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Edited Transcript of LALPATHLAB.NSE earnings conference call or presentation 13-Aug-19 11:00am GMT

Q1 2020 Dr. Lal PathLabs Ltd Earnings Call

GURGAON Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Dr. Lal PathLabs Ltd earnings conference call or presentation Tuesday, August 13, 2019 at 11:00:00am 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 - COO & 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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* Aadesh Mehta

AMBIT Capital Private Limited, Research Division - Analyst

* Alroy Lobo

Kotak Mahindra Asset Management Company Limited - Chief Strategist and Global Head of Equities Asset Management

* Chandramouli Muthiah

Goldman Sachs Group Inc., Research Division - Research Analyst

* Gagan Thareja;Kotak Investment Advisors;Vice President

* Harith Ahamed Mohammed

Spark Capital Advisors (India) Private Limited, Research Division - VP

* Manoj Garg;White Oak Capital Management;Director

* Nitin Agarwal

IDFC Securities Limited, Research Division - Analyst

* Prakash Kapadia

Anived Portfolio Managers Pvt. Ltd - Principal Officer

* Prashant Nair

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

* Sameer Baisiwala

Morgan Stanley, Research Division - Executive Director

* Shaleen Kumar

UBS Investment Bank, Research Division - Associate Director and Analyst

* Sriraam Rathi

ICICI Securities Limited, Research Division - Research Analyst

* Viraj Kacharia

Securities Investment Management Pvt Ltd - Senior Analyst

* Nishid Solanki

CDR India - IR Manager

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Dr. Lal PathLabs Q1 FY '20 Earnings Conference Call. (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 afternoon, everyone, and a warm welcome to Dr. Lal PathLabs' Q1 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; Mr. Ved Prakash 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 could 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 circulated to you earlier.

I would now like to request Dr. 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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Thank you, Nishid. Good afternoon, everyone. I'm happy to have you all on Q1 FY '20 results call. Today, I would like to share my thoughts on the industry trends and the key drivers for Dr. Lal PathLabs. Our business momentum continues to be driven by higher patient volumes and sample growth supported by Dr. Lal's established hub and spoke model and emphasis on quality. We have been witnessing a progressive shift in the sector, where volumes have started moving from unorganized to organized players. Further, large portions of people are still under-diagnosed and require specialized medical care, therefore, time-based diagnostics become a key requirement for treatment.

We have grown as a national health care services brand on the back of patient-centric solutions that we have developed. As we move to the next phase, we will strive to strengthen our network presence and test menu, both to enhance accessibility to existing and new patients. The diagnostic sector remains attractive for brands like LPL, where we can offer differentiated services and accurate diagnosis.

At a broader level, AB - PMJAY, under the aegis of Ayushman Bharat, promises to bring in a transformational change in the arena of health care, covering almost 40% of India's population. The scheme aims at making path-breaking interventions to address health holistically in primary, secondary and tertiary care bring both prevention and health promotion. As the country moves towards access to health care for all, we will play a strong role in the development of this sector.

With that, I would like to hand over to Om to share his thoughts and update 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 inform that in Q1 FY '20, we have achieved the highest overall quarterly revenue of INR 335.2 crores, delivering a growth of 14.7% over Q1 last year. This robust growth in the revenue is backed by a 15.9% growth in patient volume and 19.8% growth in samples. The total number of patients served on patient basis has gone up to 4.9 million in Q1 FY '20 as against 4.2 million in Q1 FY '19. Samples for patient have gone up to 2.4% in Q1 FY '20 as against 2.3% in Q1 last year.

As already explained in my earlier calls, I'm delighted to share that efforts -- our effort to put into grow rest of India market are showing up in healthy growth trends. In this quarter, rest of India has grown at about 17.1% in value and 19.2% in volume. The contribution of rest of India business stands at 58% now. This quarter, our financials are reported after implementation of Ind AS 116. However, normalized EBITDA margin excluding the impact of Ind AS 116 is stable at 27.1% in Q1 FY '20. Our bundle test program software has been performing well and has contributed 15% to the company's revenue in Q1.

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

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

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Thank you, Om. Good afternoon, everyone, and thank you for your participation on this call. I will now share with you some of the important financial highlights. Revenue for Q1 FY '20 is at INR 335.2 crores as compared to INR 292.3 crores in last year same quarter, a growth of 14.7%. Revenue realization per patient for Q1 FY '20 is slightly lower at INR 684 as against the INR 691 for Q1 FY '19. Normalized EBITDA after eliminating the impact of stock-based compensation, CSR exchange and impact of Ind AS 116 in Q1 FY '20 stood at INR 90.8 crores as compared to the INR 79.3 crores reported in Q1 FY '19, a growth of 14.5%. PBT for Q1 FY '20 is at INR 89.4 crores as against INR 75.4 crores in Q1 FY '19, a growth of 18.6%. PAT for Q1 FY '20 is at INR 59.1 crores as against INR 49.7 crores in FY '19, a growth of 19%. Cash and liquid funds at the end of Q1 FY '20 is at INR 792 crores. EPS for Q1 FY '20 is INR 7.14 per share versus INR 6 in the same quarter last year.

The current quarter reported numbers are as per Ind AS 116. The company has adopted Modified Retrospective Approach for the transition to Ind AS 116 from 1st April 2019. This approach does not require restatement of comparative information for Q1 FY '19. Further as you are already aware that the company's wholly owned subsidiary, PathLabs Unifiers Private Limited, has acquired a 70% stake in Centrapath Labs Private Limited, which has acquired the business of Central Lab, Indore, a partnership firm and M/s Vinita Kothari, a proprietorship concern. This acquisition would help us to further strengthen our presence in Madhya Pradesh.

That brings me to the conclusion of my opening remarks, and I would now invite the moderator to open the forum for question and answers. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Chandramouli from Goldman Sachs.

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

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The first question is on the revenue appropriation number. So Ved had mentioned that there's been a slight dilution, I think, about 1% Y-o-Y. So just want to understand the -- where the dilution is coming from. Is it broadly just because you've been expanding out of Delhi and into other parts of India, Is that where it's coming from? Or is it spread anything else (inaudible)

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

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Yes. Actually your voice is not that clear, but can you hear me, clearly?

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Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [4]

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Yes, yes.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [5]

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Okay, fine. So I think you rightly mentioned this major impact is coming from our contribution of rest of India is growing and there our realization per patient is not that high, so that's the real impact. Second is, there are 2 other minor factors as well, which is that we have a small clinical, we call it a clinical trial business that's more like a -- with pharma companies, there our realizations have been sharply dropping, that has also contributed to this. But primarily, it is rest of India, especially eastern part of India, where the realization per patient is lower and has this impact.

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Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [6]

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Great, great. My second bit is on the competitive environment. I think the last 3 quarters, we've been talking about a slightly better competitive environment kind of easing on the private equity funding side. So there's been some talk of online test aggregators becoming a little more competitive, taking the case of what the private equity seems to be moving a bit fast. So just wanted to hear your thoughts on that. And then whether we are still considering a price increase later in the year?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [7]

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See the new competition or the funded competition, our statement is same what we mentioned last quarter. As far as online aggregators are concerned, we don't have any hard data to substantiate whether they are either gaining momentum or not. But my sense is, right now, in this case, there is nobody who has scaled up or likely to scale up, but yes, there are 1 or 2 players whom I know that they are very active in this space. Some of them are in southern part of India, some of them are in northern part of India, but I don't think there's anybody who has achieved that scale which is worth talking about in this call.

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Chandramouli Muthiah, Goldman Sachs Group Inc., Research Division - Research Analyst [8]

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Makes sense. Makes sense. And the last question is on the flu season. So typically, the September quarter is the strongest for Dr. Lal and the industry. So just wanted to hear your thoughts on what you've picked up on the flu season so far, how signs look.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [9]

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So as of now, there are no such trends. I guess, September is a month when we observe this part of it. So right now, there is nothing that we are seeing. If it happens in September, we probably will let you know definitely.

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Operator [10]

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Our next question is from the line of Prashant Nair from Citigroup.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [11]

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Just a couple of questions. Firstly, Om, you mentioned some number for your Swasthfit revenue contribution. Can you repeat that? I could not get it at that time.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [12]

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It is about 15% now.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [13]

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Okay. And my second question was about your margins now with the Ind AS impact. So clearly, this is something that will continue. So can you give us a sense of -- you give a normal broad range for where your margins would normally be? Now with this accounting impact, can you tell us what we should be looking at as a normalized rate going forward?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [14]

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So Ved, what is the number with Ind AS impact?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [15]

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The Ind AS impact for the quarter is INR 8.2 crores on account of leases in the EBITDA. And that's where we have given this normalized EBITDA, which is 27.1%, which is normalized margins after Ind AS -- before Ind AS, CSR and RSU costs.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [16]

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So there is a favorable impact of about INR 8.2 crores.

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [17]

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INR 8.2 crores.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [18]

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Can the same be annualized also for the year?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [19]

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We assume total will be about INR 31 crores.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [20]

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Yes. Okay.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [21]

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So I think there is a favorable impact of April coming in this quarter. But in our presentation, we have actually made a comparison of like to like.

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Prashant Nair, Citigroup Inc, Research Division - Associate Director of India Equity Research [22]

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Right. Okay, got it. And the higher depreciation/amortization number would also be the continuing number hereon, right?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [23]

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Exactly, yes.

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [24]

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Yes. Yes. Yes, Prashant.

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Operator [25]

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Our 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 [26]

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There is 2 things. One is the volume growth in the number of samples seems to be around 20%. Of course, it was driven from patient and ratio of samples per patient. So this like 16% of volume growth in the patient and 20% in the tests. Is this something which can be sustainable over a period of time now going forward?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [27]

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I would say don't focus too much on sample growth because that sometime is a function of many things. It's very difficult to project. But we definitely -- we do not give any guidance on this volume growth going forward, but we are putting all our efforts to rest of India market to see that we drive our top line through volume.

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Sriraam Rathi, ICICI Securities Limited, Research Division - Research Analyst [28]

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Okay, got it. And then secondly, I mean, any indication of possible price increase, other than in the last 2, 3 years, I believe, there is no price increase. And some parts of the country, it seems that there are some regional players who have taken 5% to 10% increase in the average pricing. So any indication from those side?

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

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So our strategy is fairly simple, which is that we are in the process of correcting or rationalizing price-value equation, which means we are carefully looking at each geography. Somewhere, there may be a need of upward revision, somewhere there may be a need of a downward revision. We do not want to take step jumps in our pricing. On an ongoing basis, regular basis, some places, we will take price increase. Some places, we will take downward as well. For your information, though, it's not a major impact on our numbers. About a month back, we did take some minor corrections in few markets where we took price revision upward, and in some places, we've also taken downwards, but it is not in a step jump form, which is material enough for us to discuss that revenues are being impacted by price increase.

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Operator [30]

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Our next question is from the line of Shaleen Kumar from UBS Securities.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [31]

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Congrats on a good set of numbers. Sir, I want to understand that basically, how the costs have moved over here. So your other expenses as a percentage of revenue have come down significantly pre-Ind AS if I compare to last year. So I just want to understand what exactly has happened? And is it sustainable?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [32]

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So other expenses have impact of this Ind AS.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [33]

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Yes, yes, pre-Ind AS, just talk about pre-Ind AS. Even pre-Ind AS, it has come down a lot as a percentage of revenue.

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [34]

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Okay. I think what I assume.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [35]

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Well, I don't have that.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [36]

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But just what exactly happened?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [37]

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Directionally, what is likely to happen, our fee to collection center or channel partners likely to move up because contribution of revenue coming out of franchisee network is significantly going up, okay? Now, what it means is that a lot of our working load, which was normally happening through our lab where we were incurring rental costs, et cetera, is probably going to be less. So directionally, franchisee-related costs will go up and our own establishment costs will tend to come down. I think that's where the percentage in the revenue or to revenue will move up and down.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [38]

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Yes, that's one other thing. Like, if I add both the cost as a percentage of revenue, in your last quarter, it was 37.5% and right now, it's 35.4%. I understand that the way it's going to -- dynamics are going to change. So even then sum of both as a percent of revenue has come down. So that's what I wanted to understand. Nonetheless, even raw material cost has also come down. So is it like -- is there a change in there or just pure-play operating leverage or...

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [39]

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Things that are low, I think, that's slightly come down, but that's just a share of mix change that happened. Sometimes, if you have more routine tests than this percentage, I think rents will go down. If you have more high-end tests, this percentage tends to go up.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [40]

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All right. All right. In terms of -- sorry, again, on the costs again, on the employee cost. In a base quarter, we had some one-offs and that's the reason they were shot up in our employee cost, not this quarter, last quarter. But this quarter also, we have a decent in terms of absolute number employee cost. So what -- is it -- again, is it sustainable? It can come down from here?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [41]

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No, it won't come down from here.

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Shaleen Kumar, UBS Investment Bank, Research Division - Associate Director and Analyst [42]

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Okay, okay, okay. All right. And sir, can you give me again your rest of India growth number?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [43]

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Rest of India top line...

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [44]

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17%.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [45]

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Has grown by 17% in revenue in value terms, 19.2% in volume terms.

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Operator [46]

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Our next question is from the line of Prakash Kapadia of Anived Portfolio Management.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [47]

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Congrats on a decent volume growth number. Sir, if I look at your NCR, they have been coming down as a percentage of revenues. Any sense you could give us on our go-to-market strategy for the balance 28% of North India? Are these primarily U.P., Bihar? What are the tests? What is our approach to scale given the huge population in these states?

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

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Yes. So our approach to scale the rest of north is basically deepen our presence to Tier 2, Tier 3 towns. And we have mapped -- the states that are covered in rest of north are Haryana, Punjab, Himachal and J&K, which is up north and then entire U.P., Rajasthan. These are the states where we are looking at deepening our presence in various Tier 2, Tier 3 towns. There are certain towns where your district presence is not there, but we'll continue to build our infrastructure both in terms of lab as well as collection center in these cities. So it's a very promising territory for us because that's where the positive rub-off of our Delhi NCR equity is flowing and will continue to remain our growth drivers in times to come.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [49]

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And there these -- some of these states which you've mentioned, is it fair to say there will be just a basic test menu as of now given the working capital will be lower and there is enough of headroom to increase the volume growth over the next few years?

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

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Actually, that is what is driving our volume. You can see the rest of India growth, it's all coming from rest of north, East India, so these are 2 major geographies which are really driving this volume growth.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [51]

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Sure, that is helpful. Kolkata will complete, I think, 2 years in December for the Reference Lab getting comments. So what were the number of tests then, how many of the tests are offered as on date if you could throw some light?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [52]

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So I think the dependence of that region on Delhi NCR or Rohini Lab is now only to the extent of 5%. So 95% of the test needs of that region are met in the region itself. So it's fairly independent region now. And we are fairly sort of happy with the progress, though we would like it to be better. But I think overall, now it has stabilized, East is the fastest-growing region in our portfolio today.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [53]

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And any number of test you could share as on date, which is done in the Kolkata Reference Lab?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [54]

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Actually a precise number, all right, we can share this offline, but to let me know that, sometimes, this number of tests actually comes capability wise, we probably do all the tests. Sometimes, we still don't do it because the economic sort of number of samples that we get will be sub-optimal, right? So from that one, but test many wise, I think other than tests like more than anything technical, which is like RSC, (inaudible) every other tests we'll do it in Kolkata.

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Prakash Kapadia, Anived Portfolio Managers Pvt. Ltd - Principal Officer [55]

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Sure. And last one from my side, in the opening remarks, you mentioned about share moving from some of the organized and local players to organized players like us. So is it primarily because of the price differential between solid players and us has come down or is almost at the same level? Or is it GST? Or is it the pre angle, which you mentioned couple of quarters ago?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [56]

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I think my sort of a market visit and whatever I picked up from feedback from sales team, most of these smaller labs growth rates are in single digits. And their costs are actually growing. And then they sit down and do this net versus buy decision, they end up finding outsourcing as a better alternative. So I think that is one variable which is leading to shift of these players. And that process actually has been on for many years. It's nothing new about it. But now, more and more of these players are seeing that their profitability because price increase for these guys is becoming very difficult. Volume growth about that high, so that's where they end up thinking advisable to outsource in one variable, which is playing out in the market.

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Operator [57]

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

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [58]

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Just on the previous participant's question, so for the unorganized sector, how do we define the business breakup? Is it largely walk-ins or is it more institutional?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [59]

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The shift, you mean?

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [60]

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No, no, just their business pie.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [61]

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Most of these guys, these unauthorized players have very large walk-in component to their sales. They really don't play on network because that's one of the reasons why they can't scale. They have a limited number of patients that have been visiting them for so many years. So I think if you look at profile of local labs, which are unauthorized players, they would own close to 80% of the business as walk-in business, but even to the extent of 90% also. But they end up -- they probably -- testing component they tend to outsource to players like us. While their collection part or the walk-in part, they would want to retain with themselves.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [62]

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In the fact that they become PSCs, is that the right way to operate?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [63]

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Yes, yes. I think you probably -- if you -- if I were to regionalize industry going forward, 15, 20, 30 years, obviously, for a player like us, it would be unthinkable to manage collection and walk-in everywhere, so they may end up actually becoming a partner or PSCs.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [64]

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Sir, if you don't mind, I think they would all be having their, at the moment, their own lab, testing labs as well. What could they do with that today, just shut it down?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [65]

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I don't like to do retail out. But my sense is most of these guys have semi-automated systems that are unorganized. Today's patients are expecting reports to be send on WhatsApp and all those technologies. So I think these guys will not be able to keep up pace with the kind of technology that's coming. I think more than the instrument, the real challenge would be people they have on their payroll. Because all of these guys will have about 8 or 9, 10 guys working for them. But I think slowly, slowly, it will wear out. So let's see how it goes, depending on what pressure they have on margins. Because eventually, there are 2, 3 variables which are under pressure for them. One is pricing, they are finding it difficult to take it up; volume growth has fallen into probably single digit; costs are moving up; pressure on minimum wage is going up. If all this put together over a period of time, my sense is they would tend to reduce their level of testing and rather focus on front end interface with the customers.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [66]

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Okay, great. And just talking about the Indore acquisition of Centrapath. Can you just give us some sense of the scale of operations over there, the number of cities that they are present in Indore or is it adjacent to you as well and the number of clinical labs that they have?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [67]

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So basically, more acquisition is part of our strategy now to focus on west. And clearly, as we have outlined earlier also that we will have both the pillars, both inorganic as well as organic. We have reasonable size presence inventory, this particular acquisition helps us to build further bulk in that state. Large part of their turnover of this lab comes from Indore city itself, it is close to, I think, 80%, 90%.

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [68]

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Yes.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [69]

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80%, 90% of the business is from Indore itself. And the turnover is...

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [70]

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INR 13.5 crores.

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

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INR 13.5 crores. So basically 1 or 2 districts where they are present. I think the number of labs are how much?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [72]

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7.

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

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7 labs. So this group has 7 labs also, spread out, but most of them -- most of the business right now is coming from Indore city.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [74]

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So why buy only 70% share? Why not take it out 100%?

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

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Okay. I think there are -- Sameer, there are many models everybody has tried in this space, while we are -- our experience with few M&As that we have done in the past that local promoter presence is very important. And continuously, the business is quite dependent on local partner because the relationships are maintained by them. So we are fairly comfortable with the format where we have so that the other promotor also participates in the growth of future business. And our business agreement is structured in such a way where we have right to purchase the balance also after few years.

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Operator [76]

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Our next question is from the line of Gagan Thareja from Kotak Investments.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [77]

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Sir, you indicated that the other expenditure is up because the succession of sales coming from your collection center is going up because you're owning that. Ideally, I would infer that you backload the case when your employee expense would not rise out of line with sales, but it seems to have gone up at 21%. You said you're seeing the growth of 15%. Can you explain and elaborate somewhat more there?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [78]

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So this personnel cost is as we -- last time also we mentioned that there are some compliance costs in terms of minimum wage and PF, which has new after Supreme Court ruling that this is the impact which has gone into this personnel cost. Fees to collection that we mentioned is going up due to geography mix and largely, which is a growth, which is coming from network rest of India.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [79]

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So compared to...

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

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One second, we are not sure which figure you are referring to? Is it INR 58.3 crores you're saying?

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Gagan Thareja;Kotak Investment Advisors;Vice President, [81]

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Even if I adjust for the ESOPs, your employee cost was INR 54.4 crores versus INR 45 crores for 1Q of last year, which is around 21% up.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [82]

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Yes. I think this may be a quarterly variation, but I don't see this kind of sharp jump from year-on-year effect.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [83]

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For the year, how much should we budget in?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [84]

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I would say that is same as last year, the percentage of turnover.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [85]

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Okay. But I mean, in terms of headcount, is the headcount substantially up? Or is this cost entirely, as mentioned by the CFO, because there is an annual increment plus, there is a revision of minimum wage and associated pension benefits and so on.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [86]

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So I think one of the things which was coming the new PF ruling, we have basically now the PF contribution has gone up so that would have impacted.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [87]

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But the headcount is not up substantially.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [88]

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There will be a few team management hires because we are investing a lot on technology nowadays, so there are few hires of that kind also. But I don't think there is a significant jump to say. But this quarter may be showing that, but don't -- we don't look at that on an annual basis of cleaning up sharply.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [89]

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Okay. Sir, second question, can you give the -- give us some idea about the volume growth in Delhi and NCR?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [90]

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For Delhi, our value growth is about 11% and volume is about 8%.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [91]

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This is Delhi and NCR included or only Delhi?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [92]

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Both.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [93]

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This is Delhi NCR actually, we talk about larger of Delhi NCR.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [94]

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Okay, okay. And Bangladesh has had a very intense dengue season if I understand it correctly. You had something going there. Any idea about what's the contribution? And how Bangladesh should have grown for you year-on-year?

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

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Actually, we are a very insignificant player. So anything of that side is unlikely to show an impact on our numbers. But I was talking to somebody, there is some price control that has come in that market, which is creating all kinds of issues for local players, but we are very insignificant right now to have -- to feel any impact of that.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [96]

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Okay. And finally, I think you have a very significant cash position. You've been indicating in the past that acquisitions, if and when the acquired would be the order of INR 100 crores to INR 200 crores. Given the current cash position and the order of acquisitions that you plan or need to do, I would infer logically that you know dividend payout could move up very significantly. What are your thoughts around this? And how do you sort of budget and time for the dividend payout moving ahead?

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

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See, we are trying to basically balance between the 2. We've always followed a policy of being very optimistic that we will be able to do M&A. It continues to remain part of our strategy. We had some success in the last quarter. And hopefully, we'll continue to have more and more. As far the dividend part is concerned, we will continue to maintain the balance between some payout and some retention. And I think our dividend policy, we were...

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [98]

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25% to 30%.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [99]

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25% to 30%. It's already explained in our website as well.

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Gagan Thareja;Kotak Investment Advisors;Vice President, [100]

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But given the fact that you will keep on generating good amount of free cash and you already have so much cash? And I mean, your acquisition, clearly, in past interactions has been mentioned, that scale could not be in the order of the cash position in the book. I mean, why can't the payout increase to 40% or 45%, given that you have CapEx requirements mainly which are very negligible?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [101]

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So I guess I'll take your input and, I guess, it's for the Board to discuss and decide.

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Operator [102]

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Our next question is from the line of Viraj Kacharia from Securities Investment Managers.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [103]

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Congratulations for a good set of numbers. Just had 3 questions. First is, if I look at over say, 3 or 5 years or even taking longer term, what will the consolidation and scale in the industry, will it be price which will be continuing to be key driver? That's one. And second again on pricing. If you look at last 1, 1.5 years, there are talks of competition from overall PE funded players have kind of moderating or stabilizing. Still organized players like us and others have talked about reducing prices further? And the commentary is more on to -- more towards being more competitive on pricing. So what is driving this change in thought process? So that's second.

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

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I don't know. There's plenty of information available in public domain. We can all do our analysis. I was just doing a math for all the large players, whose numbers are in public, I see average industry growth is now close to 11% to 12% and if this is the way it continues, obviously, people will revert to sort of pricing competition, which is also heating up. My sense is at the bottom of pyramid, these smaller labs, their growth rates are even lower. So I think this inability to take price increase and rising cost and pressure on margins will drive consolidation.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [105]

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Okay. And just last question, just 1 or 2 quarters time, we talked about us looking at automation. And so basically, you talked about looking at measures to improve our own efficiency and bringing down further cost structure. So just trying to understand where we're seeing these avenues to reduce costs or to automate?

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

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Actually, we had -- one of the reasons why despite our contribution of rest of India going up, we had been able to maintain margin is primarily due to productivity initiatives that we have been able to execute in the company and the contributing margins.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [107]

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So where would we be in the cycle right now? Will it still be worrying days for us in terms of benefits versus implementation? Or just trying to get a perspective on this.

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

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So this full automation initiatives are at 2 levels. One is to create a differentiation in our offerings, all right? It's not always done to reduce costs because we have taken a lot of initiatives where customers are very clear in terms of when we'll get the report. There's lot of sort of a machine to patient interface has gone up. So a lot of initiatives are in differentiating our brand vis-a-vis with our competition. There are a lot of initiatives also done to reduce costs. And that is primarily coming in terms of front-end registration counters where now there's intellection can do it themselves. And that's where a lot of manpower savings, et cetera, is coming, which we are able to redeploy. So these are 2 or 3 areas where we are seeing the benefit of automation.

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Viraj Kacharia, Securities Investment Management Pvt Ltd - Senior Analyst [109]

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And will bulk of these benefits, I mean, the intention is to pass on them to the end market in terms of pricing or what is the thought process there?

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

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Eventually, they're getting passed on to consumer because we are not taking price increases and maintaining the margins, technically it's getting passed on to the customers' end.

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Operator [111]

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Our next question is from the line of Harith Ahamed from Spark Capital.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [112]

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You mentioned an INR 8 crore positive impact on EBITDA on account of adoption of Ind AS 116. What would be the balance sheet impact of this change? What would be the lease liability recorded and the corresponding right-of-use asset on the balance sheet?

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

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Yes, I think Ved will take this question.

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [114]

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So Harith, we capitalize our right-to-use of INR 141 crores as the effect in our books against that lease liability of INR 129 crores is recorded.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [115]

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Okay. And given that a lot of our growth in recent quarters have been coming from ex -- outside Delhi NCR, where there is a higher share of revenues through our collection center network. Has there been a significant change in the share of revenues from the 3 segments, clinical labs, collection centers and pickup points? Earlier, we had this at 40%, 30% and 30%. Has there been a change? Or do we anticipate a material change in this split?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [116]

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I think there will be minor change in -- because our own walk-in business, the number, 40% that we used to give was basically our own lab walk-ins. I do not want to sort of venture out and giving a quarterly breakout, maybe once we do the annual numbers, each area will come out. But directionally, you are right, as the component of franchisee collection center goes up, hence that the franchisee network business as a percentage of total will also go up. And our own walk-ins will tend to come down.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [117]

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Okay.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [118]

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But having said that, that does not mean that collection centers do both kinds of business. Collection centers also technically are doing walk-in business. That's not misunderstood as is our B2C component is going down. Please do not infer that.

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Harith Ahamed Mohammed, Spark Capital Advisors (India) Private Limited, Research Division - VP [119]

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Yes. But the collection center component would still be around 30%?

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

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It's probably higher than that now, it's still the 35%.

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Operator [121]

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Our next question is from the line of Manoj Garg from White Oak Capital.

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Manoj Garg;White Oak Capital Management;Director, [122]

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I just would like to pick your mind, basically, like, from a strategic perspective, one is expanding into new geographies or reaching out to more number of patient versus going deeper into the geographies or areas where we are very, very strong. How would you like to play between these 2 strategies?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [123]

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I think it's a great question. My experience teaches me that you have to approach, you have to do both because we are not only addressing current year figure, we are not addressing next year, but we're also addressing next 5 years. My sense is deepening in existing markets is addressing the issue of what we have to do this quarter, this year or next year. And 5 years from now, since I don't see new markets then I will have a challenge. So I will probably do both.

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Manoj Garg;White Oak Capital Management;Director, [124]

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Sure. So do you think that like Delhi and NCR region, they are still 30% of the overall market, while I understand 30% is a lot of market share. But the kind of brand equity we enjoy in Delhi, do you think there is scope for further deepening in Delhi market and probably inching up our market share out there?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [125]

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Scope is always there, but I personally would say that gaining that extra market share will be much harder than rather growing in rest of north. Because in our business, there are hardly any supply-side constraints because anybody can put up labs. And now hospitals -- I'm sure you would have studied their P&L, they are getting very aggressive on diagnostics as well. So OPD market is private, shifts to hospitals. So everybody is trying to seize or how they garner a higher share of diagnostics. I would definitely not put all eggs in one basket and say that Delhi NCR is the future market. For me, it will be bonus if I grow higher than particular number that I have in mind. We will continue to put that effort, but not depend on only Delhi NCR. So hence, our rest of India efforts will continue.

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Manoj Garg;White Oak Capital Management;Director, [126]

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Sure. And the second thing, likely like when we looked at Dr. Lal or maybe some of the large private players out there. The model which comes to our mind was the B2C. However, like I think you were responding to earlier question of Sameer that the going forward probably we will become more like a back end kind of sourcing and processing those volumes while the people who are the front end, they will continue to service the patient, upfront patients out there. Our team seeing maybe 5, 10 years down the line, we are emerging more like a B2B player than the B2C?

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

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No, no, no, I'm glad you asked this question. See the ways we'll pan out is that while they are the front end collection points, but under the brand name of Dr. Lal PathLabs. Because eventually, patients would want to have a report from Dr. Lal PathLabs. In fact recently, I went to Lucknow and visited one place and that guy had his own lab and I asked him, I said, "What happens if somebody asks you that I want a Dr. Lal's report?" And -- but Dr. Lal's prices are higher. They actually said if you want Dr. Lal's report, then you will give me a higher price. If you want my report, this is the price. So technically, consumers or patients are exercising their rights. They know that Dr. Lal's report is a quality report hence I want that report. So there is a pressure on both. One is the cost of testing. And on the other side, market is demanding, that it's basically a branding play. Otherwise test is a test, everybody has the same machine. What they have, that's power of the brand. So while some part of the market would be like this, but more so for -- we believe that we will reference for our brand, let the channel partner be these guys because complete end-to-end servicing the patient, we may not be able to do that. Collection has to be done by somebody else. That's the model we have even today also. Like what's the role of franchisee collection center. Well that guy is doing collection. And what the brand is referred by the patients. That component will remain.

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Manoj Garg;White Oak Capital Management;Director, [128]

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Sure, that's very helpful. Another question in terms of like the M&A opportunities. Are we seeing now, probably, we're getting the more such kind of an opportunity and how the values and expectations of those are at this point of time?

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

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See the opportunities, I don't know if I explained on the previous calls, but let me again take a bit of a step back and give you a overall view of M&A, the way I think it is. We draw a triangle, there's a top of the pyramid, there are 4 or 5, maybe 6 or 7 players. Which I don't know, it's highly unpredictable what happens, we can't comment. Then there are regional players, which are -- who are sitting in various metros. While we are big player in Delhi, somebody else is big in Mumbai, somebody is big in Calcutta, these regional players. And many of them actually already have a fee invested in them. So we believe, at some point in time, these companies may not be in a position to go public. There would be a transaction, so that's where we are hopeful. And third is the bottom of the pyramid, where a large number of players are there. Now, it actually cuts both ways because if there are too many of these that present to manage they become operational challenge to integrate. And if you have few only then it may not even move the middle as far as the top line is concerned. So our strategy is to carefully be very picky in terms of markets we want to do this. That's the reason why we have had Indore deal because that's our specific market for us. And it's even from there, we move towards west. So we will pick selectively some of the markets, do a bottom of pyramid acquisitions in these places. While we will continue to stay hopeful on the other 2 compartments of this triangle.

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Manoj Garg;White Oak Capital Management;Director, [130]

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Sure, sir. And the last question from my side. Now it's been 2 years for the Kolkata Reference Lab. So just would like to understand, in terms of margin growth, whether does it stand now?

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

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We do not want to share the regional margin profile right now. But from a progress perspective, I think the full deepening of our presence differ into West Bengal, that IT efforts will start now. 2 years, we have stabilized operations, we have stabilized markets. And I think it's progressed as per our expectation so far, and we'll get more aggressive in going down the top checkup.

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Operator [132]

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Our next question is from the line of [Imran Khan of Ratnatraya Capital.]

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Unidentified Analyst, [133]

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Most of the questions have been answered. I just have...

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Operator [134]

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Mr. Khan, could you please speak a bit louder, please, we're not able to hear you that well.

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Unidentified Analyst, [135]

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Is it -- am I audible now?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [136]

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Yes.

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Unidentified Analyst, [137]

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Okay. So what I was saying is, most of the questions have been answered. If you can just share number of employees that we have till Q1?

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

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It's around about 4,500. If you want to know exactly then just give us a minute.

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Unidentified Analyst, [139]

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And other than that, if you can also share number of physical labs, patient service centers and pickup points?

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

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We have been giving these numbers on an annual basis. Last figure we had as of March 31 is 200 labs. Collection centers of 1,704 and pickup points of 6,426.

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Unidentified Analyst, [141]

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Okay. I am waiting for the permanent employees numbers.

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

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Employee number is 3,900 -- 4,900.

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Operator [143]

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Our next question is from the line of Aadesh Mehta from AMBIT Capital.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [144]

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Sir, just wanted to ask if it is possible to disclose how our growth has panned out across regions, say in East India and in North, excluding Delhi?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [145]

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So I think right now, we're sticking to the breakup of Delhi NCR versus rest of India because we are clubbing rest of India as long geography. So I will stick to that, yes. So you want me to repeat these numbers, I can.

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Aadesh Mehta, AMBIT Capital Private Limited, Research Division - Analyst [146]

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No, no. I have those numbers.

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Operator [147]

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Our next question is from the line of Alroy Lobo of Kotak Investment.

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Alroy Lobo, Kotak Mahindra Asset Management Company Limited - Chief Strategist and Global Head of Equities Asset Management [148]

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Yes, I have got 3 questions. The first is with concept of complete lab on hire. Is that a model that you would like to explore? Because one of your competitors seems to be aggressively working on that model.

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

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I don't know. Obviously, we are -- we always keep our eyes and ears open to what everybody else is doing. So we continue to evaluate the opportunities. But in my scheme of things, this is a very practical and opportunistic move. My strategic move would be if I'm very confident of going into a market, I'll rather open my own lab.

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Alroy Lobo, Kotak Mahindra Asset Management Company Limited - Chief Strategist and Global Head of Equities Asset Management [150]

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Okay. Second is, as far as the competitive scenario from the organized sector in your core Delhi and NCR market. Has it intensified or has it reduced?

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

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I'm so sorry, can you repeat the question for me?

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Alroy Lobo, Kotak Mahindra Asset Management Company Limited - Chief Strategist and Global Head of Equities Asset Management [152]

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Competitive scenario from the organized sector, not the unorganized. Among the organized players in the core market of Delhi and NCR?

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

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Yes. I think that is natural because if you look at profile of our growth, we are talking about rest of India. I'm sure somebody else is also -- Delhi is rest of India for others. So everybody is going to try their best in their new markets. So I think that is likely to go up as well. But at some level, it's not a bad news because eventually it creates a level playing field. The cost structure of all the players is very similar. Pricing is very similar, quality is very similar. And then hence the guy who gives a better offering is the guy who is going to be the winner. So I'm not particularly sputtered about that. But I think your question is, is that gone up, it's not materially gone up, but I think that's bound to happen.

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Alroy Lobo, Kotak Mahindra Asset Management Company Limited - Chief Strategist and Global Head of Equities Asset Management [154]

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Okay. And you have been working also on the wellness market, you saw this in diagnosis of illness. Is there any future different provider how the wellness market has moved by you in terms of growth and in terms of numbers?

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

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So a word of caution for everybody, as I think we are moving to some wellness, essentially to me the meaning of wellness means the guy has not gone to a doctor. On his own, we wants to do a preventive health checkup and that's the segment. While it is a subset of that because technically, this Swasthfit that we are talking about, these are all bundled base. It essentially is a good value for money because if I'm, let's say, a diabetic patient and I'm getting lipid profile and diabetes profile, and I go to a lab and on the counter, I suddenly find out that it's cheaper to get the 70 tests together rather than only these 2. Then I ask for that, but that does not mean I'll actually walk into the lab as a wellness customer. So please do not interpret that number as 15% Swasthfit sales coming out of wellness as a preventive health pickup. So -- but I would rather call this as a bundled test portfolio. That portfolio in our business is right now 15% coming out of Swasthfit.

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Operator [156]

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Our next question is from the line of Nitin Agarwal from IDFC Securities.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [157]

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Just one quick question. On number of patients tested, we were at around 4.3 million patients for the last couple of quarters. That number sequentially really speaking has jumped up quite a bit in this quarter. So Y-o-Y, is there anything which has dramatically changed, anything specifically just changed in this -- over this last quarter or so, which has led to rate dramatic sharpish improvement in the number of patients tested? Because you've never had these levels before, barring Q2 of last year.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [158]

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Bharath will give answer to this.

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Bharath Uppiliappan, Dr. Lal PathLabs Limited - COO & CEO of India Business [159]

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Our performance, sequential performance in Q4 and Q1 has significantly improved. Our performance, and this is largely led by volume growth, we share business in rest of India and particularly East is what Om has mentioned. So that is what is really driving up our volume growth.

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

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Actually East is contributing quite a bit, while in value terms, it may not be, but East combination of our test mix is rapidly changing. So more and more routine tests we get, so our presence has gone up sharply in that region.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [161]

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So what will be the percentage right now? I'm sorry, if I might have missed it -- if you've missed the number. In terms of the -- as you just defined Delhi and NCR versus RoW, what is the mix right now?

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

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We are actually, as I mentioned, we are not giving regional split right now; we are just sticking to rest of India versus Delhi NCR because our focus now also will be on wider geographies than just these alone now.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [163]

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And when you look at our realization per patient at about INR 684 for the quarter, I mean, how sustainable? Or do you see this number raise as you keep on improving the RoW mix for us?

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

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I actually -- I won't transform this. Say that it should stay there. But I really do not -- because our majority of growth is going to come from rest of India, we'll realize on the lower side compared to Delhi NCR. So I would not see any upward movement from here. We will try and see it stabilizing there.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [165]

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And in a way we broad sense, what are the typical -- on an average, the difference between your RoW business and Delhi NCR, if there is a way to on a realization per patient basis?

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

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Yes, so exact figure I don't have readily available, but broadly speaking, if Delhi NCR is 100, my sense is rest of India will be low-70. But also remember that Delhi NCR has very high walk-in component because our cost structure also is extremely high there, cost of servicing a patient.

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Nitin Agarwal, IDFC Securities Limited, Research Division - Analyst [167]

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But as just to sort of reiterate, as the mix increases, we may probably see some pressure on realization. But also just to complete the point, on Delhi per se, do you see the realization per patient probability of this component increasing on Delhi per se meaningfully as we go forward or...

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [168]

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Yes, as a contribution of Swasthfit goes up, that will definitely have positive impact. But I just want to come back to your previous question. It should not be inferred as realization per patient is more on rest of India, so the margin is not true. Because there, it's -- realization a lot of places, which is net of all the channel margins that we have shared with them. And thus here, it's all walk-in,, mostly walk-in patients, so we'll keep that cost in our P&L. So it may not be the same in margins, please do not think that way.

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Operator [169]

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Our next question is from the line of [Kunal], an individual investor.

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Unidentified Participant, [170]

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Yes. Just a couple of questions and apology if they have been previously answered. I just wanted to understand that with the pace of growth and deeper penetration that we are seeing in Tier 3, 4 or 5 cities, how are you able to ensure that the quality of manpower in the franchisees, PSCs, pickup points is maintained? And linked to that is, how are you able to ensure the quantity and quality of the samples, in particular, if it has to come to the national lab? I ask this since the business is brand and trust dependent as well. So it would be helpful to understand a bit of quality-related operating processes in this regard.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [171]

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Well, I think that's a very good question. In fact, many times, people ask me that where do you use your fleet every day. I think these are all operational challenges we have. Technically, as a company, one big priority of risking we have is, which is a franchisee management. And making sure that the right quality level is there. The right compliances are met. And the entire whole chain of transporting sample is maintained and all that. So this is basically, we have teams that are looking at quality aspects. There are teams which are looking at the compliance's aspect. There are teams which are looking at people who are working on there are properly qualified, with a lot of training initiatives that we have inside the company. And all that entire fleet is in place to make sure that we prepare it. Because ultimately, going forward, this is going to be a major operating challenge on the organization to manage franchisees. So we have various departments taking care of all these areas.

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Unidentified Participant, [172]

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Understood. And for instance, how do you deal with say super-specialized or maybe specialized test, let's say, if you find that a test, somebody, for an example, is HIV positive. Do you doublecheck your testing?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [173]

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Oh, yes, yes, yes, of course, not only HIV, but any critical value is double-checked and there are protocols by NABL and CAP and all those protocols are followed.

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Operator [174]

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

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [175]

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I was thinking about tests per patient, how do you move it from 2 something to 3 something, 4, 5 and 6. And in this context, are you doing something to educate doctors?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [176]

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I really don't think we will forcibly push the market to higher number of tests. That's not our idea. In fact, I would want our patients don't get as much testing as possible, so I think that's the objective we have. However, what is the -- what are those variables that ensures we risk, let's look at that. One area clearly is this whole driven battery of preventive health checkups; you have close to 30, 35, 40 tests in one package. More and more patients coming for this, you tend to see this number going up. The other area is to basically, the real objective of diagnostics for players like us would be to help our clinician to diagnose accurately and also early. And that's the time when first visit of patients if you can help doctor to really say these are tests you need to get done to really catch hold of the real disease. So that's the way we would like to educate the market so that it helps clinician to diagnose something accurately and also early. If that leads to higher number of tests, so be it. That leads to lower number of tests, so be it. But I really don't want to be seen as a company which is trying to unnecessarily get these tests prescribed.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [177]

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And so sir, do you have a team of people who visit doctors in this regard?

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [178]

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Yes, yes. So we have -- basically, our sales structure is a sales structure where we have been focused on high-end test because this is more a technical selling profile of these guys, a little different from others. They conduct lot of CMEs. They are people who are also impacted by our technical groups. Together, they -- we call it a medical marketing group where we have a very senior guy who is driving this. So we have similarly an ops team, which potentially manages the logistics for collection center management and then pickup points. So we have 2 set of people looking at these 2 areas. So our high-end teams are different.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [179]

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Om, if you don't mind, what kind of coverage do you have for doctors via business?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [180]

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We got over 50,000 doctors in the country directly and partners where we're covering some are on their own.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [181]

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So direct coverage is about 50,000 doctors.

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Sameer Baisiwala, Morgan Stanley, Research Division - Executive Director [182]

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Okay, great. And just one more. What's the current role of insurance in your business? And how do you see this going forward next few years?

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

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Right now, insurance is not that high. Most of these players end up doing a local partnership there who always try to negotiate very low prices. Also, we have seen that some of these insurance guys have a requirement of a MBBS doctor also to do this other stuff. So as of now, this is not very high. Going forward, as I think we have seen in western markets where some of this quality insurance clear when they want to release focus on the testing areas is lower, then this business will go up. As of now, I'm not seeing this as a very big component of the business.

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Operator [184]

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Ladies and gentlemen, that was the last question. I would now like to hand the floor back to the management for closing comments.

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Om Prakash Manchanda, Dr. Lal PathLabs Limited - CEO & Whole Time Director [185]

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Goel?

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C. A. Ved Prakash Goel, Dr. Lal PathLabs Limited - CFO [186]

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Thank you, everyone, for being with us on this call today. I will now ask the moderator to close the call. Thank you.

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Operator [187]

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Thank you, members of the management. Ladies and gentlemen, on behalf of Dr. Lal PathLabs, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.