The 75-year-old firm are looking to acquire small (less than $50 crore annual turnover) and medium ( $50-100 crore annual turnover) diagnostic companies mainly in Tamil Nadu, Karnataka and Andhra Pradesh, according to Ved Goel, CFO of Dr. Lal PathLabs. Later, it will also look to acquire companies in Gujarat, he said.
“Small, big, medium – we can do everything, but big deals are unlikely to happen in the South as there are hardly any big assets available,” Goel said. “Hopefully, something will come together just this year.”
Dr. Lal PathLabs, with almost $1,000 crore cash surplus, focuses on a combination of acquisitions and organic growth. The company plans to set up 20 new laboratories in key cities such as Bengaluru, Hyderabad, Pune and Goa in FY25 and aims to build central laboratories in smaller cities in the northern and eastern regions.
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The company’s strategy is to expand into Tier II and smaller cities in the North and East central regions, said Shankha Banerjee, CEO of the company. In the west and south, it will focus on tier I and II cities – Mumbai, Pune, Bengaluru, Hyderabad and Chennai, he said.
Expansion in Mumbai, Pune and Goa will be led by a wholly owned subsidiary, Suburban Diagnostics India Pvt. Limited. Limited.
Company’s plan to consider acquisitions in south and Gujarat It comes after a four-year hiatus. In the south, the company last bought ChanRe Diagnostic Services (CDSPL) in Bengaluru, Karnataka, for $17.5 crore in 2020. The same year, its subsidiary, PathLabs Unifiers Pvt. Ltd, bought a 70% stake in Bindish Diagnostic Laboratory LLP (BDL) in Jamnagar, Gujarat, for $4 crores.
In FY24, the company’s Southern labs contributed 6% to total revenue, down from 6.3% in FY23. The Western region contributed 14.8%, up from 15 .3% in FY23.
“South India is the most competitive territory within India for the diagnostics industry, so it will not be easy,” said Aditya Khemka, fund manager at InCred Asset Management and Alternative Investments. “There are many exclusively Southern-dominant players in the market.”
Consolidation in the sector
Diagnostic companies are now in the expansion phase. Metropolis Health plans to expand across India to increase its presence to 1,000 cities in the next two years through a combination of organic and inorganic expansion, particularly in the northern and eastern markets of the country. Mint had reported before.
Mumbai-based Metropolis has a strong presence in the south and west of the country and plans to expand its presence in the north and east. With a corpus of $70 crores, looks to start with two-three bolt-on acquisitions in FY25, with deeper penetration through organic growth.
Vijaya Diagnostic Center Ltd, the south-based diagnostics chain with centers in over 23 cities, also acquired 100% of PH Diagnostics and forayed into Pune in December 2023, according to its exchange documents.
India’s diagnostics industry is projected to nearly double to $25 billion by FY28, up from $13 billion in FY23, according to Praxis Global. Alliance report. The industry is going through a consolidation phase after the pandemic-driven surge in demand.
In fact, according to Khemka, Dr. Lal PathLabs acquired Suburban at the wrong time, when valuations were at their peak.
“During the pandemic, many small independent diagnostic companies have sprung up across the country due to high demand for expensive Covid tests,” Khemka said. “Today, these companies are bleeding because the Covid windfall is gone. They have to close, they are going down or the owner is looking to sell them. There are multiple consolidations happening in the business right now.”
It is now easy for larger companies to buy these companies as they can be acquired at a low price, Khemka said. “Strategically, it makes a lot of sense to acquire now.”
Volume over price
Dr. Lal PathLabs is targeting 6-7% growth in patient volume in FY25, up from a modest 2.6% increase in the previous year. The company served 27.6 million people in FY24, compared to 26.9 million in FY23.
“If you look at the first quarter of FY25, our patient volume has already increased to about 5.5%,” Banerjee said. “We want to achieve slightly better overall revenue growth than last year without having to increase prices. Approximately 6-7% growth will then occur thanks to patient volume.”
The company does not plan to increase prices as it enters more tier III and IV cities.
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One of the key things is to move away from unorganized competition,” Banerjee said. “To some extent, we are faced with the fact that it is not a level playing field.”
International footprint
On September 19, Dr. Lal PathLabs dissolved its subsidiary in Kenya, which had not been operational for the past three years. The company now operates in 24 countries in Asia, Africa and the Middle East.
“It didn’t work in the Kenyan market and our learnings were also a little different, so we had to close that subsidiary,” Banerjee said.
Dr. Lal PathLabs Kenya Pvt. Ltd. Limited was incorporated on August 6, 2019 as a wholly owned subsidiary of the company.
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