Thread by @Mjkfinvestment

Indian Diagnostics Market 🧵

Company's covered briefly:
💉Dr. Lal Pathlab
💉Metropolis Healthcare
💉Thyrocare

Here we go👇

1/23

India's fragmented diagnostics market grew double-digits over FY15-20;

National chain to gain market share on higher that Industry revenue growth going forward;

Market shares are being driven by gains in non-core markets and maintaining core market leadership;

2/23

Robust business economies ensure continuity in market leadership:

A large underserved population will drive revenue growth.

Cluster-based expansion and hub-and-spoke operating models have a low capital intensity and generate high FCF;

3/23

Future growth will be funded by internal accruals with no dependence on external capital;

Dr. Lal has a relative advantage given its scale of operations, potential M&A given a large cash reserve and high ROIC of over 70%;

Dr. Lal has a relatively better channel,-

4/23

-product and geography mix while Metropolis and Thyrocare are focused on improving the same over time;

Key drivers:

Regional dominance: Dr. Lal enjoys about 25% market share (Delhi-NCR) while Metropolis enjoys a 10-15% market share (Mumbai, Chennai, Pune, Surat, Bengaluru);

Channel mix, product mix, and geography mix materially differ. Dr. Lal derives 60% of its revenue from the B2C segment, the revenue share is skewed in favor of Delhi-NCR that accounts for 40% of overall revenues,

6/23

Metropolis on the other hand derives 44% of its revenue from the B2C segment, west and south India account for 80% of overall revenues,

Thyrocare is an 80% B2B segment, west and south account for ~60% of overall revenues while -east and north account for ~20% each,

7/23

Thyrocare offers ~120 profiles, while Dr. Lal and Metropolis have over 450 test profiles.

Key long-term monitorable:

A regulatory framework for pricing caps of essential tests and revenue concentration risks are long-term monitorable.

A lapse in patient data security due to-

-increasing digital ways of doing business.

Dr. Lal is the largest player in terms of FY20 revenue in the Indian diagnostics sector with accumulated cash reserves of over Rs 7.5bn;

Metropolis is the 3rd largest player in the sector in terms of FY20 revenue with-

9/23

- accumulated cash reserves of over Rs. 3bn;

Thyrocare is the sector's 4th largest player in terms of FY20 revenue and processes the highest no. of tests annually.

B2C segment has relatively high patient data control,-
standardized customer experience and higher brand recall.

Dr. Lal Pathlabs:

Present in high-density population areas;

Derisked its revenue profile by increasing the share of non-Delhi/NCR markets (18.2% CAGR vs 11.2% for Delhi/NCR) to 60% from 50%;

11/23

Dr. Lal has mere implied 1.5% market nationally with FY20 revenues of Rs. 13.3bn;

Capital-light franchise-based service network:

Franchisees operate on a revenue share model ranging between 20% and 35%;

B2C mix and preventive care: Samples collected-

12/23

-at 3rd party channels like hospitals, polyclinics, nursing homes, etc, are classified as B2B;

Service network: The franchisee patient service center network has grown much faster at a CAGR of 18.2% to 3095 centers of Mar'20;

13/23

Volumes and realizations: FY21 volumes are likely to decline marginally by 2.5% Y-o-Y to 18.9m patients and the pick-up pace from FY22;

Customer servicing costs form 2/3rd of Dr. Lal's operational costs.

14/23

Metropolis Healthcare:

Customer and quality focus capture positive macro trends: its wide presence offering B2B (57%) and B2C (43%) services;

High market share in the core markets of the west and south India;

Market leader in regional markets: Metropolis dominates-

15/23

focus cities namely Mumbai, Chennai, Bengaluru, Surat, and Pune. It commands a 10-15% market share in these markets in FY20 and intends to increase them to 20-25% through deeper penetration;

Metropolis too has seen higher growth in non-focus city revenues;

16/23

Scale advantage and young B2C network: Nearly 47% of the network is less than 2 years old and capacity utilisations are around 65%;

Nearly 50% of the operational team comprises doctors, pathologists, scientific officers, and phlebotomists;

17/23

This enables a higher focus on diagnostic R&D and relevant new test launches in the market;

Increased B2C revenue share from 44% (FY20) to more than 60% over the next 5 years;

Increased the share of wellness from 8% today to over 25% over the next 5 years-

18/23

-by way of package deals under the TruHealth brand leading to higher volumes and better realizations;

Sales channel trend: Metropolis' overall B2B (FY20- 56%) and B2C (FY20- 44%) revenues grew double digits at a CAGR of 13.4% and 20.5% over FY17-20, respectively;

19/23

More effort has been expended to increase the B2C share in focus cities, which grew at 19.2% CAGR vs 2.7% CAGR for B2Bs over the same periods;

As a result, the share of B2C increased at a much faster pace for focus cities from 45% in FY17 to 56% in FY20;

20/23

Overall revenue CAGR stood at 15.9% for FY16-20;
Figure- 59

A higher share of specialized tests, wellness growing at >50% CAGR: Implementation of nationwide price caps including private labs on routine tests, Metropolis is better placed vs its peers-

21/23

leading to any pricing-related business disruption due to the lower share of routine and wellness tests currently;

Metropolis has grown its realizations per patient from Rs. 689/patient to Rs. 856/patient (5.6% CAGR) over FY16-20;

22/23

Higher priced specialized/semi-specialized tests form 74% of the business;

As the company diversifies into new markets, realizations to be largely flattish for the company.

23/23

End of Threat 🧵