How Arvind Lal built a single lab into India’s most valuable diagnostic services powerhouse
We have a significant stake (by our standards) in Dr Lal Pathlabs and have as a result had the good fortune to meet the Founder, Dr Lal, and the firm’s CEO, Om Manchanda, several times. As middle class Indians hailing from families with little or no business background, we believe that stories like Dr Lal’s have to be understood better so that a new generation of Indian businesses continue rising to the top of the wealth creation charts. The trajectory that such businesses tend to follow is very different from the paths taken by the traditional Indian conglomerate type businesses and as the traditional conglomerate (GE included) fades away the world over, we are increasingly likely to see high ability individuals from modest backgrounds become the dominant promoters in India. Based on this Forbes article, here are the three turning points in the life of Dr Lal Pathlabs.
The first turning point pertains to how Dr Lal – who had joined the Indian Army – got pulled into the small path lab that his father had founded 1949. The catalyst was his father’s death in tragic circumstances: “ Even then, it was not his plan to join the family business until a family tragedy turned around their fortunes. SK Lal was allegedly killed by his brother, Anil, forcing Arvind Lal to take over his father’s business. “There were no witnesses to my father’s death,” Lal wrote in his book, Corporate Yogi. “I have pieced the event together in my head, over and over again, like a slideshow. In the first panel, my parents are in their sitting room, having dinner while watching TV. Click. My mother gets up and walks towards the bathroom. Click. My father sits alone in the room, in his customary chair, with his back to the door. Click. The assassin looms up behind my father, the weapon belching fire. Click. My mother emerges from the bathroom to see my father slouched over and Anil standing there, with the smoking gun in his hand.”
The second turning point was the creation of the franchisee business model which today underpins the success of business: “…Lal discovered the world of franchising. “One of my regular patients, a resident of Model Town, North Delhi, used to come to my lab at least twice a day,” Lal recalls. “He said ‘You are such a bright young man. Why can’t you set up a lab at Model town?’” With that, Lal set up what he calls the first franchise model in the health care business in India. The franchises were then tasked with collecting the samples which would then be sent to the company’s central labs for testing.”
The third was the introduction of non-family shareholders into the business, an event which ultimately resulted in both, Om Manchanda joining the firm in 2005 and the company going public in 2015: “…in 2005, Dr Lal PathLabs brought in its first round of private equity investments when WestBridge Capital bought a 26 percent stake in the company, valuing the business at $24 million (₹106 crore). The deal was one of the first in diagnostic chains in the country, with a follow-on investment again in 2007. By 2010, private equity firm TA Associates bought a nearly 16 percent stake for $35 million (₹221 crore) from Sequoia Capital India, which had acquired WestBridge Capital in 2006.
That was soon followed by an investment of $44 million by WestBridge Crossover Fund in 2013, valuing the company at around ₹1,750 crore. In 2005, the company also brought in Om Manchanda, a veterinary doctor-turned-management executive as full-time CEO.”