Revenue of diagnostics companies to grow 17-20% this fiscal
By IANS | Published: August 25, 2021 01:48 PM2021-08-25T13:48:08+5:302021-08-25T14:00:22+5:30
Mumbai, Aug 25 Revenue of diagnostics companies are set to rise 17-20 per cent this fiscal as a ...
Mumbai, Aug 25 Revenue of diagnostics companies are set to rise 17-20 per cent this fiscal as a surge in revenue from regular tests will offset a moderation in revenue from Covid-19 tests because of the price caps progressively imposed since last fiscal. That compares with a 13 per cent revenue growth last fiscal.
Operating margin will also improve 150 basis points (bps) to 27.5 per cent this fiscal - an all-time high - riding on better operating leverage and cost control. That, along with robust balance sheets and minimal capital expenditure, will support an improvement in credit profiles.
A study of 11 diagnostics companies (including five large pan-India chains) that had aggregate revenue of over Rs 5,000 crore last fiscal, indicates as much.
Says Anuj Sethi, Senior Director, CRISIL Ratings, "Last fiscal, higher volume and realisation from Covid-19 tests had driven revenue growth, while regular tests were fewer on-year because of the lockdowns. But this fiscal, with the pace of vaccination increasing, revenue from regular tests will recover strongly, while that from Covid-19 tests will get impacted by price caps. That will result in the share of Covid-19 test revenues declining from 20 per cent last fiscal to 10-12 per cent this fiscal."
This factors in the second wave of cases during the first quarter of this fiscal. Less stringent lockdowns and faster reduction in caseloads from the second quarter will increase footfalls, leading to a 25-27 per cent growth in overall test volumes and strong revenue growth this fiscal. More home collections and pent-up demand for regular wellness tests will also support this trend.
Says Rakshit Kachhal, Associate Director, CRISIL Ratings, "Higher capacity utilisation will benefit diagnostic companies as 50 per cent of their cost structure is fixed. Companies are also optimising costs via automation and digitalisation."
"The pandemic has accelerated online bookings and home collections. All that would drive a 150 bps uptick in operating margins. Notably, last fiscal had also seen a 50 bps margin expansion compared with the pre-pandemic level."
Over the past few years, the balance sheets of diagnostics players have benefited from healthy cash generation and modest capital spend - largely limited to laboratory infrastructure - as companies expanded market reach through a franchisee-led model involving pick-up points and collection centres. The gearing of the sample set was less than 0.2 time and cash surplus nearly Rs 2,000 crore as on March 31, 2021.
Therefore, better revenue prospects and improving margins, together with strong balance sheets, will drive an improvement in credit profiles of diagnostics companies this fiscal.
That said, any further or intense wave of the pandemic leading to lockdowns that impact test volume, and any additional regulatory price control, would bear watching.
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