Dr Lal PathLabs Ltd, Thyrocare Technologies Ltd and Metropolis Healthcare Ltd have had a busy June quarter, clocking double-digit revenue growth
All three expect to keep up the growth momentum, benefiting from easing competition and network expansions.
Price hikes and an increase in volumes improved revenue growth at Thyrocare. Lal PathLabs’ growth accelerated, thanks largely to its capacity expansion and market reach.
Competition for the big three has contracted considerably. Lal PathLabs says competition has stabilized in the last two years. This should be able to sustain growth.
In fact, Thyrocare expects to keep up the growth momentum for the rest of the fiscal year. “Management spoke of a sharper focus on its b2b (business to business) business, with greater incentives and more revenue per franchisee as it focuses on eliminating layers of middlemen and channelising the benefits of rationalised prices to end-consumers," Prabhudas Lilladher Pvt. Ltd. said in a note.
Formalization and economies of scale are helping companies in the regulated (or formal) sector, says Lal PathLabs. “Management highlighted that the diagnostic sector will continue to grow in double digits due to the need for deeper penetration and the shift from the non-regulated to the formal sector," Edelweiss Securities Ltd said in a note on Lal PathLabs. The company’s push to expand beyond the National Capital Region is expected to be the key growth driver.
Similarly, Metropolis is expanding its service network. “We expect Metropolis’ consolidated revenues to grow at 17% CAGR over FY2019-22E driven primarily by 20% growth in individual patient (business to consumer or b2c) revenues," Kotak Institutional Equities said in a note
The commentary should please investors in an otherwise gloomy corporate earnings season, while the stocks mirror the optimism. Lal PathLabs and Thyrocare are trading at about 28 and 21 times FY21 earnings estimates, respectively, while Metropolis’ price-earnings ratio is at 30 times FY21 earnings estimates.
Thyrocare’s great dependence on the B2B segment, which restricts consumer interface, is seen to be a severe handicap. However, with competition easing and the company tightening its grip on the B2B segment, some see scope for a reduction in the valuation discount.
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