Shares of Dr Lal PathLabs Ltd. dropped nearly five percent on Friday after Kotak Institutional Equities maintained its cautious stance on the stock and retained its ‘sell’ rating.

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The brokerage firm continues to be cautious despite the price hikes undertaken by the diagnostic chain recently.

Kotak maintained sell its rating for the stock with a price target of Rs 1,675 per share, which is a potential downside of over 30 percent from the current market price. It is also among the lowest price targets on the street for the stock.

The brokerage said that sluggishness in organic non-Covid patient volumes, which is a four-year compounded annual growth rate (CAGR) of 7 percent, remains a concern. Besides, traction in suburban areas stays lower than expectations.

Kotak said that increasing sanity in diagnostics pricing is well captured by the pathology service provider.

Dr Lal PathLabs last hiked its prices in February 2023, but only in select portfolios. This was the first-ever price increase by the company.

The decision was aimed at improving the company's revenue per patient. Surprisingly, the price increase encountered minimal resistance, indicating positive prospects for the company's financial growth.

Kotak said that better test mix and seasonality could boost Dr. Lal PathLabs’ numbers.

For the June quarter, Dr Lal Pathlabs reported revenue growth of 7.6 percent, which was in-line with expectations, while operating profit or EBITDA grew by 24 percent. Margin profile expanded by nearly 300 basis points from the same period last year.

The company's non-Covid-19 revenue saw double-digit growth during the quarter.

Shares of Dr Lal Pathlabs are trading 4 percent lower at Rs 2,381.95. The stock is still up 8.3 percent on a year-to-date basis.