The ₹168 crore buy by Dr Lal for a 70 per cent stake in SN Genelab is expected to strengthen the former’s expertise in genomics and broaden its portfolio of advanced diagnostics services.
Brokerages highlight that the acquisition of the profit making advanced genomics and molecular pathology testing major has been made at attractive valuations and should start to fully integrate and reflect in Dr Lal’s financials over the next two to three years. At the current price of Rs 1,952, the stock which has gained 47 per cent over the past six months, is trading at 45-48 times its FY28 earnings estimates.
While Dr Lal is acquiring SN Genelab, the promoter of the company will retain the remaining 30 per cent and continue to be part of SN Genelab. The acquired company is based in Gujarat and is currently focussed on oncology, rare diseases and reproductive health.
The company’s revenues have grown from ₹43 crore in FY24 to about ₹58 crore while operating profit has doubled over this period to ₹15 crore.
Margins at the operating level have grown by 800 basis points (bps) over this period to 26 per cent.
Given the robust financial and profitable growth of SN Genelab, brokerages believe that valuation for the acquisition at 16 times FY26 enterprise value to operating profit is reasonable.
In addition to the reasonable valuations, Emkay Research highlights that the benefits of cross-selling the specialised test offerings on Dr Lal’s wider platform and geographical diversification of the revenue base (West contributes 14 per cent of FY26 revenues) further support the attractiveness of this asset.
Anshul Agrawal and Vivek Sethia of the brokerage point out that Dr Lal’s investments in advanced genomics in addition to this acquisition is likely to aid differentiation among organised players. It would also further add to its growth trajectory as consumers gravitate towards quality-focused, branded organised operators.
A strong balance sheet with a net cash position of ₹1,700 crore, industry-leading margin, and stable return ratios provide comfort on valuations, they add.
The brokerage expects Dr Lal’s revenues and operating profit to grow by 15-16 per cent annually over FY26-29, excluding the SN Genelab acquisition. It has a ‘buy’ rating for Dr Lal with a target price of ₹2,100.
The diagnostics sector has been focusing on genome testing companies. In December 2024, Metropolis acquired the Delhi-NCR-based Core Diagnostics, a genomics and advanced oncology testing specialist for ₹247 crore at 2.2 times equity value/sales. Unlike SN Genelab, however, Core Diagnostics was operating only at operating profit break-even levels at the time of the acquisition.
Saion Mukherjee and Kushal Chovatia of Nomura Research believe that these deals highlight the increasing focus of organised Indian diagnostics players on adding high-end, specialised tests to their menus.
The larger, organised chains are cash rich and find these smaller bolt-on acquisitions a swifter route to building capabilities in high-end testing.
Moreover, volumes from these niche tests can scale up meaningfully on the larger platforms of these organised players.
The brokerage, however, believes that SN Genelab's acquisition may be marginally earnings per share dilutive for Dr Lal in the near term. However, it presents substantial potential for long-term value creation once SN Genelab's testing capabilities gain a wider reach through Dr Lal's network.
It has a ‘buy’ rating on Dr Lal with a target price of ₹2,150. The analysts believe that Dr Lal's valuation, which is at the lower end of the 40-60 times price-to-earnings band over the last three years, is supported by strong volume growth and a robust balance sheet that underpins its acquisition ambitions.
 "Dr Lal PathLabs, path labs")