CRISIL Ratings: Diagnostics revenue to rise 10-11% this fiscal on expanding reach

Steady operating margin, prudent capex spend and strong balance sheets to keep credit profiles stable

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New Delhi: Revenues of diagnostic companies are poised for a 10-11% growth in fiscal 2025, driven by a mix of higher number of patients and improving revenue per patient. This comes on the back of an estimated ~8% growth last fiscal.
While geographic expansion by established players into Tier 2/3/4 cities will drive higher patient volumes, growing demand for comprehensive preventive health packages, will lead to higher realization per patient.
Rising share of these higher margin health packages – expected to account for nearly one-fourth of total revenues – will ensure operating margins remain steady at 24-25% in this fiscal, despite continuing brand promotional expenditure. With internal accruals sustaining at healthy levels and capex spend remaining modest, reliance on external debt will be low. This shall ensure balance sheets remain strong, supporting credit profiles of diagnostic players.
A study of 10 diagnostics companies (including five pan-India players1), with aggregate estimated revenue of ~Rs 6,700 crore previous fiscal, indicates as much.
Says Poonam Upadhyay, Director, CRISIL Ratings, “Existing diagnostic players are seeing growth opportunities for routine tests (~55% of revenues) stagnating in metros and urban centres due to stiff competition from e-pharmacies as well as labs attached to hospital chains. As a result, they are looking to expand into the hitherto untapped Tier 2/3/4 cities and increase their customer base to drive volumes. The increase in collection centres at these locations will also lead to better utilisation2 of existing test labs.”
Further, increasing health awareness post pandemic has also provided a fillip to preventive health checkups. To facilitate the same, diagnostic companies are bundling various tests into curated wellness packages tailored to different genders, age groups and consumer profiles. This has enabled them to charge a premium, leading to increase in spend per patient. Notably the share of this segment is expected to reach ~22-23% this fiscal up from ~18-20% in fiscal 2024.
In fact this sustained rise in share of wellness tests (~15% in fiscal 2023) contributed to the growth in revenues of diagnostics players last fiscal, even as patient volumes remained flattish. To be sure, this followed a degrowth in revenues registered in fiscal 2023, owing to a sharp fall in number of covid and allied tests (see Chart 1 in Annexure).
Continuing high competition from hospital chains and e-pharmacies necessitated higher marketing spends by diagnostic companies to protect their market share, leading to moderation in operating margins to pre-Covid level of 24-25% in fiscal 2024, from a decadal high of ~29% during the pandemic.
Says Shounak Chakravarty, Director, CRISIL Ratings, “Over the near to medium term, we expect operating margins of diagnostic players to remain largely range bound at similar levels as in fiscal 2024, with high competitive intensity continuing, and due to initial losses from new labs, which typically take over a year to break-even.”

1 Pan-India diagnostic players include Dr Lal Pathlabs Ltd, Metropolis Healthcare Ltd, Agilus Diagnostics Ltd (erstwhile SRL Ltd), Thyrocare Technologies Ltd and Vijaya Diagnostic Centre Ltd
2 Lab utilisation is defined as the ratio of the number of collection centres to the number of test labs. Higher the number of collection centres, better the lab utilisation ratio.