According to him, disruptive pricing was not sustainable in the diagnostics business

New Delhi, June 10 Dr Lal Pathlabs expects non-Covid business to form a significant portion of business in FY23.. With lower infection rates, and people exploring home testing options, the non-Covid buisness is already witnessing a “pre-Covid level trajectory”.

Covid testing contributed Rs 396 crore to the topline in FY22, while non-Covid revenues were to the tune of Rs 1,691 crore.

According to Managing Director, Dr Om Manchanda, EBITDA margins are likely to taper and “moderate” to pre-Covid levels. The non-Covid business is also “coming back to pre-Covid levels”.

The share of home collection has improved to around 12 per cent (of total business), almost double the 5-6 per cent witnessed before the pandemic. On the other hand, the share of bundled packages has improved significantly, too.

All this has happened at a time when the demand for organised diagnostics players is growing and they are gaining market share at the cost of unorganised, smaller players.

“The industry is getting more organised with larger regional and national players coming in. During the last couple of years, Covid led to a sudden rise in volumes and shooting up of margins. But, as the numbers have moderated, non-Covid business will grow and EBITDA levels will come down to pre-Covid levels. Perhaps in FY23 itself,” he told BusinessLine.

Price Wars

Low pricing trends or disruptive pricing in the diagnostics segment is “likely to be promotional,” though the entry of organised players could lower prices in real terms. Dr Lal Pathlabs has not hiked the price of some of its popular tests in the last 5-odd years, say market sources.

Smaller players are likely to face headwinds as competition grows, and many of them will end up as the front-end or collection centres for organised players, Manchanda said, adding that a “consolidation of testing” is likely.

Moreover, in diagnostics, it is very unlikely that end-users will prefer lower price over quality.

“This will only lead to changes in business models,” Manchanda said, adding that “as volume growa, you get operating leverage”.

Business Model

According to Manchanda, the company was looking at growth in western India following the acquisition of Suburban Diagnostics. A new CEO has been appointed to lead the company, and the focus is “on the long term” running of the business.

Dr Lal Pathlabs will also be looking to grow the franchise business, especially in Tier-II and Tier-III markets, keeping in mind North and East India. “We are widening the test menu in these regions; identifying hub labs and investing in logistics in places such as Varanasi, Kanpur, Meerut, Patna, Ranchi and so on. This is a fundemental change we are making to our cost structure,” he said.

Hub labs are said to be a relatively lower cost business model over satellite labs – which consumes more overheads, while an increase in franchise collection centres would mean lower fixed costs.

Published on June 10, 2022