Dr Lal PathLabs CEO Explains Business Model Ahead of IPO

Dr Lal PathLabs will hit capital markets with its initial public offer (IPO) on December 8, 2015. The diagnostic company is offering 1.16 crore equity shares, which is 14 per cent stake in the company. The price band for the offer is Rs 540- Rs 550. At the upper end of the price band, the company may garner Rs 632 crores.

The IPO is primarily an offer for sale as the company is not raising any fresh capital through this issue. The promoter group is offloading 5 per cent stake and private equity investors are selling 9 per cent stake in the company. Post the stake sale, private equity investors will be left with 23 per cent stake in Dr Lal PathLabs.

According to Dr Lal Path Labs' CEO Dr Om Manchanda, the company has maintained a strong growth track record in the past, with revenue growing at a compound annual growth rate (CAGR) of 20.7 per cent in last two years compared to the industry's growth rate of 16-17 per cent. (Watch)

Dr Lal Path Labs reported a net profit of Rs 95 crore on sales of Rs 663 crore in FY15.

Asset-light model and continuous network expansion has helped the company maintain its growth, said Dr. Manchanda.

"We keep on expanding our network through patient service centers by opening lot of satellite labs. Many of the satellite labs are owned by us but we don't own the building. We have instruments which are available to us on lease rentals model. Patient service centers are mostly franchised out, that is why it is a very asset light model," he added.

Dr. Lal PathLabs, which had 171 clinical laboratories, 1,554 patient service centres and over 7,000 pick-up points as of September 30, 2015, is a debt free company and it has internal accruals of Rs 235 crore. Dr. Manchanda believes that its internal accruals are sufficient to support future expansion.

Kotak Mahindra Capital and Citigroup Global Markets India are the book running lead managers for the IPO. The IPO will end on December 10, 2015.