Dr Lal PathLabs faces pricing pressure, margin erosion

In its annual report, the company raised concerns of pricing control at the time of epidemics

India's largest pathology chain, Dr Lal PathLabs, faces "pricing pressure and margin erosion" due to rising competition, the company has said in its annual report.

“Being a fragmented industry, with low barriers to entry, if we are unable to maintain our brand equity and succumb to pricing pressures in our relatively weaker markets, we would find it difficult to maintain and grow market shares," it said.

There are 40,000 to 50,000 standalone laboratories in the country. Many of these are moving from the disorganised to the organised sector.

A senior executive told Business Standard the company might have to increase the prices of tests in some areas, though not aggressively.

BITTER PILL

• India has around 40,000-50,000 standalone laboratories
   
• Many are moving from the disorganised to the organised sector
   
• Dr Lal PathLabs plans a slow network expansion, to open clinical laboratories and patient service centres
   
• It reported a standalone net profit at Rs 40.2 crore for the quarter ended June
   
• It plans to increase the price of other tests to compensate the pressure they have in lowering prices of the tests linked to epidemics

One of the other concerns raised in the annual report is of pricing control at the time of epidemics. The company referred to state governments imposing such restrictions in tests linked to diseases such as dengue fever. "We will increase the price of other tests to compensate the pressure we have in lowering prices of the tests linked to epidemics," it has said.

It plans slow network expansion, to open clinical laboratories and patient service centres. "The significant capital investment necessary to construct clinical laboratories, particularly regional reference laboratories, due to their size, is likely to have a material impact on our results, of operations during the period of their construction and the initial post-opening period, during which each clinical laboratory is being fully integrated into our network with added cost of infrastructure. Further, slower integration might also cause further margin pressure. Therefore, we need to ensure that costs are controlled and do not mount rapidly in spite of inflationary trends," it said.

A company official said the facility in Kolkata would be operational by September 2017. The Lucknow facility was at the design stage. It plans to expand in the rest of India with a cluster approach, growing around towns and cities where it sees potential. The company is also looking at acquisition of medium and small pathology firms.

Dr Lal PathLabs reported a standalone net profit at Rs 40.2 crore for the quarter ended June. The company got listed in December 2015 and its Initial Public Offer was subscribed 33.4 times.