- National level diagnostic firms might witness a 55% jump in topline growth and 800 basis points increase in operating margins.
- The prices of diagnostic tests are expected to stabilize at current levels.
- The industry saw a whopping 74% jump between April-September.
- Testing is expected to increase due to the spread of the Omicron variant, causing an increase in their revenue.
According to a report, national-level diagnostic firms may log out of 2021-22 with around 55 per cent jump in topline growth and 800 basis points increase in operating margins. Thanks to the pandemic which sharply boosted revenue and operating profit margins during the first half of the year.
The report by ICRA Ratings also expects the prices of diagnostic tests to stabilise at current levels due to focus on volume growth and higher competitive intensity from unorganized players.
The diagnostics industry led by national-level players like Metropolis Healthcare, Lal Pathlabs, SRL, Thyrocare Technologies, Vijaya Diagnostic Centre, Krsnaa Diagnostics, saw a sharp 74 per cent jump in revenue in April-September partly due to low base and partly due to higher demands for COVID tests, while non-COVID tests slipped.
This growth is in line with the active cases that touched an all-time high in May 2021, peaking at over 4x the first wave peak. Despite regulated pricing on COVID tests, a better volume mix led to improved realization in H1 (April-September), says the report, adding the industry is set to close the year with a 55 per cent annualised revenue growth which is likely to moderate in the second half though, while for the regional chains, revenue growth is estimated at 8-10 per cent.
“Recent trends such as focus on digital brand building, improved offerings in bundled medical packages, changing consumer mindset towards organized players is likely to support demand traction for national diagnostic chains going forward,” Ms. Mythri Macherla, Assistant Vice President and Sector Head, ICRA, said.
“With news around the Omicron variant, testing is expected to increase in December 2021 due to travel norms in certain states. That said, increasing the pace of vaccinations could mitigate the spread of the new variant and reduce the level of Covid-19 related tests in the medium term,” ICRA added.
Operating profit margins has improved to 32 per cent in H1 from 23 per cent in H1 FY21 and 30 per cent in Q4 FY21, given the low base, operating leverage benefits from increased realisations and stabilized raw material prices.
The agency expects operating margin levels to improve sharply to 30-32 per cent in FY22 from 27.2 per cent in FY21 and is likely to stabilise in the 29-30 per cent range during FY23 due to focus on volume growth against the prevailing pricing pressures.
As most industry players follow an asset-light model, CAPEX requirements have remained minimal, limiting the long-term debt. Still, the net-debt position for national-level companies is expected to remain negative in the near term on the back of sizeable cash balances and healthy accruals.
