I was trying to look at the Bigger Picture !
India’s Population around 130 Cr
I believe at least 1/10th People go for diagnostic tests in a year (Around 13 Cr) and average spend on yearly basis may be around Rs 5000.
This gives us an current Industry size of around 65000 Cr.
While the Indian healthcare market is estimated to touch USD 280 bn by 2020 and USD 372 bn by 2022, it is estimated that diagnostics including imaging based diagnostic services would grow at 14-16% over the next couple of years and touch around USD 12 bn (85000 Cr) by 2020.
~Lal Path AR 2018
The diagnostics industry is witnessing a great deal of visibility and interest with more organized players driving regional growth. This is also resulting in gradual shift of the market from unorganized to more organized players thereby driving quality and efficiency standards. This sector has also attracted investments further fueling competition but at the same time improving industry standards. India still has large rural markets which are either under served or not served at all by diagnostics and this provides the opportunity for growth at the bottom of the pyramid although at significantly lower price points. In the urban markets too there are pockets of growth opportunities given the overall awareness on health care and health attitudes which result in more frequent testing for chronic diseases.
The biggest Player Dr Lal is around 8500 Cr , Thyrocare around 3000 Cr. Even if we include the Hospitals having own Diagnostic Labs , i believe that there is sufficient market for existing as well as new players. As per UN reports , India population would grow to 180 Cr by 2050 .
With more focus coming in for preventive checkups , i believe the diagnosis market may grow by 8-10%. Both Lal Path and Thyrocare promoters believe the Industry to grow by 15% for many years.
The debate regarding competitive space does not hold much significance as market looks very big and growing.
- Major threat look around pricing and margin cut due to competition but thyrocare being lowest service provider may not be affected much.
Management in the past has highlighted that a lot of new players are keep on coming and the shift to organised players is not happening as expected.
Industry is dominated by small and regional unorganized diagnostic laboratories, which controls more than 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, though the significant chunk is getting converted from unorganized to organized, since there are no entry barriers, more and more unorganized players are entering into the space and there seems no significant shift in the share of organized.players in the total diagnostic market.
~ AR 2018
Though Management believes that these all are short term issues and the game is all about Volumes after some time.
Regarding Valuations , it may vary from person to person. Beauty is in the eye of the beholder.
The Business throws a lot of cash , growing at 20-25% with ROCEs around 25-30% & good dividend yield , 30 PE does not look that expensive as many feel.
I think if the shift from unorganised to organised happens , it may do wonders for the organised players. If one has a Long Horizon and if management plays the cards well it can be an interesting bet.
A good read