About two years ago, India’s diagnostics space was seen as an attractive bet for investors looking for healthy returns. This was mostly driven by an increased diagnostics requirement following the Covid pandemic and related health issues. But within a year and a half, the cost pressures are more pronounced. Import dependence for consumables and higher operating costs are weighing more on the balance sheets. Anand K, Chief Executive Officer, SRL Diagnostics, speaks to businessline about the industry, the cost challenges and growth prospects. Edited excerpts:


How is the cost scenario for the diagnostics industry vis-a-vis pre-Covid times?

The diagnostics industry remains one of the industries with minimum entry barriers. There is no minimum standard of care or regulations to operate. This has led to the industry becoming highly fragmented. We are witnessing a consolidation in the space and this will happen in the long run. Consolidation is one of the ways to boost performance, opening doors to synergies and scale economies. Human capital, reagents and consumables are the key cost elements that impact profitability in the diagnostic sector. Since 85 per cent of the reagents and consumables are imported, there has been an impact on this element due to rupee devaluation. In addition, sample transport requirements and logistics costs have gone up over the last few years. Availability of skilled human resources remains a challenge and adds to the cost, especially in new geographies. Laboratory automations, large volumes and building process efficiencies helps mitigate the effects of these cost elements.


How much of the cost increase has been transferred to end-customers in the past quarter or so? When was the last price revision implemented?

The Indian diagnostic industry operates at one of the lowest price points in the world, primarily driven by volume-based efficiencies, which also drives affordability and accessibility. If you compare with the US, our costs are one-eighth, and nearly half when compared with New Zealand. Test prices have remained flat; in some cases, test prices have even fallen drastically (genomics-based specialised tests) and some have increased by 5-10 per cent at best. Over the last five years, while the consumer price index (CPI) price inflation has grown by around 30 per cent, test prices have remained the same or gone up only marginally. In addition, today in India, a customer in a tier-2 town or a tier-1 city can access tests at the same price because legacy players have strengthened their network and built logistics capabilities. At SRL Diagnostics, the last price revision was five years ago.


What do you see impacting the company’s profitability this fiscal? Is it hampering expansion plans?

We have been able to expand our network significantly while also reinforcing our test menu. We have added close to 40 new labs and over 1,000-plus customer touch points in our priority markets. We will continue to grow our network as well as build our test menu. We haven’t made any significant changes to our price structure last year, but we are considering rationalisation of pricing in select categories going forward. We don’t see any specific elements impacting profitability or hampering our growth expansion plans.


Amid the fresh Covid surge, what is the quantum of RTPCR testing?

Covid testing has seen a dip post the pandemic. There are also many at–home testing kits available now. We do witness a spike in testing when there is a surge in cases but it is not significant. Covid testing may influence clinical management and treatment decisions, particularly in cases with severe symptoms or underlying comorbidities such as diabetes, hypertension etc. Testing is recommended for all symptomatic patients and those admitted to hospital.