The euphoria is aided by a massive spike in the share prices of already listed entities such as Metropolis Healthcare, Dr Lal Pathlabs, Medinova Diagnostics and Thyrocare.
Mumbai: Privately owned diagnostic chains and testing services providers are exploring public issues this year, as the pandemic has resulted in an unprecedented inflow of funds to such companies, lifting their valuations.
On Wednesday, Pune-based Krsnaa Diagnostics launched its initial public offering to raise about Rs 1,200 crore. Incorporated in 2010 by Rajendra Mutha, Krsnaa Diagnostics is backed by PE investors Kitara Capital, Somerset and Phi Capital. Vijaya Diagnostic, another large diagnostics chain in southern India, last month filed preliminary documents for a ₹1,500 crore public sale of shares, where current investors and promoters plan to dilute a 35% stake.
Shares of Dr Lal Pathlabs have moved up by 114% and Metropolis by 81% in the past one year, thanks to a liquidity driven post-pandemic rally. Medinova Diagnostics has surged 262%, while Thyrocare, acquired by PharmEasy, jumped 99%.
“The diagnostics industry is a strong consumer services story and has long-term structural growth opportunities,” said Ameera Shah, managing director, Metropolis Healthcare. The industry is new and it will take time for investors to fully understand the differentiation in the valuations of companies based on quality of business and financial ratios, she added.
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"While there has been a broad market rally, healthcare stocks, especially diagnostics businesses, have seen strong earnings growth over the last 15 months on account of both Covid-19 and non-Covid-19-related testing," said Subodh Gupta, managing director, Head - M&A, at Edelweiss.
India’s diagnostics industry with more than 100,000 labs and worth an estimated ₹67,500 crore is highly fragmented. Diagnostic chains command 16% market share with four — Dr Lal PathLabs, Metropolis, SRL Diagnostics and Thyrocare — dominating.
Due to lack of spending on healthcare infrastructure historically, Covid-19 has acted as a wakeup call and the market believes that the next decade will see a sharp increase in healthcare infra building, both public and private. “Hence, we believe the healthcare sector will see at least eight to ten companies coming for IPOs over next 12 months,” Gupta said.
