PB Jayakumar December 1, 2015India's organised diagnostics industry is moving to the next level, as Dr Lal PathLabs , one of the oldest and largest in the industry, will tap the capital markets soon with an initial public offer (IPO). Navi Mumbai-based Thyrocare, another top player, had filed for IPO last year, but its plans were reportedly met with roadblocks from market regulator SEBI . SRL Diagnostics, the industry leader, had filed for an IPO a few years back, but backed out due to the then prevailing market conditions. While there are already two-three listed diagnostics companies, they are comparatively very small.
Does the flood of IPOs in the sector mean India's diagnostics industry is maturing into a well organised industry, a crucial part of our health care system? It is estimated that the country has at least a lakh path labs. Anyone can start a lab, simply obtaining a license under the Shops and Establishment Act from the local civic administration and run the business employing a 12th standard pass (with science as main subject) with a three to six months Diploma in Medical Laboratory Technology (DMLT). There are no regulations or a regulator for this industry which is growing at around 20 per cent every year.
Of the one lakh, less than 500 may have National Accreditation Board For Testing and Calibration Laboratories (NABL) accreditation, a quality benchmark. Apart from the large players like SRL Diagnostics, Thyrocare, Metropolis and Dr Lal Pathlabs (all having turnovers ranging between Rs 500 crore to Rs 800 crore) and a dozen relatively smaller regional players, the industry is highly fragmented and localized. The organised players control only 15-20 percent of the industry revenues, or about Rs 15,000-20,000 crore a year.
Then, why the big valuations (Rs 2000 crore to Rs 3000 crore) for the leaders as private equity players are queuing up to fund them? Now investors see pathology lab business as one of the most lucrative segments of health care business with 20-25 percent profits. Initial investments are only a fraction when compared to hospitals, and is easily scalable with a franchisee/own investment model. Within a year or two, the facilities are likely to turnaround.
Has the advent of organised chains really changed the quality of services? Most of the majors offer 2,500 to 3,500 different tests unlike the traditional standalone labs which test only basics like lipid profile or blood sugar or urine. Accurate results are an issue, despite centralised advanced labs and modern equipment. Various factors like correct mixing of reagents to sample bottles to transportation at right temperature are an issue in getting the right result. In this industry, in many cases samples travel over thousands of kilometers via road and air to the labs.
It is high time consumer interests are also taken care in this industry, in which many biggies lure people to test their genes for probable cancers or other serious diseases. Money making should not be the goal and government should bring in necessary rules to regulate this very important sector of healthcare.