Dr Lal PathLabs: Indian D2C Diagnostics

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Another set of questions arose as you mentioned the collection centers and labs, comparing them to a kitchen and a restaurant. They currently have around 270 labs across the country, which they own. However, the collection centers and PSCs are franchised, though not all of them.

Labs need to be on high streets, visible on main roads, as that strategy works. If a lab is hidden, it doesn't succeed. Being on main roads is crucial for a consumer brand, which is what they aim to be. Visibility is important for long-term success; otherwise, you must spend heavily on promotion. It's better to be on accessible, visible high streets, especially for the B2C model that Dr. Lal follows.

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You've been at Lal, Metropolitan, and now you're consulting. Is the model that Lal has, with a reference lab, ESCs, and collection centers, the same as at Metropolitan and other diagnostics companies, or is it different?

This is what's called a hub and spoke model, where you have a reference lab, satellite labs, collection centers, a logistics team to transport samples, and a home collection team to pick up samples from homes. Dr. Lal, when they went the B2C route, treated it more like a consumer business. They reached out to the last-mile consumer through home collection. The idea was convenience, so the customer didn't need to leave home. Samples would be picked up at their convenience, and reports would be sent via email or an app. This brought a lot of convenience, which is now a standard practice. All the big labs do that.

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They seem to have four reference labs now. One in Delhi, one in Calcutta, the one in Bangalore was the more recent one, but they are sitting on capital, unable to deploy services through acquisitions. This raises some questions. With Shankha taking over, maybe there will be more action on this front. Having worked at a couple of places now, what are one or two things that you really liked about how Lal operated? And one or two things that you think they could have done or should be doing slightly differently?

You can have thousands of samples in small vacutainers, which don't weigh much, so you really don't pay a lot. That's the innovation of the Thyrocare founder. He realized that millions of samples don't incur significant costs, which is more efficient than opening 200 labs and spending more money. He conducted a cost-benefit analysis and was the only one thinking in this disruptive way. He introduced a new business model by transporting samples via airplane instead of by road, reducing manpower and administrative costs. Manpower and admin are the largest costs in diagnostics, consuming around 40% of your gross margin. That's why EBITDA is around 10%, with a gross margin of 60% and operating expenses of 40% to 45%. By avoiding these costs, the profit and loss statement improves.

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