Dr Lal PathLabs Eyes Major Acquisition in South India

The South Indian market has been a weak spot for the Gurugram-based company, contributing only 6% of its total revenue of INR 2,227 Cr in FY24.

India’s largest diagnostic chain, Dr Lal PathLabs, is exploring a significant acquisition to strengthen its presence in south India, a region where the company currently has limited market share.

According to a senior company official, if the acquisition aligns strategically, the company is considering a deal size of INR 3,000 Cr to INR 4,000 Cr.

“We have around INR 1,000 crore net cash and can leverage our balance sheet or equity for the right deal. Size won’t hold us back,” said Ved Prakash Goel, Group CFO of Dr Lal PathLabs, in an interview with ET.

Goel noted that while there are assets available for acquisition in the market, valuation expectations are high.

The diagnostic chain is particularly interested in targets generating INR 300-400 Cr in revenue, with a focus on assets that have the right revenue mix and maintain strong quality and governance practices.

To evaluate these opportunities, Dr Lal PathLabs has set up a dedicated M&A team.

Dr Lal PathLabs' Expansion into South India

The South Indian market has been a weak spot for the Gurugram-based company, contributing only 6% of its total revenue of INR 2,227 Cr in FY24.

In contrast, the company derives approximately two-thirds of its revenue from Delhi NCR and the rest of North India, with the eastern and western regions each contributing 15%.

Dr Lal’s last major acquisition was Suburban Diagnostics in the western region in October 2021, during the peak of the COVID-19 pandemic. This acquisition, valued at over INR 1,000 Cr, provided the company with a significant entry into the Mumbai market.

However, some stakeholders expressed concerns over the steep 18x EBITDA valuation of Suburban, particularly as its short-term pandemic-related testing profits inflated its margins.

Currently, Suburban’s EBITDA margin is half of Dr Lal’s own 28% EBITDA margin for the first quarter of FY25.

Dr Lal PathLabs’ Financial Strength

Dr Lal PathLabs CEO Shankha Banerjee said that after the Suburban acquisition, the management team took about two years to stabilize and integrate the company.

Now, with available management bandwidth and cash reserves, Dr Lal is ready to focus on new growth opportunities.

With a market capitalization of INR 27,560 Cr and a net cash position of INR 1,044 Cr as of June 30, 2024, Dr Lal PathLabs is in a strong financial position to pursue acquisitions. The company also maintains a healthy debt-equity ratio of 0.1%.

The promoters, led by founder Dr Arvind Lal and his family, hold a 54.6% stake in the company. Dr Lal’s stock has surged by over 60% in the last six months, reflecting the company’s growing financial strength and market confidence.

This planned acquisition in south India could be the next step in Dr Lal’s strategy to consolidate its position as a leader in the Indian diagnostics market.

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