E-commerce/competitive-intensity alarm (7 Q1 mentions) vanished.

The commentary that we heard from a lot of consumer companies is there were a lot of unseasonal rains and erratic weather this quarter. Did our volume growth benefit from any of these unseasonal trends, or is this like a very clean kind of unseasonal volume growth that we saw this quarter?

As of now, in the 1st Quarter numbers that are there, there is not too much of a favorable impact because of the unseasonal rain. It is more or less like-for-like compared to Q1 last year.

If I were to look at our realizations this quarter, they have not grown much, probably even less than one percentage or so. But despite that, we have seen a very strong gross margin expansion both YoY and QoQ. Is there anything specific on the cost front that we have done this quarter? And is this kind of improvement something that we can sustain, or are we hitting a normalized level of gross margin where we like to sustain it at an 80%-81% level?

I think realization has gone up from Rs. 833 to Rs. 880, which is not 1%. I mean, that is one. But there is no price increase as such we have taken in this. This is all due to test mix, or maybe high end test contribution which has contributed to this realization. Margin specifically has increased, and we got the benefit because of this SwasthFit which has contributed 27% this time, which is highest ever contribution in this quarter. So, that is the reason we are getting some benefit out of this.

Last quarter, we indicated in our outlook for FY26 that we may see up to, let's say, 100 basis points margin compression because we are reinvesting into our brand as well as lab infrastructure, etc. This quarter, margins have actually been quite strong. So, should we see the impact of this margin compression on a lag basis, let's say, in the remaining quarters or was this quarter it just surprised us more than what we had anticipated?

You are right. If you see first half, we generally have higher margins, because most of the investments we are getting into second half. I do not think these 28.7% margins are representative of the full year. Yes, we have improved, but let us see how the remaining quarters goes. But most of the investment will be in later quarter of the year. Shankha Banerjee: But Karthik, just to add to that, I think there is internal view, although we are recalibrating that the overall annual margin also could be slightly better than what we had projected at the beginning of the year.

Could you provide some color, is this growth secular geographically? Is it some particular region which has led to this strong patient volume growth or sample growth?

If you look at the overall number, revenue at 11.3% and let us say sample growth at 10.7%, which is really very closely hugging the overall revenue. I think we are seeing similar trend of the sample growth being very close to our overall revenue growth across all our major geographies.

Core Delhi region is still growing at double-digits and same for West?

Yes, Delhi has grown at double-digits for this quarter as well. West, like we said that post our changeover in Suburban of the whole IT stack, there has been a bit of a discontinuous impact in the market, which we had mentioned would take maybe 2 quarters to recover. We are still in that recovery phase. It is better than previous quarter, but I would not say we have still reached the level that we were 2 quarters back.

Q2, we should see the beneficial impact of unseasonal monsoon. Would again that be correct?

Q2 has traditionally been the high quarter specifically driven by fever and seasonality. So, like if we are saying this year, the similar thing was there last year. I do not think there is an expectation of this year high being differential from others, because there is still quite a lot of the quarter still remaining to play out. It has been a seasonal high always, and we expect a seasonal high this year as well.

The amortization for Suburban would continue at Rs. 60 crore run rate and this should be over in the next 4 years, right, is that understanding correct?

Total is Rs. 50 crore, Prakash, for the year, Rs.12.5 crore per quarter, which will continue for some time.

There is a kind of a very steady secular rise that we are witnessing in tests per patient and possibly that is helping you deliver growth without taking even any price hike. Is there any benchmark that one can think the number of test per patient could go as high as 4 or 5 or what number that one can kind of target and achieve and over what time period?

I think that is a very interesting question. And, at the outset, let me say we do not have a target that we are following on a test per patient basis. But one thing that we definitely see is that there are a lot of factors which are contributing to this test per patient increase, and some of those factors definitely in the near-term would continue. First and foremost is this whole SwasthFit acceptability and growth that we see, we see traction in terms of more people wanting to use it not only in urban areas, but we are also seeing some of our smaller towns, the acceptability is rising, we are also seeing some traction coming from the prescription channel. So, that is one driver for test per patient. And obviously, there is another driver, which is in terms of prescribing habits of clinicians where there could be, more tests being prescribed on a single prescription now than previous.

What is the growth over last year that we have seen in terms of the number of test panels and whether it is fair to believe that with the rising trend of the test panels that we offer, that will lead to kind of a faster growth in either the SwasthFit growth or the overall growth for us?

I assume by panels you are implying SwasthFit. So, SwasthFit portfolio Q1 this year has grown about 22% over the same quarter last year and obviously that is ahead of our overall revenue growth and therefore contributes positively to our overall revenue growth as well as to our profitability mix.

For Suburban, we have not been able to work it out like probably the way we would have wanted when we had acquired the asset. Any color if you could provide on what are the things where we have struggled or what went wrong and what were the learnings from it? And also a sub-part to that is this IT restack, which we are doing on Suburban, any particular reason we are doing it right now vs. say do it when we acquired or immediately after we acquired it?

The Suburban question has been asked quite a few times in the past and I think on the investor call, we have tried to answer that quite a few times. But if you reflect back and see what are the challenges, I think we said that there was one big change that we had wanted to make with the collection network, which was there, when the COVID test went down, a lot of our existing collection network within Suburban actually started becoming unviable and closing the franchise part and then, we also wanted to change the whole structure from an owned collection network to a franchise collection network model. So, that changeover, I think, took longer, specifically because of the slowdown of the existing franchise network, which happened post the COVID reduction. I think that was obviously one core reason. I think the other thing is that, starting itself we said that there are quite a few parts of the business that we felt were non-strategic and non-core, which we started de-emphasizing and that obviously went on a slow decline. Coming back to the point on the IT stack changeover, we had done quite a lot of work, we have to prepare the teams. The operations part had to be aligned to a certain level before the IT stack changeover could be done. I think the acceptability within the system, the team, as well as the preparation that would have gone into it and we felt that now is the right time for us to really start looking at more backend synergies. And that is why the timing was chosen to do the IT stack changeover to align fully to the Dr. Lal PathLabs IT stack, which we did in February this year.

In our non-core geographies, what are some of the strategic initiatives that we have taken to fasten organic growth?

Non-core geographies, obviously, there is a slightly slower turnaround in terms of building the organic business. And it will follow a quite simple mechanism, obviously building the testing infrastructure, collection network and then put feet on the ground, who can then meet up with the prescriber community and be able to promote our services and how we can give good quality services compared to maybe a lot of other local labs and maybe some of the smaller regional labs that may be operating in that geography.

We have seen consistently double-digit growth for the last couple of quarters in Delhi NCR. I wanted to understand, what has changed in the said region - whether the market competitiveness has changed or whether we have made certain efforts that is resulting in double-digit growth?

Yes, I think firstly, there is a slightly benign market competitiveness in terms of the online players and pricing, that is a contributing factor. But over and above that, there are quite a lot of service enhancement initiatives that we have taken in the market, whether it is on logistics, test menu, people on ground. A lot of those and even looking at our channel partners and kind of motivating the channel partners performance, etc. So, a lot of those initiatives have gone into play, which is resulting in what we are seeing as the consistent double-digit growth in NCR.

I wanted to understand your West India strategy. I understand you are in the last leg of integration, but with the dual branch that we have now with Suburban and Dr. Lal, how should we see your West India region performing going forward? Could you give us more color around your organic expansion, maybe focus cities, or how are you dividing the local areas, and also the white spaces that you are seeing in the West India region?

West India for us is, Maharashtra, MPCG, Gujarat and Goa, that is what West India is. And amongst this whole wide geographic array, the dual branch strategy is operational in Mumbai, Pune, and Goa primarily. The rest of the parts of West India is still fully Dr. Lal PathLabs organic and a few inorganic acquisitions that we have done in the past. In terms of our strategy, the core medical hubs are Mumbai and Pune and that is the area that we really want to build a strong base in. I mean, the other parts of West India in MPCG, MP and Chhattisgarh, there is quite a lot of organic Dr. Lal PathLabs presence and quite a lot of those markets we are the number one brand and we continue to expand our footprint as well as our business there, whereas in markets like Maharashtra and Gujarat, we are not the leaders and could be quite far behind some of the incumbent brands there. Those are the geographies that we are trying to build for the long term and working on that to see how we can now grow these two brands organically in Mumbai and Pune.

Is it fair to assume that the majority of the expansion would be franchisee collection centers going forward rather than the lab addition in these markets or how should we see it from say, 3-5 years down the line?

In a 3-5 year scenario, definitely we will have lab additions as well. So, it is not that lab additions are not going to happen. But, since we are first focusing on a very compact geography of Mumbai, Pune, I think the lab infrastructure for Mumbai, Pune is already established. In these markets, it could translate into more of a collection network expansion. But when you look at West as a whole, which includes other parts of Maharashtra, Gujarat, there is also a possibility of adding lab infrastructure which we continue to do on a steady basis.

What was the growth in the Suburban this quarter as well as the margin for this quarter?

Ashita, as we have merged now, separately it is not Suburban but west as a whole which we have already answered, Shankha has given that. Due to this IT stack change now maybe going forward it will come back what we used to do 2 quarters earlier. But right now, this quarter also is impacted because of this changeover. And obviously margins also is now whole as a Company, not separately. But this quarter and the last quarter was impacted due to this IT stack change.

This quarter your tax rate is 26%. Is there been any change or 26% is something we should build in for the full year and the coming years as well?

Yes. 25%-26% is the normal tax rate. If you are comparing with the last year if you see there was some deferred tax reversal because of Suburban and that was the one-time impact, we have explained last time. But going forward, I think this is the standard rate, 25%-26%.

On the guidance you said you are expecting better than the earlier guidance of 27% EBITDA margin. But are you also revising up your growth guidance revenue of 11%-12%?

No. We will stay with our 11%-12% revenue growth projection.