Health awareness spawns boom in pathology labs

With business swelling, the bigger players are expanding and acquiring others to grow

MUMBAI: The term ‘pathology laboratory’ brings to mind a place one visits in times of illness, for various tests.

But, grim as that image is, these labs make for a thriving business activity, too.
So much so, major players in the segment are eagerly charting out expansion plans and mergers and acquisitions are becoming the order rather than the exception. Sanjeev Chaudhry, CEO of New Delhi-based SRL Ranbaxy, says, “There is a huge potential for scaling up the lab testing business.”

Going by industry sources, there are about 50,000 path labs in the country, both big and small, who conduct about 100 million tests annually. OP Manchanda, CEO of Dr Lal PathLabs (LPL), says, “This provides tremendous scope for consolidation.” 

“The market for path labs is ballooning at 20% per annum. It is currently estimated to be about Rs 7,500 crore,” he says. Consultancy firm Technopak Advisors estimates that the healthcare market in India is worth $40 billion and likely to touch $640 billion by 2028.

On the other hand, about 7% of the average Indian household’s spending is on healthcare, and growing.

Experts believe that with rising disposable income and growing awareness about prevention being cheaper than cure, path lab players can only grow and expand. SRL Ranbaxy is already out to tap this potential. Going by Chaudhry, it is investing about Rs 150-200 crore in the next two years for organic and inorganic expansion. The company, which has a network of about 50 labs, will grow that number to 100 by 2010.

LPL and Mumbai-based Metropolis are expanding too, with investments of Rs 75-100 crore and Rs 20-25 crore, respectively. LPL plans to acquire more than 20 labs by this fiscal end, to take up its lab network to 50 outlets. According to Manchanda, it has recently completed the acquisition of two path labs in Hyderabad and Varanasi with turnovers of Rs 2 crore and Rs 1 crore, respectively.

It will enter tier III places like Bareilly, Gorakhpur, Dehradun, etc. Metropolis, which has around 40 path labs in the country, also plans to add 7-8 outlets this fiscal. The expansion will be through both organic and inorganic routes.

But, the players are just as willingly reaching across the border. SRL Ranbaxy, for one, is going to acquire a medical diagnostic network in Dubai in the next few weeks.
Chaudhry says that in value terms, Dubai holds tremendous potential. This is so because a test that costs $10 in India would fetch $20 in Dubai.

Take the lipid profile, which is done to determine the risk of coronary heart diseases. The test, which costs Rs 500-1,000 in India, would cost a few thousands in Dubai.
Metropolis, too, is alive to the possibilities, as it scouts for acquisitions.

Ameera Patel, executive director, Metropolis says it plans to enter countries like Thailand, Vietnam and Laos.

SRL Ranbaxy is also scouting for acquisitions in Southeast Asia and Malaysia, Chaudhry adds.

So, is it the franchise model that works for these players? Or are wholly owned centres better, considering they offer greater control? Sarabjit Kour Nangra, pharma analyst with Angel Broking, is convinced the franchise system works better when it comes to expanding in newer geographies. SRL Ranbaxy’s Chaudhry, though, prefers a combination of own centres and franchisees. “Currently, 12% of our turnover of Rs 150 crore comes from the franchise model. In future, two-thirds of our centres would be our own, while one-third would be franchisees.”

Metropolis’s Patel, however, believes company owned centres are better. “Less than 1% of our revenues are driven from the franchisee setup. This is because unlike the franchise model, there is no middleman involved here.”
g_priyanka@dnaindia.net