Indian Diagnostic Industry: The Sunrise Sector

Published by Sharekhan Education | April 11, 2021

Indian Diagnostic Industry: The Sunrise Sector

The Indian Diagnostics Market has grown at ~16% CAGR over FY12-20 and currently it is a USD10 billion industry. It is one of the fastest-growing service industries where realizations can further improve led by a higher proportion of industry revenues coming from the B2C segment, home collection of samples, wellness & preventive testing, and certain specialized tests.

Let us look into the latest trends in the Diagnostics industry:

The transition from unorganized to organized sector: 

India’s Diagnostics Industry is highly fragmented. With the emergence of organized Diagnostic chains like Dr. Lal Path Labs, Thyrocare, and Metropolis; the sector has seen more and more consolidation via mergers and acquisitions. Organized players have the advantage of brand trust & recall, global quality standards, expansive test menu, and value-added offerings.

Urban centers are a major source of revenue for Diagnostics:

The urban population of India (~28% of India’s total population) accounts for ~65% of the total Diagnostics market. Urban centers have better healthcare delivery systems and higher per capita income. For advanced diagnostics tests, patients in rural areas are referred to the nearest urban centers. Urbanization as a trend has a long runway of growth ahead of us.

Expected increase in Health Insurance coverage:

Insurance Regulatory and Development Authority of India (IRDAI) pegs the health insurance opportunity size at INR 3 lakh crore. As more insurance schemes start covering Diagnostic testing in India, organized players would be direct beneficiaries of the same. Health awareness and rising per capita income will accelerate the trend.

Focus on preventive and wellness services:

Organized players are increasingly targeting healthy individuals with sedentary lifestyles, who are more prone to lifestyle diseases such as cardiovascular ailments and diabetes. As per industry estimates preventive and wellness testing segment is expected to grow at +20% CAGR rates over the medium term.

Organized players have better adherence to compliance and quality control:

National Accreditation Board for Testing and Calibration Laboratories (NABL) is the sole accreditation body in India for diagnostic labs and is responsible for maintaining accuracy, reliability, and conformity criteria of the lab test results. Out of 1 lakh diagnostic labs in the country only ~2% are NABL accredited. Organized players are a significant part of that ~2% NABL accredited labs. With changing patient behavior and growing number of labs, emphasis on quality and accuracy of testing increases.

A huge addressable market in India provides demand longevity to organized players with reach, brand, and quality service. Organized players would continue to gain market share in coming years, especially post the COVID-19 pandemic, which would further lead to industry growth.

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