Margins start improving for diagnostic labs after price hike

Diagnostic labs, which began increasing prices since last year after a long halt due to competition from online players, have seen improvement in margins as a result.
Leading diagnostic labs have raised prices by 3-6 per cent.

Still, competition from online diagnostic platforms continues to constrain labs from increasing average selling prices (ASPs), restricting them from fully transferring the impact of the rising cost, say industry insiders.

Metropolis Healthcare increased prices 5-6 per cent early this year, following a similar step by Dr Lal PathLabs in February last year.

The companies are adjusting prices not just to offset inflation but to maintain their service quality and counter the rising input cost of equipment and reagents, and operational expenses.

Ameera Shah, executive chairperson and whole-time director, Metropolis Healthcare, said price increases of 5-6 per cent contributed around 2.5 per cent to revenue growth, and some of this bolstered net margins.

At Metropolis, 56 per cent of its business comes from B2C (business to consumer) services, which allow it to pass on some of the price increase directly to consumers. An estimated margin improvement of 1.25 per cent is accounted for after the price increase.

Aditya Khemka, health care fund manager, InCred, highlighted a core challenge for diagnostic labs in raising prices. He said while customers were not shifting to online diagnostic providers in large numbers, they used the lower online prices as a bargaining tool.

“ASPs in diagnostics have been stagnant for the past three-four years. Customers negotiate with labs using the prices they see online, even if they don’t take those services,” Khemka said.

Metropolis Healthcare, for example, raised prices in the past two years and expects to do so over the next 12 to 24 months.

Dr Lal PathLabs increased prices in 2023, particularly those of its specialised test portfolio, contributing approximately 3 per cent to revenue growth.

However, Ved Goel, chief financial officer and chief executive officer (international business), Dr Lal PathLabs, said no further price increases were planned this financial year.

Labs are likely to review their pricing strategies in 12-24 months.

“We’ve raised prices, and we may revisit pricing in 2025 or later, depending on market conditions,” Shah stated. Business Standard