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business | IST

Diagnostic space takes centre stage; experts discuss heating competition in sector

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Diagnostic sector has been in focus throughout the COVID-19 pandemic. Om Manchanda, MD, Dr Lal Pathlabs and Anmol Ganjoo, Pharmaceuticals Research Analyst, JM Financial Institutional Securities discussed how the business has been for the diagnostic companies in FY21 and how the competition is heating up in this sector.

The diagnostic sector has been in focus throughout the COVID-19 pandemic. Om Manchanda, MD, Dr Lal Pathlabs and Anmol Ganjoo, pharmaceuticals research analyst, JM Financial Institutional Securities discussed with CNBC-TV18 how the business has been for the diagnostic companies in FY21 and how the competition is heating up in the sector.
Manchanda said that the market is very large and there is space for a lot of players to come in. “I have always been saying that it is good that industry attracts some organised players so that the standards of quality and service go up so there is a level-playing field,” he said.
Pointing to the presence of a large unorganized market, he said some of the countries that are entering the market will further accelerate the shift from unorganized to organized players.
While the pharmaceutical companies have the advantage of medical science to be successful, one needs to fire on many accounts, Manchanda noted. “While entry barriers in this space are very low, the barriers to scale are very high,” he explained. According to him, the best way to grow the business organically is to expand in continuous markets.
Manchanda believes diagnostics space has always been highly fragmented and unorganized.
“If you trace the history of some of the large global players, they have also taken the route of inorganic plus organic. Our historical trail has been more organic and we have built one single brand and that is how you will see a little bit of lopsidedness in our growth rate,” he stated.
Meanwhile, Ganjoo said in the last 18 months, the diagnostic companies have moved forward in their growth journey by close to a decade. COVID-19 has pushed the growth trajectory and accelerated it meaningfully, he said, adding that as a consequence, the attractive quotient of these businesses has been noted by the market valuations as well. 
“When companies command such rich value multiples and such high return on invested capitals (ROIC), it is bound to be taken note of multiple players and that is where some form of disruption emerges,” he explained.
For the entire discussion, watch the accompanying video.