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Cautious optimism

The worst seems to be over for the medical services industry. After a dismal 3QFY21 and some recovery in 4QFY21, the hospitals have displayed robust performance in 1QFY22, as reflected in their stocks outperforming the market. The MedTech vendors are reporting a surge in procurement by the corporate chains and large hospitals. And, new facilities are being added, with projects that had been stalled last year back on track. Hyderabad is building four specialty government hospitals; Asia Healthcare Holdings is raising Rs 2600 crore to add to its current investments in single-specialty hospitals; and MGM Healthcare has plans to convert its latest buy, Le Meridien Hotel in Chennai, to a healthcare facility, to list a few.

COVID-19 has also given the diagnostic laboratories an opportunity like never before. With the continued pandemic testing, albeit at fewer tests and non-COVID revenues holding up during the AMJ 2021, the labs, propped up by online booking of tests, delivered a strong beat. For the quarter ended June 2021, Metropolis Healthcare reported a consolidated net profit of Rs 74.92 crore as against Rs 2.87 crore for the corresponding period of the previous fiscal; Dr Lal Pathlabs reported a nearly five-fold jump to Rs 133.7 crore; and Thyrocare Technologies’ net profit zoomed 994.57 percent from Rs 0.23 crore in AMJ 2020 to Rs 55.58 crore in AMJ 2021.

The organized labs did gain traction at the expense of the smaller ones, prompting them to spread their reach and add more labs and collection centers, and look at possible acquisitions too. After the Rs 4546-crore acquisition of 66.1 percent of Thyrocare by PharmEasy, the labs are seeing a renewed interest among investors, both strategic and financial. The deal has ensured that any potential acquirer will have to pay rich valuations for closing a deal in the diagnostics space, and has perhaps spoilt the party for Metropolis for its acquisition of Hitech. In early 2021, it was almost a done deal at Rs 511 crore in cash and Rs 106 crore worth of Metropolis’ stock. That also explains the strong response to Pune-based Krsnaa Diagnostics’ Rs 1213-crore IPO, as the issue got subscribed 64.4 times. The other two large companies, Suburban Diagnostics and Vijaya Diagnostics, are also testing the waters.

However, business will remain an uncertainty as long as the pandemic remains a pandemic, and does not become endemic. If only a small proportion of India, and of the world remains vaccinated, in the words of Larry Brilliant, a famed epidemiologist, “We could be closer to the beginning rather than to the end of the pandemic!”

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