Price hikes are changing the game for diagnostic cos; here's how analysts see it

Diagnostic firms are focusing on ramping up non-COVID revenue in a bid to offset the lag that came on the back of a decline in pandemic-related sales. One strategy that most companies in the industry are applying is hiking prices.

A report by securities firm Nuvama Institutional Equities noted a 6-8 percent price increase in online preventive packages. Leading Diagnostics firm Dr. Lal PathLabs raised prices of certain semi-specialised tests by 8-12 percent.

Nuvama believes that Dr. Lal PathLabs will use its brand to leverage premium pricing in core markets while catching up in non-core markets for a level playing field.

"We foresee high-end tests like genetics, biomarkers, etc. where Dr. Lal has an edge, to follow suit, the full impact of which will be reflected in the first half of the next financial year," Nuvama wrote in its report.

Marking a contrast however, Metropolis Healthcare has chosen to keep its prices unchanged, likely to be able to retain volumes as the company aims to bring more customers on board.

Such a move has eroded its premium to rival Dr. Lal PathLabs in markets like Mumbai.

New players in the game

New-age entities are aggressively marketing low-price tests to attract attention but are also raising the prices of select preventive packages as their focus shifts toward profitability.

Nonetheless, despite the price hikes by new online players, the price gap between them and incumbents like Dr. Lal PathLabs and Metropolis continues to run high.

Also Read: Our focus remains on driving organic growth, says Metropolis Healthcare's Ameera Shah

Nuvama Institutional Equities also highlighted that it believes preventive tests will be the focus of the new-age players as it is less doctor-driven, lucrative from a financial standpoint due to ticket sizes, and helps in cross-selling wellness products.

The report noted that preventive health is underpenetrated in India, and with stronger health awareness, partly stoked by huge direct-to-consumer promotions, early diagnoses could eventually expand the market opportunity for all players. Even so, if online players continue deep discounting to target the preventive health segment, it would delay a re-rating for incumbents like Dr. Lal PathLabs and Metropolis.

Analysts at Nuvama Institutional Equities are also of the view that it would take longer for incumbent companies to strategically position themselves as high-end specialised players if such a scenario was to emerge.

Furthermore, this scenario would open up new opportunities for new-age players as they continue to remain at a discount to other industry majors.

Overall, as diagnostic companies balance price hikes and market share, the race for volumes will remain the key monitorable in the coming quarters.​