Om Prakash Manchanda, Managing Director, Dr Lal Pathlabs Pvt Ltd, talks about a pilot project to transport blood samples via drones, demand situation, revenue sources, patient volumes, M&A opportunities and ways to use the cash among others during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:
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Q: The company has announced a pilot project to transport blood samples via drones. Tell us about the thought process of the same, from where it has been started and what kind of incremental savings and earnings will it provide to the company? Also, update us about the investment that has been made on this front?
A: The talks related to the transfer of samples via drones are at the initial or feasibility stage and the pilot has been started yet. We will start it only after getting the approvals. So, it is very early because now it is known that something like this is happening due to which drone making companies are approaching us. There are certain areas, especially the hilly areas, is an option from where it takes a long time to get the sample. So, it can be used as an emergency service. I think, it is too early to comment on it and it will take a lot of time as it is at a feasibility stage, evaluation stage and many companies who are in this business are approaching us. At the same time, we are supposed to look at the regulatory norms for the same. So, I would like to say that it is very early and it is at feasibility and evaluation right now.
Q: But has this process or concept been adopted in any foreign country from where we can take reference and will it be the first of its kind by any company in India?
A: It has been heard that the concept has been used a lot in vaccine supply outside India and many companies have also used it in the supply of the COVID vaccines. So, its proof of concept, especially in emergency services has been done and in that regard, we think that it can also be used especially in the diagnosis samples. But I think that it is in a very early stage to term it as a proof of concept. So, I would say that until the complete data is not available to us till then it is very difficult to comment that whether it will become a way of life.
Q: But how long it will take, maybe six months to a year, for you to confidently say that this is a process that you will adopt for future projects?
A: The first understanding that is needed is the regulatory guidelines and it is taking time. After this, we will have a look at its commercials. So, we are learning from these companies about their requirements and where they can be used and where not. Further, we will have a look at its commercial viability. It should not happen that you have the sample but it is not viable, then it will be very difficult to implement it. So, it is at an early stage.
Q: How the demand is panning out and what is the business situation in the post-COVID era?
A: It has been two years since COVID stuck and in this period you must have seen that two different revenue streams were created in the businesses and they are (i) non-COVID stream and (ii) COVID stream. Non-COVID is related to our traditional business, a sticky business on which our foundation is created and we need to have a great focus on this business because it is a sustainable business. The second business is related to COVID and it fluctuates quarter to quarter depending upon the wave, which increases the rate of RT-PCR tests and in the case of wave-II, there was a growth in allied tests of the COVID. So, there is huge volatility and predicting it is quite difficult. If seen at present then the COVID testing is quite low and we, the company, are focusing mainly on non-COVID and it should be revived.
Q: What are the share of COVID and non-COVID tests in your overall revenue compared to the previous quarter?
A: I will not be able to comment on this quarter’s numbers because we are in a silent period at present. But our COVID business was quite low in the third quarter, however, it increased a bit in December and early January amid a surge in the cases of Omicron. But relatively, the current trend is not similar to the kind of sales we saw during the COVID last year. So, our main business is coming from the non-COVID business.
Q: What kind of incremental patient volumes is visible in the segment and is there any improvement in revenue per patient on a quarter-on-quarter basis?
A: Our growth stood around 9.8% in the third quarter but it also included the business of our M&A in the western region, Suburban Diagnostics. Including the growth of the non-COVID business, our growth stood at 28%. If Suburban is excluded from it then our non-COVID business our overall growth of the company stood at 21% because COVID business was not present in it. So, I am seeing huge volatility in the last seven to eight quarters as there is an impact of base as well as COVID at different places. Overall, if one has to see the trend, then it should be looked over a longer period because there is a need to have a look at the annual CAGR. From that perspective, there is a need to have a look at the non-COVID CAGR. I think, non-COVID is reviving well because we are expanding a lot because our footprint is wide, we are opening new collection centres and have also opened 10-15 new labs last year. So, this model of expansion of collection centres, and expansion of labs, will continue and we will continue to drive the growth. We will continue to widen our footprint.
Q: Inorganic growth opportunities are visible in this space and recently you have also completed the acquisition of Suburban Diagnostics. Do you see any more M&A opportunities and more consolidation in this space in FY23?
A: If you will study the industry then it is a fragmented space. Although, we are the market leaders our market share is in the low single-digit. So, organic growth is present to strengthen this scale but if you will have a look at the global experience of the big companies then M&A is an important pillar of growth. I feel, it will continue to happen with time because it is difficult for any company at a higher base. At the same time, the growth has to come from the non-core market, which is a bigger challenge. So, such a partnership will evolve and I feel that further consolidation will happen in this industry in the next 5-10 years.
Q: Do you have anything on your radar that can be seen in FY23?
A: Immediately, I do not have anything that can be shared but as I have said earlier that our growth strategy runs on both the sections, organic and inorganic. In terms of inorganic, we will prefer to go to the areas where our market share and presence are slightly weak. And if seen in that context then in South and West are two regions where our presence is slightly weaker. So, efforts will continue in the segment as we go ahead.
Q: How big a concern is the pricing pressure and how do you see it as there is a continuous rise in the competition and even a listed company like Lupin is also coming into this space? How will you compete and tackle this pricing pressure?
A: Competition has always been there in this space. As I have said that the industry is quite fragmented and does not have any published data but as per an estimate, people say that there are around 300 thousand labs. But the competition has turned visible in the last 2-3 years, earlier, it was not that visible because labs were quite small. So, now especially after COVID stuck, the competition turned visible and it is coming from many sides like hospital labs are entering into retail pathology, pharma companies are also getting into this business and you have named a company for the purpose, several e-commerce players are also coming up. So, there is an increase in the competitive intensity and it means the pricing pressure will continue to be present in this space. At the start, we have said that the growth in this space is volume-driven and is not related to pricing. So, it is a volume-driven growth and I feel it will continue to be the same in the coming future.
Q: How much cash do you have on your books and will you use it only for organic growth? Also, how many new labs will be opened in FY23?
A: If you will have a look at our historical track record of cash then it has been used mainly in two to three ways. The primary purpose is growth and the first objective for growth is organic growth in which we open our labs. If you will have a look at the last 8-15 years, then on average, we open around 15-20 labs annually. The process will continue and in the process, we identify the area and open a lab in it. The second area is technology as a lot of investment is being made in IT, so, it will also continue. Thirdly, we have also provided a dividend in these years. Lastly, we also use it in inorganic growth opportunities. So, moving forward, we will adopt a balanced approach in which the cash will be utilised in both organic as well as inorganic growths.