Whalesbook
ICICI Securities Trims Dr Lal PathLabs Target
ICICI Securities has lowered its price target for Dr. Lal PathLabs to ₹1,460 from ₹1,500, indicating a potential 7% upside. The brokerage's adjustment follows the company's strong fourth-quarter fiscal year 2026 revenue growth of 16.6%, which surpassed analyst expectations.
Margin Pressure Despite Revenue Growth
Despite the revenue growth, Dr. Lal PathLabs' Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin narrowed by 150 basis points to 26.6%. ICICI Securities points to higher spending on network expansion and promotions as the cause for this margin squeeze. The company saw a 12.9% year-on-year increase in samples processed, and a better test mix helped boost revenue per sample by 3.3%.
Investments Fuel Future Growth Plans
Looking ahead, management expects momentum to continue, projecting 13-15% revenue growth for fiscal year 2027. Growth is expected from capitalizing on the Delhi NCR market, improving Suburban Diagnostics' performance, and expanding into smaller cities. The company also plans to enter high-end radiology testing. These investments are anticipated to help EBITDA margins recover towards the 27-28% range.
Earnings Estimates Lowered, Rating Maintained
Reflecting these margin expectations, ICICI Securities has lowered its earnings per share (EPS) estimates for FY27-28 by 1-3%. The brokerage maintains its 'Add' recommendation, signaling confidence in the company's long-term prospects despite near-term headwinds.