After having a dream run during Covid times, with fresh investments pulling in new entrants, the diagnostics industry in India is now in a catch-22 situation. The recent appreciation of dollar has led to an escalation in cost of inputs, including consumables, while fierce competition is not allowing the players to take a price rise fearing loss of business.
As margins start to squeeze, the past two months saw several players implementing a price rise across diagnostic tests, although insignificant. Between 2020 and 2021, when the demand for Covid and non-Covid diagnostics tests was at the peak, investors and entrepreneurs took a plunge with heavy investments towards building capacities and recruiting manpower at up to 1.5x the salaries.
Now that the competition has heated up, experts believe the dream run for the sector might just be over, and a shake-up could be round the corner. The balance sheets are heavily burdened with heavy salaries of manpower, cost of reagents and consumables, real estate rentals for laboratories besides the logistics costs.
businessline spoke to Sanjeev Vashisht, MD & CEO, Pathkind Diagnostics, which has a presence in 26 States, with 85 labs and 2,500 exclusive collection centres and 5,000 pick-up points, most of which was built in 3-5 years. “Those players backed by private equity investors have a ‘cash burn’ model and want to scale up fast. But they only do price disruption and the serious players get disheartened fearing losing the business.” Amid the predatory pricing approach of some players, the price war kept prices artificially under control.
“Only recently people have started talking about taking a price hike. But there can’t be a significant price hike, as there is a fear of losing market share,” he said, adding that in the past couple of months some players have made insignificant price hikes of just 4-7 per cent for selective tests.
Ameera Shah, MD, Metropolis Healthcare Limited, stated that cost pressure is from two sides. First was the dollar appreciation affecting about 70-80 per cent of the materials used in the laboratories and second being the competition that prompts to offer higher margins at the intermediaries and franchisee level. “Therefore, the net revenues post the intermediate margins are under little pressure. But these are more of a short-term issue,” said Shah, expressing optimism about the next few years on growth prospects.