The news that Amazon India has launched diagnostic services in select metro cities in partnership with the unlisted Orange Health Labs has led to a look at the competitive intensity in healthcare services.
Listed companies in the space such as Dr Lal Path Labs, Metropolis Health, Thyrocare, Vijaya, and Krsnaa have all seen double-digit stock price corrections over the last 6-9 months.
Orange Health Labs was founded in 2020 and raised $ re12 million in December 2024.
It has an estimated annual revenue run rate of Rs 100 crore and promises doorstep sample collection within 60 minutes and, for routine tests, digital reports delivery within six hours.
It covers 450 pincodes and has a menu of 800-plus tests.
The differential between the common tests offered by incumbents and new entrants is just about 5-10 per cent and this isn’t going to move the needle much in this business.The keys are quality of service, brand value, width of network and number of tests on the menu.
Metropolis and Dr Lal offer over 4,000 tests while Orange has 800.
Also incumbents have far wider coverage, and seem to maintain margins without taking price hikes.
Dr Lal reported a steady Q4FY25. Network expansion and good performance in core markets offset the muted show of Suburban Diagnostics.
Revenue compound annual growth rate (CAGR) could be around 12 per cent over FY25-28 but margins may contract by 100 basis points (bps) in FY26.
This is due to ongoing investments in network and digital initiatives.
Dr Lal has a strong balance sheet, good margins and improving return ratios (RoE is at 24 per cent while RoCE is 25 per cent).
For Q4FY25, it reported revenue growth of 10.5 per cent year-on-year (Y-o-Y) with sample volumes up 9.5 per cent.
Gross margin expanded by 42 bps, while earnings before interest, taxes, depreciation and amortisation (Ebitda) margin grew 150 bps Y-o-Y to 28 per cent.
Profit after tax (PAT) was Rs 150 crore (up 81 per cent) driven by a one-time tax credit. Adjusted PAT grew 34 per cent.
The company paid a total dividend of Rs 24. Net cash stood at Rs 1,230 crore and operating cash flow (OCF) was around 80 per cent of Ebitda.
The capex outflow for FY25 was Rs 54 crore.
The 18 lab additions during FY25 should aid volumes.
While Suburban’s performance has been muted, the subsidiary is now fully integrated with the parent entity.
Improving lab utilisations should help hold margins despite the ongoing network investments.
Metropolis’ Q4FY25 performance was subdued but there could be volume expansion in future as the company has invested in network addition, adding 95 labs and 1,981 centres over FY2022-25.
This may drive strong Ebitda margin expansion in FY26 as the network matures and stabilises.
The company has traction in B2C, and steady improvement in B2B. Analysts are expecting 25 per cent PAT CAGR or better for the next two or three years.
The Q4FY25 sales of Rs 360 crore grew 10 per cent, adjusting Q4FY24 sales for realignment in financial reporting of international subsidiaries.
Growth was led by 6 per cent rise in sample volumes and 4 per cent growth in per-test realisations.
In FY26, guidance is for organic business growth of 12 per cent, and slightly higher growth for acquired assets.
The pace of expansion is moderating and guidance is for Ebitda margins to expand by 100 bps in FY26 to around 25-26 per cent.
Metro is looking at growing in non-core markets such as Uttar Pradesh, Madhya Pradesh and Assam and remains open to acquisitions.
Among its acquisitions, the core market achieved Ebitda break-even during Q4FY25, while the entities in Agra and Dehradun already operate at good margins.
Increased competition and any new price war could be a risk to margins for incumbents along with any adverse regulatory ruling that may occur about pricing caps.
Growth is driven by volumes, with high stable Ebitda margins. Given the share price corrections, listed companies could look attractive to value investors.
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