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Suburban acquisition to help build presence in West India, says Dr Lal Path CEO

“We continue to partner with aggregators, with other digital ecosystem players to be able to build our service offering and we continue to invest in our own technology. We are building the service delivery mechanism organically but we are not averse to inorganic opportunities as well, says Bharath Uppiliappan,” CEO, Dr Lal Path Labs.

Now no one is surprised that the Covid revenue for is down 75%. Everybody is happy that revenue is down but how will the non-Covid uptick balance things now for Dr Lal?
We announced the numbers yesterday. It was about Rs 498 crore which is 15.4% growth on YoY basis. In this, the non-Covid revenue grew by 34% and obviously the Covid volumes and value declined significantly. The good news is that we serve 6.9 million patients which is a very good number for us and really fuelled by the non-Covid revenues. We are always focussed on the non-Covid revenues because we knew that is our bread and butter.

From April of last year, we kept on saying that we will focus on non-Covid revenues building that momentum back while serving the country on the Covid pandemic which we are all going through. In effect, that is really playing up. We saw 16% sequential growth vis-à-vis the last quarter on the non-Covid revenues and we believe that this can go further up. Some of the enabling contributors to this whole growth number was Swasthfit. It’s contribution grew to about 18% now and also the high testing which we had invested significantly over the last one and a half-two years, especially the genomics, is now paying off

That division is growing at a very rapid pace and getting wide acceptance. While the Covid revenue is a short-term service to the country opportunity, the real business for us is the non-Covid segment which includes diagnostics, supplementary care, high end surgical care etc. and providing support to all those segments is what we have been focussed on. That is what we continue to build on for the times to come as well.

What is the thought behind Suburban Diagnostics acquisition?
We have always said there are two strategic priorities for us. Number one revolves around strengthening our presence in the south and west and we had said that we will continue to build it organically and also put behind meaningful acquisitions to build real scale. This is one of our stated objectives for quite some time now and the second revolves around technological interventions to look more patient friendly in the front end.

In line with the first strategy of building our presence in the south and west, we have acquired a very strong brand in Maharashtra which has the potential to go much wider and really establish a footprint. The west region which was contributing about 10% of the revenues will now contribute about 24% of our revenues, taking us a step further in establishing ourselves as a national player. So there are two priorities we have — one on the technology front and second one for building southern and western operations. The suburban acquisition and the partnership is in line with that.

So will Suburban be renamed? Will you change the franchise or will it be owned and managed by Dr Lal, but the brand will remain intact?
Yes, our current thought process is to say that Suburban has a very strong equity in western part of the country. We will operate it like a subsidiary with management guidance by us and run by a professional team. So the brand name of Suburban continues and we will continue to build on that while Dr Lal PathLab will also pursue its opportunities in the marketplace.

The diagnostic industry is a very large and unorganised industry. We do see a lot of scope for multiple propositions play out and that is what really is at play over here. So Suburban is a very synergistic acquisition for us, a very synergistic partnership for us to be able to build our presence in a geography which was traditionally weak for us. With this we now are on a very good platform to scale up the business further in the west of the country.

Is that going to be the conscious and only strategy to grow, to try and acquire more and more meaty businesses?
From the geographic presence side, we are pursuing two opportunities; one is organic and second is an inorganic opportunity simultaneously. In the last quarter, we announced that our Bangalore reference lab has gone on stream and will slowly start to build up scale. We have got a very encouraging response to our Bangalore reference lab.

The Mumbai reference lab put up by Lal PathLabs is also under construction and we hope to see it coming online in the near future. So on the organic side as well we continue to grow and supplement it and build this revenue stream for us through acquisitions as well. So there is no either or; it is a strategy of growing organically as well as inorganically because the market is so big that no one single brand can get to the scale which India requires.

So you are getting a war chest ready for acquisitions, rather organic growth opportunities. What is the cash level in your books? Are you looking at further fundraising and also what are the debt levels in your books now?
We are a very cash rich company, we have about Rs 1,100 crore of cash with us and we have no debt on our books. This deal will be funded through our cash reserves completely and no debt will be acquired. This allows us the opportunity to further build up funds for future acquisitions and also if required take on debt at a later date.

What are your plans when it comes to having a proper platform with a network? Are you going to do it completely organically? Are you looking at acquisitions in the start-up ecosystem to jump ahead?
In the beginning, we have key strategic priorities; one is to grow the business through geographic presence which is both a combination of organic and inorganic on ground presence. We are also significantly investing in our digital capabilities to build an operation on the diagnostic side which will be a benchmark, the best in class in the entire digital ecosystem. That effort is underway.

So we are pursuing geographic expansion strategy as well as getting the business to be more digitally enabled on an end-to-end basis. As far as investment in startups is concerned, we will consider that at an appropriate time.

You are going to do this organically, build a platform with network effects because competition is also rising in diagnostics, it has been a space with a lot of M&A activity?
We continue to partner with aggregators, with other digital ecosystem players to be able to build our service offering so that is an integral part of our strategy. There is no change in that and we continue to invest behind our own technology. We are building the service delivery mechanism organically but we are not averse to inorganic opportunities as well.

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