Shares of Dr Lal PathLabs Ltd missed analysts’ forecasts in the March quarter on weaker-than-expected sales growth. The stock reacted, falling more than 3% on May 11.

The stock traded at Rs 1,901 on the BSE at 9:30 am on Friday, down 0.3% from its previous close, while India’s benchmark Sensex was down 0.3% at 186.37 points.

Dr Lal PathLabs Ltd reported an 8.2% year-on-year drop in net profit in the March quarter to Rs 57 crore from Rs 62 crore. Revenue rose just 1.1% to Rs 491 crore from a year ago.

Net profit was forecast at Rs 62.93 crore, while revenue was forecast at Rs 515.7 crore, according to a Bloomberg survey of 13 analysts.

EBITDA fell 4.4% to Rs 116 crore while EBITDA margin was 23.6%, down 130 basis points from 24.9% last year. On a lower base, non-Covid sales were up 14% year-on-year, below our forecast of 20%. Also, Suburban’s traction remains below expectations.

Kotak Institutional Equities has retained its sell rating and cut its target price to Rs 1,525 from the current market price.

Suburban’s EBITDA margin remained modest at 11.2% in the fourth quarter of FY23 as the impact of the Covid situation subsided and the new Vidyavihar laboratory incurred losses. However, Dr Lal Path has a strategic plan to boost Suburban sales.

The plan involves expanding the test menu to offer a wider selection, forming new franchise partnerships, strengthening ties with physicians and leveraging the company’s strong position in the corporate space. Additionally, adding the new laboratory will play a key role in expanding Suburban’s testing offerings in specialised areas, reducing its current heavy reliance on routine testing.

For FY23, net profit fell more than 31% to Rs 344 crore, while revenue fell 3.4% to Rs 2,017 crore. EBITDA decreased 13% to Rs 490 crore from Rs 561 crore a year ago. Nuvama maintained its hold rating and kept its target price at Rs 2,100 at the current market price.