BT-YES Bank Emerging Companies - Dr Lal PathLabs

BT-YES Bank Emerging Companies - Dr Lal PathLabs

Even though it was set up shortly after India achieved independence, it is only in the past decade that Dr Lal PathLabs embarked on a major expansion drive and emerged as one of the country's largest chains of diagnostic centres.

Om P. Manchanda, CEO, Dr Lal Pathlabs Photo: Vivan Mehra Om P. Manchanda, CEO, Dr Lal Pathlabs <em>Photo: Vivan Mehra</em>
It might appear a little odd to describe as "emerging" a company that was set up shortly after India achieved independence. But Dr Lal PathLabs definitely fits the bill. Why? It is only in the past decade that the company embarked on a major expansion drive and emerged as one of the country's largest chains of diagnostic centres.

Dr Lal PathLabs was founded by the late Dr (Major) S.K. Lal in 1949 with six employees. Standalone pathology labs were not commonplace at the time. Since then the diagnostics services market in India has undergone a sea change. Today, the company has a network of 150 labs and 2,000 collection centres across the country that cater to about one crore customers every year.

The company - now headed by Chairman and Managing Director Arvind Lal, the founder's son - also has 10 collection centres outside India. These centres in Oman, United Arab Emirates, Saudi Arabia, Nepal, Bangladesh, Sri Lanka and Malaysia ship samples to India for testing.

The company is adding 15 to 20 labs and 200 to 300 collection centres a year, says CEO Om Manchanda, who joined the diagnostics chain in 2005. The expansion will help increase the number of customers by 20 to 25 per cent every year, he adds.

That will likely boost its bottom line, say analysts. "Once protocols and processes are in place, it is about increasing volumes to increase profitability," says Charu Sehgal, Senior Director at consulting and auditing firm Deloitte Touche Tohmatsu India.

Manchanda also says the company has established standard operating procedures for labs, collection centres and sales operations. Each lab and collection centre is linked with a central server on a real-time basis. This helps the company manage the entire network in an integrated manner, he says.

The company's revenue has more than tripled in the past five years, to Rs 452 crore in 2012/13 from Rs 128 crore in 2008/09. During the same period, the number of employees has nearly doubled to more than 3,500. Growth was helped by investment received from venture capital and private equity firms WestBridge Advisors and TA Associates India.

WestBridge invested almost Rs 40 crore in Dr Lal PathLabs in 2005 for a stake of about 33 per cent. TA Associates invested more than Rs 150 crore in the chain in two stages, first in September 2010 and then in January this year. "It was a single brand and people recognised it. Their growth was organic. That's why we invested in it," says Sandeep Singhal, co-founder and Managing Director of WestBridge. "We have been happy investors. The valuation [of our stake] has gone up by 20 times since we invested in the company."

Naveen Wadhera, Director and Country Head of TA Associates India, says the business model of Dr Lal PathLabs is asset-light and highly profitable. The company has consistently improved its profit margins over the past few years, he adds.

Wadhera is bullish on the $1.8 billion Indian diagnostics market, which he expects to grow more than 20 per cent annually for the next several years. But the market is highly fragmented and unorganised. Dr Lal PathLabs is facing competition also from large diagnostic chains such as Metropolis India and SRL Diagnostics. Amit Mookim, Partner and National Industry Head for Healthcare at KPMG in India, says that diagnostics has expanded beyond hospitals and fragmented laboratories and that the organised players have created a niche in the market. "The trend is towards the industry getting organised," adds Manchanda. "I foresee that both standalone labs as well as branded chains will co-exist."

Correction: An earlier caption erroneously identified the person in the photograph as Arvind Lal, Chairman and Managing Director, Dr Lal PathLabs. He is in fact Om P. Manchanda, CEO, Dr Lal Pathlabs. We regret the error.