💊 The $20bn Diagnostics Battle ft. Tata, Ambani, Adani
The diagnostics space is heating up with giants now entering this space. But what's got them interested? ReadOn!
Tata, Ambani and Adani: they're all in a race to find the next big thing and create a monopoly.
Be it the power sector or quick commerce delivery, the battle of the three conglomerates is turning out to be more interesting than an India-Pakistan match.
And their new battleground is diagnostics. Why? ReadOn!
🤺 The Battle to Win Diagnostics
The diagnostics space is all set to take off, with its market size set to reach $20 billion by 2026!
And where there's money, there's Tata, Ambani and Adani (with Tata 1mg, Reliance Life Sciences and Adani Health Ventures). But it's not just them, pharmaceutical companies like Lupin and Torrent are also entering this space.
Even PharmEasy acquired diagnostics chain Thyrocare for Rs 4,546 crore in 2021.
That's not all. Traditional diagnostics players like Dr. Lal Path Labs are making acquisitions worth crores to penetrate deeper in the diagnostics market.
But what exactly is driving the growth of the diagnostics market?
Covid. Huh?
😷 How Covid Changed the Diagnostics Business
When Covid entered our lives, all of us rushed to get Covid tests. Not once, but anytime we felt sick.
This increased profits of the traditional diagnostics players, helping them expand their businesses.
But isn't Covid gone now? So, why the continued interest in diagnostics?
Well, Covid fundamentally changed our lives. The fear it induced in our hearts made us all acutely aware of how important it is to take care of our health.
It is this fear that is fuelling the diagnostics industry.
Plus, this market is massively underpenetrated. Why?
First, 74% of the whole diagnostics market is limited to urban areas. So, there is significant scope to expand diagnostics labs in rural India.
Even in urban areas, people are not keen on taking diagnostic tests.
Source: fortune.com
But, after Covid, tests are going to increase. Especially wellness tests. What are those?
So, we generally have two kinds of tests:
Sickness Tests - to identify a disease like typhoid or malaria. These tests currently make up 97-99% of all diagnostics tests.
Wellness Tests - to identify vitamin deficiencies or monitor diabetes and other conditions. Right now, these tests only make 1-3% of all diagnostics tests.
And this is not just because of increasing health consciousness but also because of rising incomes and an increase in the number of non-communicable diseases like diabetes.
But these can't be the only reasons for all the biggies to enter this space, no?
Yes, there are other reasons why this space is getting so much attention right now.
🧐 Non-Covid Reasons for the Hype Around Diagnostics
The diagnostics space is generally a profitable one with low costs. And these costs go further down if the volume of tests increases.
What's more, the margins in this sector can go up to an insane 30-60%!
Plus, there are very little regulations governing such diagnostics labs. This makes it super easy for new players to slide into this space.
And most importantly, this market is hugely unorganized. Almost 50% of the market is captured by small, standalone labs, while larger brands only have 15-20% of the market share.
So, the conglomerates and startups entering this space can just acquire the small labs, making their entry even smoother and easier.
But with the sharks now entering the game, it may be difficult for the smaller fishes to survive under water.
🦗 The Cockroaches Hiding Under the Carpet
For instance, the conglomerates entering this space are trying to kill competition by offering tests at a much lower price.
A kidney test with 1MG costs as low as Rs. 120, while the same test with Metropolis costs Rs. 1,050.
They can afford to do this because:
Margins are high
They have money to burn
Well, existing players can also lower margins and get into a pricing war. But a pricing war with giants never goes well (just look at Vodafone Idea after Jio's entry).
What's more, this sector is also going digital. Diagnostics labs will now need to provide at-home sample collections, telemedicine and telepathology, faster results, etc.
This will increase costs for diagnostics labs and many may not be able to sustain themselves.
In fact, a Credit Suisse report has suggested that these increased costs will bring margins in this space down to 20%.
Other problems?
Source: KPMG International report.
Plus, upcoming regulations in this space could also create problems.
So, while major players like Tata may survive (even though 1mg is still not profitable), other smaller players (even the traditional ones) may face difficulties.
But for us, it's good news. More competition always brings fairer prices and better tech.
To us, the future of this space seems bright! But let us know what you feel about this space.
Here are the listed companies in this space:
P. S. This article was researched and written by our intern Muskan Gupta.
⚡In a line: The diagnostics space is going to look very interesting, very different and very cheap pretty soon.
💡Quick question: Who will win this diagnostics race?
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