Comments
Indian corporates are queuing-up to take a diagnostic test, quite literally! And the results are awaited!
What has remained a virtually unnoticed vertical in the healthcare ecosystem—diagnostics—has now gained prominence with corporate investors, Indian and international, lining up with big monies hoping for healthy returns.
The latest entrant being the Torrent Group that has forayed into diagnostics with newly-formed Torrent Diagnostics, with plans for a diagnostics chain. It bets on its expertise of consumer engagement–gained from its power and gas distribution businesses. Also, for Torrent, diagnostics is an attractive ancillary to pharma, promising growth.
Promise of good margins
Experts believe, the sector promises EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins anywhere between 25-40 percent with a sustained growth for 5-7 years. This is attractive enough for business honchos from healthcare and non-healthcare space alike to tap the opportunity.
In May, top industrialist Gautam Adani-led Adani Group had announced a healthcare foray with diagnostics as one of the focus areas under Adani Health Ventures. During the pandemic, in 2020, the Tata Group formed Tata Medical and Diagnostics (Tata MD) as a healthcare venture to provide “patient–centric diagnostic solutions.”
Other pharma-players are also in the fray, with Lupin, Mankind and Cipla taking different pathways in the diagnostics segment. Foreign players such as US-headquartered Aetna and Redcliffe Lifetech are also testing the waters in India, through local arms.
What makes it attractive?
Hasmukh Rawal, Managing Director, Mylab Discovery Solutions (which has investments from Adar Poonawalla of Serum Institute) believes, companion diagnostics is a way forward–“where diagnostics and therapy will go hand-in-hand.”
For others, diagnostics is the bet for future. Anand K, CEO of diagnostics chain SRL Diagnostics explains, corporate interests are primarily driven by “Increasing prevalence of non-communicable diseases and chronic conditions, an ageing population, growing awareness of health and a mind-set shift amongst consumers, besides insurance penetration, a preference for evidence-based treatment and increasing per capita income.”
Estimated at $675 billion, the diagnostics industry grows at 8-9 percent annually, he said.
Besides the Covid-led opportunity that opened up, there are factors such as low entry barrier, a high return on investments (ROI) and lack of stringent regulations that makes this space lucrative for fresh investments, informed Dr Arjun Dang, CEO of Dr Dangs Lab.
‘Boom expected for 7-10 years’
Post-covid, consumers are seen spending relatively more on diagnostics. On cost division, Rawal informed that till now only 10 percent was for diagnostics, while about 90 percent was for treatment or therapeutics. “Covid showed the value of diagnostics. Also, in the government’s focus on overall healthcare infrastructure, diagnostics is an important part. The industry is expected to boom for next 7-10 years,” said Rawal.
The sector is already witnessing a growing trend of precision medicine thereby requiring testing at the molecular level. SRL’s Anand says, “Therefore adoption of new technologies and harnessing the power of big data, artificial intelligence and machine learning will become imperative going forward.”
Sustainability concerns
The biggest concern is maintaining the margins, as competition hots-up. Growing commoditisation may force players into a fierce price war, which may compromise sustainability of high margins. Startups and big corporations, flush with funds may burn cash on customer acquisition, eventually, reducing EBITDA for everyone.
“Although, the sustainability of such a model is questionable, as healthcare brands are built over trust and faith over years, only time can tell how these e-diagnostics models will create efficiency and provide high levels of service and quality lab results.” said Dang. About a year ago, diagnostic chain Thyrocare was acquired by API Holdings–the parent of online pharmacy PharmEasy, in a ₹4,546-crore deal.
Affordability the focal point
Rawal believes that, besides branding, niche offerings and how quickly customers are attended to, affordability will remain a focal point for all. Other concerns include medico-legal compliances and possible changes in regulatory framework with stricter rules. These factors may put small and standalone players at risk of running dry on finances and customers, leading to consolidation and test of mettle for all players in the sector.
Comments
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.