Pathology labs look abroad for growth

As the $1.8 billion market for pathology laboratories in India gradually warms up to the presence of organised labs — which differ from the ubiquitous 400 sq ft neighbourhood labs in terms of branding, logo, and high tech equipment — corporate lab chains are getting aggressive about expansion through acquisitions, with special focus on foreign geographies.

Ameera Patel, executive director of Mumbai-based pathology labs chain Metropolis, in which private equity firm Warburg Pincus invested $85 million last month, says the company will focus on acquisitions to drive growth. “We would look at acquiring in places like Africa, Middle East, apart from a few labs in north and central India.”

Metropolis, which currently has a total of 55 labs, would add another 10 by end of March 2011.

Sanjeev Chaudhry, CEO of SRL, a North-based chain of pathology labs, echoes the sentiment. SRL is looking for opportunities in Europe and North America as it feels there aren’t good labs in India for acquisitions.

“There are very few standardised labs for the purpose of acquisitions in India. Several are very small with not much value. Hence the international markets appear more attractive,” Chaudhry says.

Piramal Diagnostics, which has over 105 labs in India, is also on the lookout for buys. Bhavin Jankharia, director & chief (radiology services), says, in the near future, Piramal would expand to the Middle East, Sri Lanka, Bangladesh, where collection centres would be set up and acquisitions would be made. “About 15-20% of growth would come from inorganic routes like acquisitions.”

Ankur Bharti, consultant at management consulting firm Technopak, says that, unlike a few years ago, organised labs today are much more visible and have been receiving positive vibes from consumers. “With growing health awareness and income levels, the tendency to go in for various tests to be aware of your body constitution is also on the rise, and this is primarily giving impetus to players to expand,” he adds.

Technopak estimates that by 2027, close to 13% of the total annual household expenditure in India would be on healthcare, up from 7% in 2007. This would be another key driver of the pathlabs boom.

“Currently pathlabs are growing at a compounded annual rate of around 20%,” says Bharti.

However, some industry experts feel making acquisitions abroad is not a very feasible option for pathlabs as the market in India is yet to be fully tapped. Some labs are looking to expand within the country.

“As we don’t have labs in the southern and western parts of India, we would look towards these regions,” says O P Manchanda, CEO, of New Delhi based Dr Lal’s PathLabs.