Dr Lal PathLabs: Achieving scale in Indian diagnostics market
Learn how a single diagnostic center grew into a chain of 1500 centers serving 12 million patients annually!
Founded in 1949, Dr Lal PathLabs, headquartered in New Delhi, has grown from a single diagnostic center to a chain of 1,500 patient service centers. As one stop solution for diagnostics, pathology, super specialized tests, radiology and cardiology tests, Dr-Lal-PathLabs is serving 12 million people per year across 3500 diagnostic and related healthcare tests. With an integrated pan-India network and international presence, the company reported FY15 revenues of ~$100M with 20-22% margin and is undergoing IPO currently.
Media 1: Journey and evolution of Dr Lal PathLabs
Business Model: What is the story behind its success?
Indian healthcare market, especially the diagnostics and pathology market is highly fragmented with over 80% market constituted of standalone clinics – independent or inside hospitals, mainly in urban areas. Further, rural centers are really small scale facilities carrying out basic tests but no specialized tests. In such a scenario, accessibility and quality are the major issues faced by the customers.
Under strong leadership, Dr-Lal-PathLabs has done an exemplary job of addressing both these concerns and creating a highly profitable, scalable business through an asset light, hub-and-spoke, franchisee-based model. It has done a great job at managing two important customer segments well: patients and doctors.
With several accreditations, Dr-Lal-PathLabs brand represents high quality, accuracy, and trust among the doctors. It has a proven track record for strict adherence to international standards and is recognized as a center of innovation and a premier clinical pathology laboratory in Asia.
Customer service is one of the primary focus of Dr-Lal-PathLabs. In addition to proximity and quality, company offers a turnaround time of few hours. Additional services like home collection, online reports, loyalty program, etc. add to the spectrum of benefits to the patients.
The firm also creates value for independent hospitals, clinics, and small pathology labs across India by providing services – collect samples and deliver reports – to small clinics and pathology labs that lack capabilities to conduct highly specialized tests. Specimens are collected across multiple locations within a region for delivery to a pre-designated clinical laboratory for centralized diagnostic testing. The entire system, put together, serves 15,000 patients and conducts 45,000 tests per day.
Operating Model and how it aligns to business model
The company’s mantra of providing high-quality services through cost management and efficient use of technology has led to its sustainable competitive advantage in the Indian market.
- 1 reference lab, in New Delhi, with state-of-the-art technology to conduct both routine and specialized pathology and radiology tests
- 160+ satellite labs, in tier-1 and 2 cities, offering a limited range of pathology services
- 1500+ patient service centers – primarily franchised
- 7000+ 3rd party collection centers – hospitals & small independent labs
Hub-and-spoke model facilitates economies of scale and future growth scalability. A large network also enhances its purchasing power with suppliers. As a result, company has shown remarkable results with revenues growing by 20% over FY13-15 period and profits by 25%.
Media 2: Overview of Dr Lal PathLabs Reference Lab located in New Delhi
Test and services are performed on instrument and equipment which generally are leased under a “reagent rental” benefiting company by lowering capital expenditures for diagnostic equipment. Further, franchise model saves investment in new stores and generates 25-30% commission on revenues earned by franchisees.
Overall, the low capital-intensive nature of the business model keeps the balance sheet leverage free. Due to a low cash conversion cycle and a strong operational performance, the company has cumulatively generated ~$37M of free cash by FY15.
Automation and centralized IT systems
A centralized information technology platform fully integrates and binds together a large network through a common logistics and payments system, thereby making the process seamless. The platform also provides convenience to patients and healthcare providers by giving online access to diagnostic results.
Bar coding samples with unique ID helps the company track every step until the report is finally uploaded onto the system. Patients or providers can then download it from anywhere. Next, shift from manual to fully automated testing system has proven instrumental in maintaining accuracy and quality levels and reducing turnaround time for test results.
Innovation and R&D
Dr-Lal-PathLabs has a dedicated R&D unit that continuously innovates and develops cutting-edge technologies to achieve diagnostic accuracy and remain ahead of competition.
Looking into the future
Dr-Lal-PathLabs has built a highly effective business model by leveraging the unique capabilities of its operating model. It would be interesting to see how the company prepares itself for the next phase of growth amidst increasing competition, geographical concentration, and newer technologies – point of care testing, digital pathology, etc. in the market.
“Excellence in diagnostic care”, report by KPMG and CII
Student comments on Dr Lal PathLabs: Achieving scale in Indian diagnostics market
Thanks for the great post, Mohit! Indeed, a 20-22% margin on a diagnostic lab business seems extraordinarily impressive. Do we know what their reason is for going public? I ask because the facts that they have been around since 1949, are well-distributed across India, and have a relatively enormous free cash flow despite 20% top-line growth all would suggest very little need to go public.
Hey John – thanks for bringing up that point. It caught my attention as well as to why the company is doing the IPO. The company is not issuing any more shares actually. It is indeed an offer for sale. Nonetheless, it is important to note that Dr. Lal’s IPO is the first of its kind in India. This will hopefully pave the path for many more successful IPOs of specialty chains in India, which is especially important in the context of growing healthcare spending and growing trend of specialty chains not just in diagnostics but in diabetes, ophthalmology, etc. as well.