Thyrocare : Debt free Asset Light Healthcare Play

Competition will only help growth , as stand alone labs will be the first one to face the heat as after point it may become unviable business proposition for stand alone labs due to cost/pricing pressure so they may become collection center of organized players.
I guess ( have read somewhere ) that organized players are still less then 20 percent of market share so remaining 80 percent is all stand alone labs which may face the heat due to hyper competition .

Let’s see how things pans out over next 1-2-3 years .
Current PE run players like metropolis etc will come under share holders scrutiny once they gets listed so that may ease a bit of price competition between organized/listed players.

But I still do not understand why Thyrocare is selling at such a huge discount to Dr Lal path lab ?

1 Like

because of difference in their business model but it doesn’t matter both are overvalued in my view. How will you justify 30+ PE for an 10-15% growing business.

1 Like

Growth and all are futuristic thing which depends on N number of factor but For Sure thyrocare is the cheapest diagnostic company why I am saying this : Yesterday i had to do Vitamin D3 , Vitamin B12 and Calcium Serium Test for my mother . I went to apollo diganostic , Silverline(Local In Bangalore) and Few Others average cost of doing the same test was Rs 2900 - 3100 but thyrocare was doing at Rs 2000 and they also suggested if i go with there package of 2000 with all the above 72 more test they can do in same amount …

I agree. At 28 PE Thyrocare’s PEG is 2.50 which is higher than Dr.Lal path’s PEG 1.89

One compares.

My expectation is to get 15% return on my investment in mid caps and 12% for large caps.

In case of Thyrocare, it has

PE 28.24
YoY EPS Growth estimate: 13%

This will take 12 years to reach my earning power of 15%. This is a little difficult for me to process, being a minority investor in a company with not so proven management. More so when I compare it with other companies of a similar calibre but at a lower PE. For ex. look at Skipper ltd.

PE 9.40
YoY EPS Growth estimate: 12%

This will take 3 years to reach my expectation of 15% return for my invested capital at CMP.

Just sharing my perspective.


Better not to compare cyclical businesses ( Skipper ) with non cyclical ( diagnostic labs )
As one goes through cycle and duration of which is any ones guess while others are steady and don’t go through cycles.
Also capital requirement / return ratio etc all matters so if all these gets factored in , in that case you might not find such a huge difference in valuation of both.

Disc. Invested and biased

Skipper is not really cyclical. It makes power distribution infrastructure, which India will incessantly need in the coming decade or even more. Its sales figures say so.

Skipper Ltd.

Nonetheless, the idea was to show concern about buying companies of mediocre managements at high PEs. I like Thyrocare, I have posted positive things about it. But, I will wait for a much lower price tag.

The way I understand this business is thyrocare have very little moat, if any. For basic sugar and blood pressure testing, every Pharmacy can do this. For advanced tests, people prefer to use hospitals as every big hospital now has all testing equipment and they provide this in a nice package such as master check-up. So who end up using this is people who visit small hospitals and then do blood tests in any diagnostic centre they can find just for the sake of doing it. Home testing in itself, I do not find this to be a moat as any new entrant can do this. I do not find any entry barriers in this business as well. So for any business with such high return metrics, it is inevitable that competition enters to the point that the business is commodified and margins become poor. Therefore, I fail to see an upside from here for this stock.


Dr Velumani’s salary is Rs 12 per year. Compare that with Dr Lal management.

He is treating minority shareholders equally - recent on-market buy back shows just that (he did not take part in the buy-back)

Entry barrier - already there are 100,000 labs through out the country! Organised players are slowly but surely winning this marathon…

Even when there is intense competition for the business, as is the case now, organised players are growing at a decent rate with high return on capital.

Valuation is in the high side. But will it become cheaper?? I don’t know. Market will eventually get it right.

Disc - very biased

When talking about entry barrier, what I mean is the disruption risk (or simply jio risk). What prevents a cash cow from entering the business and disrupting the sector. With such high return metrics, any large business would be interested in this sector unless there is a strong moat preventing them to enter which I fail to find in this business. What I find is kind of the opposite that the moat is very weak that no one is looking to choose the brand thyrocare to do diagnostics as they can do it anywhere they like. Maybe this is a very niche sector with limited growth opportunity and hence a cash cow will not be interested which anyway will be a negative to buy at this expensive valuation.


Please don’t think of Throcare as basic blood and thyroid test. The PET-CT they do is one of the lowest cost in Delhi / NCR. This is the segment which would bring in more revenue in the near future.
The cost of PET scan in any reputed hospitals ranges from 20k-25k whereas Thyrocare does it for 10k.

People are in no hurry to do that and they look for cheaper options since this is the diagnostics stage.

Disclaimer: Not invested but interested.


Anyone can enter but it is not easy to scale up to create long term value. Why? You have to have systems in place for orderly collection, transport and timely reporting of samples. Thyrocare and other leading players are well established and it is much easier for them to grow.

Apollo has entered and they do have expertise in this medical field. There is room for many more and doesn’t mean thyrocare will suffer (it will be the local labs with limited reach who will lose out)…

Also thyrocare is very focussed - biochemistry and few other blood tests (fully automated) and PET ct business. Very simple business to understand for me being in the medical field.

PET CT revenues are growing at 30% and EBITDA of 24% (approx) despite charging such low rates! They still have not got their business model right and Velumani is open about it.

They also have entered TB business - too small and may or may not contribute in the future…

1 Like

The only reason why someone would choose Thyrocare is because of the pricing, the discount it gives. I wonder how much runway this kind of a business has. A management does this because the competition is stiff, and survival is tough.

Must keep a close eye on the sales figures. So far so good

1 Like

Despite charging the lowest in the market for blood tests profit after tax is 28% (ebitda 40%) of sales -this kind of return is amazing in my view. They could lower charges even further if required but will still remain more profitable than everyone else. Others are charging much more and their profitability is lower…

Has anyone till date come across doctors who say they donot trust the values given in the reports of thyrocare ? I have encountered 2 doctors till date.
on asking why, they said they find it hard to trust the reports after clinical examination of the patients. sort of, a clinical co-relation is hard to prove ?

Could you guys share your thoughts or experiences on this ?

i mean, if the reports are being doubted by the doctors, the entire credibility is at stake, isnt it ?

i hope my experience are a aberration and exception.

Discl - Invested less than 5% of portfolio.

Unfortunately doctors in India have vested interests! They get kick backs from local laboratory for referral. Not all of them, but a significant proportion. Same is the case with scans. So naturally there is a conflict of interest. Thyrocare pays nothing to the doctors- savings goes to patients directly…


I don’t have real insight if Thyrocare reports are quality or not, but I worked with a startup in this space so have some insights into industry.

  • Thyrocare doing automated and central testing in their mumbai lab, they could bring down their cost of each parameter scanning to quite low. Once I heard Velumani saying their cost is Re 1 for each parameter. I think this is just the chemicals(row material) cost but really the costs are low as you can see in FCF.
  • Local labs pay almost ~ 40% to doctors as commissions. Usually doesn’t matter which local lab you visit, even if you visit any lab without doctor’s suggestion, the lab reaches back to doctor to pay their dues back. This they do to anticipate more business. Hence cost of local labs is quite high. Also they don’t have automation so their salary costs etc per report is high.
  • I don’t think Thyrocare is taking any hit in their revenue by offering low cost pathology tests, but I am not aware of their costing in PET scan business.

Disc: Not invested. But closely watching.


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



Was trying to calculate the market size in other way, if we take people over age 40 , around 33% of Indian population ie. about 40 crores. Even if assume 25% (less in rural more in urban, males> females) of these guys getting some diagnostic tests done, the market size comes roughly equal to your estimate .

Though won;t agree to this assumption. As the economies become more progressive,real literacy level goes up , urbanization increases and consumerism also goes up. In these scenarios, living expenses go up , so people tend to have less number of kids thus affecting the rate of the growth of the population .There’s a chance that by 2040 , we might see de-growth in population.

1 Like