Kotak said that its latest analysis hinted at the increasing sanity in the diagnostics pricing in the country. It noted that online platform Tata 1mg has increased prices by 30 percent across cities in the fourth quarter ended March 2023.
Dr. Lal Pathlabs and Metropolis have also marginally hiked prices in select routine and semi-specialized tests in some cities in the March quarter.
Though these developments are positive, Kotak said that they are well-captured in the estimates for Dr Lal Pathlabs and Metropolis. Notably, Kotak estimates a compounded annual growth rate (CAGR) of 13 to 17 percent in sales and operating profit of these companies over financial year 2023-2025.
Kotak has a ‘Sell’ rating on Dr Lal PathLabs with a price target of Rs 1,570, indicating a downside of over 15 percent from Monday's closing levels. It also has a reduce rating on Metropolis Healthcare with a price target of Rs 1,285, which almost similar to Monday's close of Rs 1,250.
The brokerage also mentioned that it preferred the hospital space over the diagnostics stocks, citing Apollo Hospitals Enterprise Ltd., Krishna Institute of Medical Sciences Ltd (KIMS) and Rainbow Children's Medicare Ltd as its top picks.
It gave a ‘Buy’ call on Apollo Hospitals with a price target of Rs 5,520 per share, implying an upside of over 30 percent from Monday's close. It also expects potential upside of 22 percent and 14 percent for KIMS and Rainbow Children's, with a buy and add rating respectively.
