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India’s diagnostic chains start increasing prices

India’s diagnostic chains have started increasing prices, signalling a ceasefire in a competition war that cut short their pandemic-driven stellar run.

“Competition, on the basis of pricing, has eased in the last couple of quarters,” Rahul Guha, managing director and chief executive officer at Thyrocare Technologies Ltd., told BQ Prime in an exclusive interview.

A Nuvama note said that rising prices could be positive news for diagnostic stocks.

Shares of diagnostic chains surged during the pandemic as demand rose. In May 2022, some online diagnostic players like Tata 1mg announced disruptive pricing to capture market share, impacting industry-wide margins. The pricing war caused shares of all listed diagnostic chains to fall.

Dr Lal Pathlabs Ltd. took the lead in the last quarter of FY23 to announce price hikes. Its per-patient revenue rose 1.2% sequentially on higher prices in the first quarter of FY24, according to its earnings call.

Online players, too, were also gradually raising prices for select preventive packages, Nuvama said in its industry report. “Tata 1mg’s Platinum Full Body Checkup and PharmEasy’s Basic Health Checkup have seen 7% and ~18% price increases, respectively, between December 2022 and August 2023.”

Price increases by online players in May to June 2023 were not just a one-off reset but “the start of an up-move”, it said. Tata 1mg and Apollo 24/7 further raised prices by around 15% and approximately 60%, respectively, in August, the report said.

“With both offline and online players in consensus, the market [for diagnostic players] is conducive for growth,” the note said.

According to Guha, online diagnostic chains have hiked prices by 15–50%. There is also a shift back to offline testing, which could be a positive for all listed diagnostic players that have a large offline presence, he said.

“Tailwinds are good for companies in the metro because pricing has rationalised and people are once again getting comfortable with walk-ins.”

Citing Thyrocare data, he said its offline franchise channel grew at around 18% year-on-year, while the online partnership business contracted.

Nuvama report on diagnostic space

  • Nuvama’s analysis of diagnostic test prices and pharmacy discounts showed:
  • Price increases by online players in May to June 2023 were not just a one-off reset but the start of an up-move.
  • Following incumbents, online players, particularly PharmEasy, took aggressive price hikes in May and June.
  • Tata 1mg and Apollo 24/7 further raised prices by ~15% and ~60%, respectively, in August.
  • Incumbents’ price hikes were mainly in semi- and high-specialised tests, but online players have taken advantage across test categories.
  • Incumbents’ premium pricing is narrowing, which gives an edge to established players.
  • Package rates have also increased, albeit gradually (Tata 1 mg/PharmEasy’s +7%/+18% since December 2022).
  • But smaller players (Netmeds, Healthians) are aggressive on pricing to gain share.
  • Pharmacy price wars are vanishing.
  • Medplus’ discounts are the most attractive.
  • With both offline and online players in consensus, the market is conducive to growth.
  • A weak acute season may delay volume recovery, but Vijaya’s core market play/Metropolis’ rapid expansion offer an edge.

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