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Dr Lal PathLabs shares jump 5% after double upgrade from Kotak IEs

After a long stretch of stock underperformance, domestic brokerage Kotak Institutional Equities stated in its most recent report that it has double upgraded Dr Lal Pathlabs from Sell to Add with an increased fair value of ₹2,360. Given reasonable prices, the brokerage has also increased Metropolis Healthcare’s fair value to ₹1,600, keeping its Reduce rating.

Following the brokerage’s upgrade, Dr Lal Pathlabs share price surged over 5% on Tuesday’s session, while Metropolis Healthcare share price rose 2.5%.

Over the course of the last year, the brokerage believes that price sanity in diagnostics has increased. The brokerage’s most recent price study, which included seven locations, points to continued improvements in pricing patterns.

A more benign competitive environment allays any serious worries about the structural volume growth and margins of Dr Lal Pathlabs and Metropolis Healthcare, even if the pricing gap between listed heavyweights and online players remains high at 2.0–2.6X.

As compared to its listed peers, the brokerage said that Dr Lal Pathlabs’ recent correction—which has dropped by almost 15% in the last month—has been especially severe due to the departure of its CEO. Shankha Banerjee’s recent hiring as CEO adds consistency, and the brokerage thinks Dr. Lal Pathlabs has a capable leadership team in place led by MD Dr. Om Manchanda.

The brokerage report states that Metropolis Healthcare increased costs throughout KIE’s sample test bouquet by 5% qoq. Even though Metropolis Healthcare had previously lowered pricing twice in Delhi NCR, in 4QFY24 it raised prices by almost 14%. The prices for additional incumbents like Vijaya, Thyrocare, and Dr. Lal Pathlabs remained largely unchanged.

“Our view of the impact on diagnostics of the recent SC diktat remains similar to hospitals, with the difference being that we expect lower price points in diagnostics to limit any major detrimental regulatory actions.

Compared with a historical 1-year forward P/E premium of 20%+, Dr Lal Pathlabs is now trading at a discount to Metropolis Healthcare. We raise our DCF-based fair value of Dr Lal Pathlabs to ₹2,360 and Metropolis Healthcare to Rs1,600, largely led by increased growth estimates beyond FY2026E, as we build in lower competitive intensity,” said Kotak Institutional Equities in its report.

On the internet, a number of themes resurfaced, with price reductions of 9–20% QoQ by Redcliffe, mFine, and Healthians in 4QFY24. Healthians’ costs have now reached an all-time low, according to the brokerage.

However, throughout the last six months, Netmeds has increased costs by almost 35% across the brokerage’s sample test bouquet. Prices were also increased qoq by Orange Health and Tata 1mg, among other online marketplaces. With one exception—Delhi—Healthians and Tata 1mg continue to be the most active online players, while Netmeds continues to lead the field, according to the report. LiveMint

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