India #Diagnostics Industry - Overview
(incl Dr.Lal, Metropolis, Vijaya) (Thread)
1) Market Size
- Diagnostics forms ~10% of healthcare spend
- Industry size is ~Rs 90k crore (60% pathology, 40% radiology)
- 37% hospital labs, 46% standalone labs (unorg), 17% diagnostic chains
2) Classification of business
- Basis type of test - Routine (Urine test, Lipid profile), Semi-Specialized test (Vitamin tests, Thyroid test), Specialized test (Cancer test, genomics)
-Basis customer profile - B2C (Patients at center, home colln), B2B (govt, small hospital)
3) Operational Model for National chains -
- Global Reference Labs (GRL), 1-3 in nos.
- Regional Reference Labs (RRL) in major cities, express labs in T2/3 (routine, semi-sp test)
- Collection Centers (CC) - Customer touch-points for sample collection, largely franchised
4) Believe growth rates of 12-13% for sector should hold up (Drivers - Greater use of diagnosis for treatments, Natural growth rate of medical treatments)
FY17-23 Ex-COVID revenue CAGR ~14-15% for listed players, including acquisition (Suburban for Dr.Lal, Hitech for Metropolis)
5) Regional Mix of Players -
- Dr. Lal leader in North (62% mix), diversified in West through Suburban acq (14% mix)
- Metropolis dominant in West (50% mix), diversified in South through Hitech acq (30% mix)
- Vijaya Hyd. focused player, expanding in other AP/Telangana region
6) Margin profile, unit economics of pathology -
(All % of revenue, Dr.Lal, Metropolis)
25% COGS
20% Employee costs
15% Franchise fee
15% Other overheads
25% EBIDTA margins
*FY23 impacted by (1) Acquisitions, (2) Competition.
Vijaya 1/3rd bus. radiology, hence margins ~30%
7) Risk from online players (Tata 1MG, Apollo 24/7, Pharmeasy)?
- For Illness based testing (80-85% mix), it happens on Doctor referral, strong for incumbents
- Wellness test segment (~10-12% mix) is growing fast, where competition risk is high.
8) Good businesses, but valuations still rich for growth it offers?
FY24 EV/EBIDTA multiple - 35x (Dr.Lal), 30x(Vijaya), 25x (Metropolis)
Characteristics - (1) 13-14% structural growth, (2) Competition risk in specific categories (margin risk), (3) Customer stickiness moderate.
Thank you, please share/RT if you find it useful.
Discl. - For educational purpose, not any reco. Pls do your own research before investing.
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