Thread by @Harshitt93

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.