India’s healthcare market is expected to be among the top three globally in terms of incremental growth during the next couple of years. Compared to the developed countries, India’s diagnostic industry is the fastest growing segment. The diagnostic industry is dominated by small and regional unorganised laboratories which control close to 70% of the total diagnostic market. Due to significant latent demand emerging on the back of improving economic conditions in the country and a rapidly emerging urban population, a significant portion of unorganised players are getting converted to the organised ones. According to industry estimates, the diagnostic market is anticipated to grow at over 16% with the general expectation of organised chains delivering stronger growth. In India’s healthcare diagnostic industry, services play the role of an information intermediary providing useful information for the accurate diagnosis and treatment of diseases. The diagnostic industry in India is classified into pathology testing and imaging diagnostic services. Pathology testing involves sample collection of blood, urine, etc and analysing them using laboratory equipment and technology to arrive at useful clinical information for assisting in the treatment of diseases. On the other hand, the pathology testing segment includes biochemistry, immunology, haematology, urine analysis, molecular diagnosis and microbiology. Imaging diagnosis or radiology involves imaging procedures such as X-rays and ultrasounds as well as complex tests such as CT scans, MRIs and highly specialised PET-CT scans. These tests help mark anatomical or physiological changes inside a patient’s body and thus assist doctors to diagnose the disease. Analysts tracking the Indian healthcare diagnostic industry expect it to grow at a CAGR of around 17% to reach a valuation of $275 billion in the next few years. The growth is expected to be largely driven by an increase in healthcare spending by the aging population, rising income levels, rising awareness for preventive testing, advanced healthcare diagnostic test offerings and healthcare schemes introduced by the Union government such as Ayushman Bharat, which caters to the poorest income population to bring them under the ambit of health cover. Thyrocare Technologies is our coverage for this week among good diagnostic companies in the listed space. Thyrocare Technologies sales grew by 13% yoy, EBIDA grew by 11% yoy and PAT increased by 16% yoy during the first quarter of current financial year. The growth in the preventive care segment is of lower realisation and this is due to the company focusing more on volume growth instead of price cuts in key diagnostic tests. The company management expects the benefit of price rationalisation to accrue during the third and fourth quarter of FY 2020. While diagnostic companies stocks generally trade at premium valuation with features of consumer business, Thyrocare Technologies stock price has got corrected by nearly 30% in the last one year. We expect the Thyrocare Technologies stock currently quoting at Rs 495 to improve by nearly 20% in the next six months time frame on the back of better financial results and improved valuations.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.