Diagnostics in India: Opportunity or challenge?
India's healthcare sector continues to grow strongly, driven by the increasing prevalence of lifestyle diseases, improving middle class purchasing power and improving technologies and practices. The diagnostics industry in particular has undergone enormous changes in the last 2-3 decades. With increasing PE (Private Equity) - investments, intensified competition, rapid technical progress and improved quality regulations - this segment of the healthcare industry is prepared for further growth.
Many CEOs and business leaders see new opportunities in the Indian diagnostics market, such as the growing demand for diagnostic services, expanded access to such services, increased insurance penetration and more. Experts expect the industry to grow from a compound annual growth rate (CAGR) of around 16 percent in fiscal 2020 to around $802 billion ($12.3 billion).
However, there are some challenges such as price pressure, declining profitability for certain companies, a shortage of highly skilled labour, dependence on imports, and more that could prevent this progress. But Dr. Om Manchanda, CEO, Lal Pathlabs is confident that the opportunities can outperform the problems: "Diagnostics is certainly a great opportunity. 70 percent of medical decisions are based on diagnosis. The tests also play a key role in preventive health checks, personalized medicine and monitoring the progress of diseases, especially lifestyle diseases. There is, however, an overhang of aggressive competition and external conditions that could hamper further investment in this area," said the managing director.
This opinion is shared by many industry experts. They look optimistically at market growth and market potential, but are aware of the rapid market dynamics. Dr. Ajay Phadke, Centre Head, SRL Dr. Avinash Phadke Labs believes that every industry has a number of advantages and disadvantages. But what counts is how people align their business with the growth of the industry to ensure it and profitability. Successful companies are based on strong business models that there is no real alternative to. For companies with an innovative model, everything depends on how well they use it. Currently, however, established and large companies still have an advantage.
High ratings not durable
The framework conditions for diagnostics companies will be challenging in the future, as increased competition from PE-supported regional players and hospitals makes it more difficult for existing big players to maintain their high growth rates. The current assessments of the diagnostics companies take into account a high growth rate over a long period of time, which is unlikely in view of the current competitive environment. Diagnostics companies in India receive higher valuations due to the shortage of diagnostic services in the country. However, incremental investments in the industry will increase the availability of these services in the future, making the scarcity premium unsustainable and opening the market to smaller or international diagnostics companies. This can be seen as an opportunity. International companies and start-ups will be able to grow rapidly here, especially as a result of trends that are already established in Western nations (consumer protection, role of the consumer, new consumer behaviour, access to several service providers), while local players have yet to adapt to these phenomena.
India's healthcare sector and especially the diagnostics industry are growing with an upward trend. However, the new framework conditions (improvement of the purchasing power of the middle class; improvement of technologies and procedures; new trends in the middle class) mean that the market is showing signs of change and thus more openness for international companies. A turnaround is a forecast here.
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