Changing dynamics

The Indian diagnostics market, pegged at ₹67,830 crore in 2021, is projected to reach ₹112,700 crore by 2025, growing at a 14-percent CAGR. With heightened competition and disrupting pricing, diagnostics chains constituting 16 percent of the market seem to be heading for a decline. Labs as Tata 1mg have moved from being only online players to creating their own networks of labs. New entrants as MedPlus Mart, Healthians, Lupin Diagnostics, and many other stand-alone labs that constitute 46 percent of the diagnostics market, are offering tests at rock-bottom pricing. Hospital-based labs that cover 37 percent of the market are expanding their presence across the country.

The January-March quarter, Q4 FY22 was a weak quarter for the listed players. The YoY PAT took a tumble for Dr Lal Pathlabs by 26.5 percent, Metropolis Healthcare by 34.8 percent, Thyrocare Technologies by 43.7 percent, and Vijaya Diagnostics by 24.5 percent. These resulted in the brokerages slashing their FY23-24E earnings estimates by 15–20 percent. However, the seasoned financial services analysts dismissed it as a correction, because of the kind of valuations that some of these companies have got due to the IPO boom; providing a good opportunity for long-term investors.

And the expansion and investments of these companies continues. Pathkind Diagnostics has recently received a primary investment from MOPE of ₹194.4 crore for expansion in South India; Tata Capital Growth Fund acquired a minority stake worth about ₹200 crore in Aarthi Scans, Suraksha Diagnostics announced its plans to invest ₹1100 crore to set up 84 more centres across India. After having acquired Suburban Diagnostics for an enterprise value of ₹925 crore, Dr Lal Pathlabs announced its project to transport blood samples via drones. And Metropolis Healthcare, after having acquired Hitech, along with Centralab, for a cash consideration of ₹636 crore, plans to add 90 more labs and 1800 collection centers in Tier-II and Tier-III locations. Adani Enterprises has set up Adani Health Ventures to run and administer medical and diagnostic facilities, reportedly a ₹30,000 crore play.

While the legacy diagnostic companies have their strengths, their growth path has definitely become steeper!