Nomura raises Dr Lal PathLabs target price to Rs 2,280 after strong Q2; sees 12% upside

Nomura has maintained its 'Buy' rating on Dr Lal PathLabs and raised its target price to Rs 2,280 from Rs 2,150, implying an upside of 12.4%. The revision follows a strong September-quarter performance, driven by broad-based volume growth and higher realisations, with EBITDA margins reaching a multi-quarter high. Dr Lal PathLabs reported revenue of Rs 8.7 billion in Q2FY27, up 19.6% year-on-year and 9.6% sequentially. Sample volumes grew 13.4% year-on-year, while realisation per test increased 5.5%, supported by price hikes under the CGHS and ECHS schemes, a favourable test mix with higher specialised testing and a favourable geographic mix.

Core EBITDA increased 25% year-on-year and 13.2% sequentially. EBITDA margin expanded 139 basis points year-on-year and 104 basis points quarter-on-quarter to 32.1%. Net profit grew 27.5% year-on-year and 13.8% sequentially. Swasthfit contributed 26% of revenue, remaining broadly flat year-on-year, while growing around 20%. Revenue growth excluding Swasthfit was also strong at 19.6%. Growth outlook and expansion plans Management reiterated its focus on sustainable mid-teens organic revenue growth and maintained FY27 guidance in the high teens. First-half FY27 performance is tracking slightly ahead of plan.

The company acquired a 70% stake in Surat-based unlisted SN Gene Lab for an upfront consideration of Rs 1,680 million, expanding its presence in onco-genomics and reproductive genomics. It plans to add 15-18 laboratories in FY27, following 32 additions over the past two years. Nomura models FY27 revenue growth of around 18.7% and an EBITDA margin of 29.4%, above management's guidance of 27-28%, supported by the 31.6% margin reported in the first half. Nomura raises earnings estimates The brokerage raised its FY27-29 estimates following the quarterly performance, increasing EBITDA estimates by 3.5%, 5.4% and 6.8%, respectively.

Net profit estimates were raised by 3.1%, 5.2% and 6.7% for the same years. Nomura set its December 2027 target price at Rs 2,280, based on an unchanged 45 times December 2028 estimated EPS of Rs 50.7. The stock trades at around 42 times Nomura's one-year-forward December 2027 estimated EPS of Rs 44.3, at the lower end of its 40-60 times price-to-earnings band over the past three years. The brokerage expects the stock to trade at around 45 times earnings, supported by broad-based volume growth, an estimated 20% EPS CAGR over FY26-29, a strong balance sheet supporting acquisitions and a higher dividend payout of around 50%, compared with 18% in FY19.