The Indian diagnostic industry, estimated to grow at 10–12%, is encountering a slight deceleration compared to its pre-pandemic growth trajectory of 12–14%, according to a report by the financial services company Antique Stock Broking Ltd.
This slowdown, attributed to various factors like competitive pressures and market saturation, is reshaping the segment for major players like Dr. Lal Path Labs and Metropolis Healthcare, said the report.
The sector’s attractiveness, marked by favourable margins and low entry barriers, the report said, has spurred aggressive competition, with new players entering the market, including online aggregators, hospital chains, and pharmacy chains. “Attractive margins along with low entry barriers have resulted in the entry of new competition in an aggressive manner. This aggressive expansion has led to a significant tussle for market share, particularly in the West and North India markets, where the highest competitive intensity is observed,” Monish Shah and Pranav Chawla, analysts at Antique Stock Broking, noted.
Dr. Lal Path Labs and Metropolis Healthcare, stalwarts in the industry, are also not immune to these challenges. Despite implementing selective price hikes, patient volume growth in their key markets remains below historic averages. “We believe volume growth for both Dr. Lal Path Labs and Metropolis Healthcare will remain in high single digits i.e. around 8–9% for FY25 and FY26 respectively, lower compared to pre-Covid-19 growth rates of 13%–15%,” Shah and Chawla pointed out.
Furthermore, both companies are heavily investing in lab expansions across key regions. However, the analysts cautioned that it typically takes nearly three years for a new lab to achieve earnings before interest, taxes, depreciation, and amortisation (Ebitda) break-even, and they anticipate operating leverage to play out positively from FY26 onwards. “With negative operating leverage, returns ratios such as Return on Capital Employed (RoCE) are likely to remain under check at around 22–25%, a decline in comparison to the pre-pandemic range of over 30%,” Shah and Chawla added.
In light of these dynamics, the analysts maintained a cautious outlook on Dr. Lal Path Labs and Metropolis Healthcare, reiterating a SELL rating with price targets of Rs 1,784 and Rs 1,296, respectively. They emphasized that aggressive expansion plans coupled with competitive pressures may limit upside potential for these stocks in the near term. Business Today