput per PSC goes up, and we should see it [in scale] in channel also. So our focus is not only just to increase the number of PSCs but also throughput for PSC. Just put a number, I think, about 10% is the number you should expect.

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Operator [111]

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The next question is from the line of Neha Manpuria from JP Morgan.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [112]

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Sir, we've done a couple of acquisitions in the last year. Have valuations that the key players or some of these owners come down for deals? Has that made it easier? I'm asking this because a lot of key players peg valuations to the list of players like yourselves and others recently, which would make it difficult for you to get attractively priced assets, right?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [113]

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No. Many of these acquisitions that we have done, they are not [pre] funded players first of all. So we are very...

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [114]

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But for other -- I mean if you're looking at slightly larger deals, like these were more standalone smaller labs.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [115]

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Yes. So if you look at last time, also I shared, there are 3 kinds of players: One, of course, large player is at the top, these are about 4 or 5. Then there are city-based players, which are -- some of -- many of them are [P] funded. And effort is now moving to the bottom of the [travel] there, which are city-based small players. And [there appear] side of [0] are moving to see if we can build a critical mass around [pola city]. And as we mentioned they're [season]. So we are not P funded player. So we are going by -- we are very selective in this and seeing the quality of asset rather than just acquiring for the sake of acquiring.

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Neha Manpuria, JP Morgan Chase & Co, Research Division - Analyst [116]

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So we'd rather go with the standalone city-based players than the second tier.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [117]

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Second tier, we are always open. But I'll say, right now, those deals are not on table.

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Operator [118]

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The next question is from the line of Dhruv Jain from AMBIT Capital.

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Dhruv Jain, [119]

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Sir, I had a question on your Bangalore market. You said that it's a key market for you. But considering there are a lot of other notes [fee-backed players] and a couple of other district players, how [do you view] the growth? And what's the operating trend there?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [120]

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In Bangalore you mean?

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Dhruv Jain, [121]

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Yes.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [122]

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Yes. We don't have specifically sort of a number right now. We are -- if you -- we can offline and take this question. Specific number, I don't have.

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Dhruv Jain, [123]

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Just (inaudible) market (inaudible).

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [124]

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In figure, as we mentioned, 2 focus cities. One in West and one in South. Pune continues to stay a focus city. Bangalore would also be a focus city for us. And the reason why these 2 cities we picked up because we believe that these cities have a sort of a cosmopolitan population where a lot of North Indians are there and brand equity [is solvent] in certain parts of the city. And if you can build a critical market, it's helpful to expand the entire region of South and West.

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Operator [125]

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The next question is from the line of Manish Poddar from NIPPON India.

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Manish Poddar, [126]

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Sir, any idea on e-market growth, let's say, for the first half of this year?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [127]

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It's a great question. I think some companies now -- because Q4 are listed. And a couple of them have already declared results, and we [disconnected]. I think if I look at peer group, they are into some mid -- sorry, low single-digit kind of growth rates is what I have been told. So we'll all put it together and see how it is, but it is definitely in the area of about 8% to 10% is the volume growth I see.

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Manish Poddar, [128]

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Okay. And how now are pricing in East India stack up compared to the other players?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [129]

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Sorry, can you repeat?

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Manish Poddar, [130]

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I'm trying to understand that pricing in East India, how does it now stack up with the other players in those markets?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [131]

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The same price is set compared to our players.

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Manish Poddar, [132]

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Because earlier, we were given at a discount, let's say, to the pricing, which is there in North India.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [133]

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No. Well, I'm prepared to see. That's our internal benchmark. So I think that is a question that needs to get asked, is it how is your pricing compared to Delhi NCR. That obviously is at a discount because our cost structure is also very different. But as compared to local competition, we are competitive. It's not a discount or a period. So I would say, it's very similar.

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Manish Poddar, [134]

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Okay. And is that number, let's say, how many, let's say, help me just try to understand, how many patients booked through the app or through the call center, let's say, in the last 6 months? Just trying to understand, let's say, of this total 10 million patients, how many would be doing that?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [135]

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It's very small actually. It's not worth talking about. And my sense is that I know everybody's talking about app online, et cetera, because we are in the medical business, we want to make sure that there is no error. [Pre application is] a very important area for us. I don't know unless you push the market onto booking on app and then we have a lot of other related issues because test names are very complicated. Each test, there are [10 such variants], and there is no common knowledge with the patient. So there is always a possibility of committing an error. So I think this app business is more suited to screening kind of packages, health packages there, just pick 1 or 2 from a drop down and book it. But if you actually go to a prescription, that is really complicated. So I really won't [in this get] overexcited by app booking, et cetera.

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Operator [136]

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The next question is from the line of Tushar Manudhane from Motilal Oswal Asset Management

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [137]

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So just for the rest of India market, if you can just include a broad breakdown of B2B and B2C separately?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [138]

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Yes. So I think as a company, we have -- our B2C business was 60-odd percent, 40% in B2B. Rest of India would actually become [other beyond].

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [139]

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So 40% for B2B and 60%, is it?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [140]

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Yes. So I would say so.

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [141]

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So basically, B2C share is much higher than the B2B for rest of India?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [142]

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B2B share is much higher in the second year. And the definition of B2B is that we pick up a lot of samples that are sent from hospital that is [how the rest of B2B is].

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Tushar Manudhane, Motilal Oswal Securities Limited, Research Division - Research Analyst [143]

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And so again, for the rest of India, what would be like average realization in each of these segments?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [144]

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I don't have a B2B, B2C stake here, but rest of India realization is close to 55% of what we realize in the Delhi NCR. So 60% to 65% is realization. But that realizing should not be misconstrued as if our pricing is lower to that extent because there is a lot of net rate booking that happens in rest of India. We're seeing what happening in billings here because here, we connect [dots]. [Oftentimes] contribution is much higher. And we have a [net weight] pricing in rest of India. That's why the realizing is lower. But that does not mean our margins are lower to that extent.

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Operator [145]

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The next question is from the line of [Manoj Sehgal]from [Manoj Capital].

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Unidentified Analyst, [146]

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Yes. I have 2 questions. In your annual report, on the P&L, you have an item fees to collection centers and channel partners, it was roughly 12%, 15% of your revenue. So I wanted to understand how does the flow of cash flow. So when the patient comes to your collection center, he or she gives a sample and she pays at the collection center and does money all come to Dr. Lal Path and then you pay out to the collection center, because that's what the P&L suggests. Or is it the other way around?

And then how does the fees or referral fee to the doctors get paid?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [147]

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I think you're [marching] on the wrong 3 years. We don't give any referral fee to the doctor.

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Bharath Uppiliappan, Dr. Lal PathLabs Limited - CEO of India Business [148]

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So fee?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [149]

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No. Sorry -- we have 2 questions. Question number one.

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Bharath Uppiliappan, Dr. Lal PathLabs Limited - CEO of India Business [150]

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So fee to collection center is about 13%, which you are right where patient is paying to the collection center. We collect 100% and then we pay to franchisee or collection center. And the second question...

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [151]

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Second question, we don't have any arrangement doctors. So there is no such question on that.

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Unidentified Analyst, [152]

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So even the collection centers are not paying to the doctors?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [153]

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Correct.

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Unidentified Analyst, [154]

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Okay. And then my second question is, you talked in the beginning about the Ayushman Bharat Scheme. If you see some of the other examples in countries like Indonesia, where they have a similar medical health insurance scheme which actually has done very well. As it scaled up and became very critical in terms of scale, it actually resulted in much higher volumes, but at much lower cost. So what is your expectations of the Ayushman Bharat driven business in India if the scheme were to scale up in a meaningful way? And any potential impact on not just Dr. Lal, but other health care providers?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [155]

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So with the Ayushman Bharat Scheme, so far, which has been what we have seen -- they've seen about, I think, 1.7 million patients. It is largely due to the inpatients, et cetera, et cetera, and the outpatients, which have gone to their so-called health and business centers. But actually, the technology part is not involved. So being a service provider only for diagnostics has not impacted us at all so far. But the government of India will have to take a call that whether we put pathology in the OPD charges, et cetera, so that's a different ballgame. Right now, we're talking about IPD. And IPD, all those things are internal inside the hospital, built into the charges of what a particular procedure is costing in all of these hospitals.

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Unidentified Analyst, [156]

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So if the pathology were to come under the scheme, would you take up that business and be keen to be a service provider? Or would you not take that business because it probably would come at lower prices [and participation] and volume.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [157]

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[We don't see] the economics of that as [having] acceptance.

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Operator [158]

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The next question is from the line of Sameer Baisiwala from Morgan Stanley.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [159]

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On post the acquisition, what are the next few steps for you to get more entrenched in those markets? And how do you take, say, for example, INR 15 crore revenue to INR 50 crore? What's the journey like?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [160]

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So it's clearly focused strategy. We just want to build scale in a limited geography. And that asset actually has equity into contiguous markets. Our expansion plan would be to pick up districts close to that [place where] we acquire. So it's clearly a path of growth we will follow wherever we have done these acquisitions.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [161]

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And so therefore, then you'd go out to these [acquisition] districts [and they will have] new franchisees, PSCs and an open [a mad]? Or is that the way you expand this?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [162]

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That's right. And we also bring a lot of processes, a lot of consumer-facing initiatives where service levels go up and things like that. So the brand experience becomes very different. So whatever our learnings have been from our own parent business, we try to transfer to that acquirer so they can grow in the contiguous markets.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [163]

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Okay. And any number targets sort of that you doubled, tripled the revenues over a certain time frame or something?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [164]

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Actually, in the short term, there is a lot of pain as well because we -- first, we end up cleaning up office because many practices may not be aligned to what we do. So actually, things tend to get worse before they start looking up. And the slight dip and then a couple of years down the line, it starts moving up. I want to share one example we had in [Cantore] where we did an acquisition about 10-odd years back. The business has become 10x in about 10 years. So if you actually draw that learning and see if you can grow these smaller assets in a smaller market. But idea is that these smaller acquisitions also will go through more pain of cleaning up first. But these people, these labs owners have good equity in these limited markets.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [165]

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And just one final -- as a side question. Any thoughts of going international? Or it's pretty much in -- here in India?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [166]

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I think our primary focus will continue to remain India and South and West, as we mentioned in the market, which is where our shares are and where we [normally] first attempt to do something there.

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Bharath Uppiliappan, Dr. Lal PathLabs Limited - CEO of India Business [167]

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And we already have labs in Nepal and Bangladesh [we got] internationally.

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Operator [168]

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The next question is from the line of Pankit Shah from StockAxis.

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Pankit Shah, [169]

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I would like to understand that how is the response from this tender is kind of the like as such [growth there], other -- what is the growth there? And how are the margins there?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [170]

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The growth rates start continue to be very robust, upwards of 30-odd percent. And the contribution is now 15% of the overall portfolio. The margins also healthy, given that these bundled tests for efficiency. So that is also quite healthy.

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Pankit Shah, [171]

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And [tell me once again] how is the competition with pharmacies and (inaudible).

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [172]

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So we don't have exact sort of information to share, but we are getting mixed signals from there because many of these people are doing cross -- many people are also getting into [value optics]. But we are also finding that some of them are planning on a different scale, because at a city level, they are able to do well, but if you go beyond city then it is quite challenging. And challenges coming out at both ends. One is the front end because they are not able to control the laboratory experience because many of them are home collection-driven models. At the same time, they are also not able to aggregate at the back end because service, quality, both are impacted. So some of them in order to improve both these 3 variables, they have started hiring [claim] (inaudible), they are starting their own lab. And certainly, they find themselves doing the same thing what we are doing. So it doesn't remain an e-commerce stuff. So it's a bit of mix thing. I won't like to give a definitive answer right now. I'm also picking up as much information as possible. And if you guys pick up something, please share with us, so that it helps us design our strategy better.

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Operator [173]

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The next question is from the line of Saurabh Jain from SSJ Finance.

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Saurabh Jain, SSJ Finance & Securities (P) Ltd. - MD [174]

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You earlier commented that the revenue that you're getting per patient is increasing at a rate much lower than probably the rate of inflation itself. Can you comment more on that? And maybe in terms of how would you improve on your pricing power? And will this trend change sometime soon?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [175]

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Our revenue per patient, as I keep mentioning, I don't want to see a pricing as a route to include increase in utilization. But I do see a higher [pain test] contribution to go up. I also see bundling to greatly drive revenue per patient. I also see if I can do a cross promotion, but definitely, I don't see pricing as a route to increase revenue progression.

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Saurabh Jain, SSJ Finance & Securities (P) Ltd. - MD [176]

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All right. Can you also comment on how you're seeing the unorganized space behaving in terms of the lab expansion there? Or what trend are you seeing there?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [177]

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So trend is definitely -- my view there is that an organized space is definitely feeling the heat of growth. On one side, their [own promoters] will take price increases. And since we operate in a limited market, they don't see volume growth. And there is also a pressure on compliances because each lab has to be run by a doctor. They have a [keep] licenses. I think that a lot in that space is going to feel the heat a bit. So they are more and more likely to -- so it's like some people will try to compete with the larger player and [seize in that sector], but most of it would want to partner with a larger ecosystem, like last year, like us. But I don't think any new fresh investments will come as people want to put up more labs. I think those -- that era is gone where labs are going to multiply. We actually have to reduce costs in [some ways].

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Operator [178]

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The next question is from the line of [Kevin Kouriakos] from [Alphaline].

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Unidentified Analyst, [179]

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Sir, can you give an insight into the seasonality in the business. We go for (inaudible). So how the dynamics change within the diagnostics?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [180]

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I'm so sorry, can you repeat this.

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Bharath Uppiliappan, Dr. Lal PathLabs Limited - CEO of India Business [181]

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It's not clear.

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Unidentified Analyst, [182]

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So my question is, how the seasonal -- can you give us an insight into the seasonality upfront.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [183]

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You said seasonality?

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Unidentified Analyst, [184]

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Yes. So for (inaudible), you gave (inaudible).

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Operator [185]

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Kevin, I would request you to check your phone and come back in queue. In the meanwhile, we'll take the next question, which is from the line of [Aman Sharma], an individual investor.

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Unidentified Participant, [186]

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I just have an idea, so I'm not sure whether you are aware of it or not. So there are a lot of life insurance companies like before taking the life insurance, they also take the medical test for the individual, right, sir? And it's [blocks with the company] as well. So are we collaborating in this manner?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [187]

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Yes. This business exists, but these guys, -- they're always looking for lower pricing. So they are like [any one player]. So and then they end up partnering it's not a local lab rather than large like us. But it's definitely, there are some quality insurance players who come to us. The other challenge that we face in this business is that we are not only there for only tests, but we also want some kind of medical sort of MD [BSA] because they will check blood pressure. They will take all of the other parameters. So it's not only the diagnostic alone or test alone, they need some doctor can [take into the very] which in my view a local lab because they can give lowest price and they can manage on that. So that's why this business has never [sort of] very large business.

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Operator [188]

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The next question is from the line of Nirmal Gopi from IDFC Securities.

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Nirmal Ambattuparambil Gopi, IDFC Securities Limited, Research Division - Research Analyst [189]

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Just looking through the numbers. And clearly, if you look to the last 4 quarters, this -- I mean the business is literally (inaudible) 2 halves. We had a fairly tough situation, low growth, low profitability in H2 of last year, and the business seems to have turned around fairly dramatically in the first half of this year. Anything, in your assessment, what is the change in these 2 periods? Is there a way to classify them?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [190]

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I think -- thank you very much if you see a dramatic improvement. I won't read too much into that. But I think one thing consistently that we are trying is to see how we increase focus on rest of India and reduce our dependence on Delhi NCR because rest of India is like open sky. So we focus on East. We carefully pick the markets. We are not a company which is just Delhi based. We are now much more broader based. I think as the brand becomes widespread, we hope to see a better growth. So that's one thing, which I will say on sales.

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Nirmal Ambattuparambil Gopi, IDFC Securities Limited, Research Division - Research Analyst [191]

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Okay. And in terms of the operational focus today on cost outcome in terms of cost optimization, anything else, which is really some -- play itself out in a slightly more meaningful way in the last couple of quarters versus what we experienced in H2 of last year?

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Bharath Uppiliappan, Dr. Lal PathLabs Limited - CEO of India Business [192]

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Yes. Nirmal, we -- as we said, [the note are on] the 3 analytical quality of the operation. And the good quality just doesn't happen out of the blue. So we strive very hard to maintain the quality, especially at the pre analytical level. Second thing also which we have done in the last quarter or maybe slightly before that, is also that we have got a very robust internal quality assessment software, which has never been used by anybody in India before. So at a glance, we can monitor so many outside labs, et cetera, et cetera. And we are much ahead of the curve with anybody else. So these are 2 qualitative things that I can share with you.

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Operator [193]

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As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

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Nishid Solanki, CDR India - IR Manager [194]

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Thank you, everyone, for joining with us on this call today. I would now request the moderator to close the call. Thank you.

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Operator [195]

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On behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.