Fuelled by increased testing, Indian diagnostics sector to hit 8-9% CAGR

The Indian diagnostics sector is set for a steady recovery after the Covid-19 pandemic, with analysts forecasting a compound annual growth rate (CAGR) of 8-9% over the next four years, a report by HDFC Securities has said. This resurgence is expected to be fuelled by increased testing, strategic price adjustments, expansion of wellness services, and wider geographic reach.

Mehul Sheth, an analyst at HDFC Securities, stated, “As the market normalises, it is expected to grow by 12-13% from FY23-26E, buoyed by geographic expansion, a shift towards organised players, and a dual focus on acute and wellness services.”

Diagnostics play a critical role in healthcare, including wellness testing, disease detection, and monitoring. Factors such as low healthcare spending, a growing burden of chronic illnesses, and an ageing population are poised to drive growth in this sector. Players like Dr. Lal PathLabs, Metropolis, SRL, and Thyrocare hold a modest 16-20% market share, indicating significant untapped potential as per HDFC Securities.

In the post-pandemic landscape, revenue shifts have been observed, with a decline in Covid-19 testing offset by an increase in other testing areas. Companies are strategically expanding their footprint through mergers, acquisitions, brand enhancement, and bolstering wellness and B2B segments.

Dr. Lal PathLabs, for instance, is expanding into new markets yet untouched by organised diagnostics players. Between FY20 and FY24, the company added 24 labs and over 1,684 collection centres in tier 3+ cities, and now aims to add 20 more labs in tier 3 and 4 cities, focusing heavily on North India, particularly Delhi NCR. Their emphasis on specialty verticals such as genomics, reproductive diagnostics, and autoimmune disorders strengthens their market positioning.

“We concluded the year on a strong note, achieving 10.4% growth in revenue and 50.3% growth in profit after tax (PAT). In FY24, we serviced 27.6 million patients and tested a total of 78.2 million samples, representing a growth of 8.1% in samples over the previous year,” said Shankha Banerjee, Chief Executive Officer-Designate.

Traditional diagnostics firms are also adapting with strategic price adjustments to sustain growth amidst rising competition and aggressive online discounts. The market is poised for stabilisation, driven by high-end testing, wellness packages, and strategic pricing.

“We have focused on expanding our network, driving volume and revenue growth, and optimising efficiency, productivity, and margins. We are reinforcing our strategy of expanding our footprints into tier 3 and 4 towns while concentrating efforts in vital clusters across our core geographies,” Ameera Shah, Managing Director of Metropolis Healthcare Ltd, said.

Metropolis Healthcare Ltd announced on Tuesday its audited consolidated financial results for the fourth quarter of FY24. The company reported a 15% year-on-year increase in core business revenue for Q4FY24 and a 13% increase for FY24. Revenue from operations rose to Rs 313 crore in Q4FY24 from Rs 282 crore in Q4FY23, marking an 11% increase. Core business revenue grew to Rs 308 crore in Q4FY24 from Rs 267 crore in Q4FY23. EBITDA before CSR and ESOP increased by 14% to Rs 82.4 crore, with the EBITDA margin improving by 70 basis points to 26.4%. Profit after tax stood at Rs 36.1 crore, up from Rs 33.5 crore, reflecting an 8% growth, though the PAT margin slightly decreased by 30 basis points to 11.6%. Business Today