Dr Lal PathLabs, a leading name in India’s diagnostic industry, is gearing up for a major acquisition to enhance its footprint in South India. The company is open to a deal worth between Rs 3,000 crore and Rs 4,000 crore if it aligns with its strategic goals, according to a senior official.
“We have around Rs 1,000 crore in net cash and can utilize our balance sheet and equity as needed, so the size of the acquisition won’t be an issue,” stated Ved Prakash Goel, the Group CFO. He acknowledged that while market valuations are currently high, the company remains on the lookout for suitable opportunities.
Dr Lal PathLabs is eyeing potential assets that generate revenues in the Rs 300-400 crore range, focusing on entities with strong governance, good revenue mix, and quality operations. The company has already put together a dedicated mergers and acquisitions (M&A) team to assess possible deals in the market.
“We are open to acquisitions in the South, similar to what we did with Suburban Diagnostics in the Western region. That was our first large acquisition, and it took us about two years to integrate and put it on a growth trajectory,” explained Shankha Banerjee, CEO of Dr Lal PathLabs. He further added that the company now has ample management bandwidth and financial resources to pursue new growth opportunities.
Despite its headquarters being in Gurugram, Dr Lal PathLabs has a relatively modest presence in South India, contributing only 6% to its Rs 2,227 crore revenue in FY24. The majority of the company’s revenue comes from Delhi NCR and other northern regions, while the East and West each contribute about 15%.
With a market capitalization of Rs 27,560 crore, Dr Lal PathLabs has seen its stock surge by more than 60% over the past six months. As of June 30, 2024, the company holds Rs 1,044 crore in net cash and equivalents, and it maintains a low debt-equity ratio of 0.1%.
Founder Dr Arvind Lal and his family, who are the company’s primary promoters, own 54.6% of the shares. The company’s most recent major acquisition was Suburban Diagnostics in October 2021, a deal that took place during the COVID-19 pandemic when valuations in the diagnostics sector were at an all-time high. The acquisition, which cost over Rs 1,000 crore, allowed Dr Lal PathLabs to establish a stronghold in the Western region, particularly in Mumbai. However, the valuation of Suburban at 18 times EBITDA raised concerns at the time, as its margins were temporarily boosted by pandemic-related testing. Currently, Suburban’s EBITDA margins are about half of Dr Lal PathLabs’ 28% margin reported in Q1FY25.
As Dr Lal PathLabs looks to expand its reach, a successful acquisition in the South could significantly boost its presence across the country.