The USD10bn diagnostics market in India has been growing at a healthy 12-14% CAGR, with growth being largely volume-driven, and there is plenty of opportunities for companies to grow even from current levels, Centrum Broking said in a note.

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The domestic brokerage firm believes there is a massive opportunity, the industry offers, and consolidation would help sustain the high growth momentum for organised chains.

Centrum initiates coverage with a buy recommendation on Metropolis Healthcare with a target of Rs 3999, Dr Lal PathLabs with a target of Rs 4,999, and Vijaya Diagnostics with a target of Rs 699.

The brokerage firm anticipates a faster shift to organized providers, given the quality set-up, faster report turnaround, complex test availability, and better customer experience they offer.

With their pan India network, organized players also benefit from economies of scale and are able to provide better illness management for patients and better diagnosis for doctors.

The wellness approach towards health is still at a nascent stage in India while the pandemic has added a major push to wellness and overall healthcare penetration in India.

Indian Healthcare Market:

India’s healthcare industry has recorded a CAGR of around 22% since CY16, according to Niti Aayog. At this rate, it is expected to reach USD372bn in CY22.

The healthcare delivery market (hospitals), which was valued at approximately Rs4,400bn, is projected to grow at a CAGR of 17-18% over FY21-25.

The pharmaceuticals industry, of which the domestic formulations segment was valued at approximately Rs1,420bn, is projected to grow at a CAGR of 11-12% over FY21-25.

The diagnostics industry, which was valued at Rs710-730bn, is projected to grow at a CAGR of 14-16% over FY21-23.

Covid Boost!

The pandemic has forced the government to focus on healthcare. Increasing awareness and reach should drive higher growth and penetration for the healthcare sector in India.

Centrum believes that the pandemic has left patients with continuous follow up and monitoring of wellness post infection, driving demand.

Pandemic has also brought the importance of quality and reliability of clinical data driving the demand to organised players. “We expect this to enhance and boost the positioning of organised players,” said the note.

Ample room for growth:

The pan-India chains have 6 per cent market share in the USD10bn diagnostics industry in India. Metropolis’ patient reach is half of DLPL’s, highlighting the different models followed in the sector.

Growth has been volume-driven, which drives significant earnings visibility with further upsides from consolidation, shift to wellness from illness, aging population, and specialized testing with focus on B2C share.

“We believe there is a strong investment case for diagnostics as a structural opportunity. The leading players have delivered stellar return ratios upwards of 30% and commendable cash flow generations with FCF/PAT been ahead of 100%,” said the note.

The lower capex intensity and a plug-play model ensures strong volume growth visibility over time.

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