The average daily COVID-19 tests (RT-PCR) in the third quarter of fiscal 2021 so far are significantly higher than the second quarter. Analysts believe that COVID-19 tests volume may not only remain strong for Indian diagnostic companies in the near term but also help in offsetting the impact from lower pricing.
The number of average daily tests in Q3FY21 till date stands at 1.08 million versus 0.73 million in Q2FY21, an increase of 49 percent while the total number of tests conducted till date in Q3FY21 stands at around 54 million which is already 82 percent of the total tests conducted in Q2FY21.
The key large diagnostic companies - Dr. Lal Pathlabs, Metropolis Healthcare, SRL Diagnostic, and Thyrocare Technologies - had a cumulative volume market share of 2.3 percent in Q2FY21. According to ICICI Securities, this share would have risen in Q3FY21 with the easing of requirements on testing.
“The diagnostic industry in India is well-positioned for sustainable growth over the long term given growing healthcare awareness, demand for preventive & wellness checks and higher incidence of diseases. Large players may benefit more due to likely faster shift from unorganized to organized market, potential inorganic opportunities in the current environment and benefit from a larger scale,” ICICI Securities said in a report.
The large scale helps in effective negotiation with vendors, better operating leverage, attracting more franchisees for asset-light growth and strong free cashflow generation. This is also visible from the potential growth (~15% revenue CAGR) and healthy return profile, the report added.
The brokerage remains positive on the Indian diagnostic sector and believes multiple growth drivers will support the growth momentum over medium to long term.
It maintains an Add rating on Dr Lal Pathlabs with a target price of Rs 2,430 per share and it remains its top pick. The brokerage retained Add call on Metropolis Healthcare with a target price of Rs 2,254 per share and Reduce call on Thyrocare Technologies with a target of Rs 986 per share.
(Edited by : Abhishek Jha)
First Published: Nov 23, 2020 1:20 PM IST
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