It has been a tweet that has sparked a new wave of discussion in the Indian diagnostic industry where it is heading. The tweet was about an advertisement for Tata 1mg Labs, which is currently offering a range of diagnostic tests for just Rs 100 against a charge of Rs 600 for others in the industry. “Fun. New game begins,” Velumni finished in his tweet on Sunday morning in mid-May.
Velumani, the founder of Thyrocare, is a leading and listed Indian diagnostic major, who created Thyrocare in exchange for his share of around Rs 5,000 crore and then left.
The downward dive in the price of medical diagnostic tests is certainly a welcome development for patients. However, the concern in the industry stems more from time to time. There are questions about how well equipped players are to withstand the tide of price change when most seem to rely on covid testing to still collect steam routine non-covid testing revenue. This happens at a time when new players are entering space and existing players seem to be trying to consolidate their presence only to increase anxiety.
The Financial Express online spoke to Velumani about the picture he is seeing rising. Where does he see that the sector has led with this price war many players have already started to respond to this price competition? Where can all be fixed? While price reductions are a good start for consumers of diagnostic services, can it be a cost of quality? What does this mean for the financial players of the industry, especially the younger players? Who can sustain it and how is the Indian diagnostic landscape changing?
Lab at the collection center
In her signature style of speaking from personal experience and captivating her narration with subtle quotes in Hindi, Velumni says, “Today there are a total of 100,000 laboratories. They will lose a zero every five years and eventually it will reach 100 players. ” However, the rest of the players who are unable to survive will not disappear but become collection centers, he thinks.
The Indian Diagnostics Market looks at all the set replay of the Indian telecom story which sees sharp price reduction, market consolidation and market expansion, he said. Today, there are no barriers to offering diagnostic services
Price reductions, he argues, “will increase in volume, will expand the market. This should usually result in higher profitability if combined with greater efficiency of the business model.”
But then there is the need to take a closer look at the business model of the diagnostic space where some local laboratories are scattered across the region while others look for centralized labs for more expertise, the latter benefiting even more with Velumani in his days at Thyrocare.
Need a 7-Eleven and a Walmart
Explaining the approach to the two main components of the diagnostic test – for acute illness (such as colds, coughs, fevers) and for chronic illnesses (such as diabetes, hypertension, cancer, stroke, among others), he said: So in every city you have to have a solution (local lab model). But for chronic illness you have to have a centralized lab. Will be. “
“The price war,” he said, “is already happening. If the price for a lipid profile today is (from 400 to) 600, that’s the rate at which everyone is doing it. However, if someone wants to reduce it further, others will follow suit and they will reduce the price. Because of this their size will increase and as a result the profit will be more. ” The price war, he argues, is usually the result of a huge market and volume expansion. “We have seen this story unfold in the telecom sector,” he recalls.
But then, if the volume expands and business grows, then why the financial pressure on diagnostic players? In it, he says, “I have charged the lowest and enjoyed the highest EBITDA in the industry.” In other words, arguing that it is possible for service providers to have built-in operations skills, as he puts it, has managed its consequences and ultimately enjoyed them.
But then, about the current scenario, he says, “Today, some of the leading players don’t reflect this financially because there are a number of other factors involved in the game, such as transition from covid to non-covid business that disrupted normal routines and revenue. It takes longer than expected to generate.Then, new players are introduced who are equally interested in making a profit like the big players.
Growth and competition
Then, there is the level of market structure and the type of growth. “Although the market is growing at a rate of 15 per cent per annum, the competition – the number of new players entering the field (lots of smaller players) who may eventually be disrupted – is growing at a rate of 25 per cent per annum because there are no barriers to entry,” he recalled. , It differs from large new entrants in size and many of them are trying to disrupt the market.
Despite the impending doom, he said, the current market expansion trend is due to the fact that brand consciousness has not deepened but over time the big players will become influential – either regionally or nationally – and the market will see consumers prefer more branded players.
Returning to the telecom industry for an example of accurate pricing and why he sees higher prices as an off-shoot of incompetence rather than the intention of deception, he says, Coming down to just one penny does not mean that MTNL was looting but it is just a reflection of an inefficient system.
Ask him out well if he is no longer absorbed in the connection. Ask him out well if he is no longer absorbed in the connection. Ask him out well if he is no longer absorbed in the connection. Ask him out well if he is no longer absorbed in the connection. Verify? None! Similarly, when a well-calibrated instrument returns results in a laboratory, it is perfectly normal in 99 percent of cases and only 1 percent has the potential to be manually published, and so there is plenty of fiction to be dispelled. Can go. ” He said.
Five years on the picture: Five years will see partial disruptions but complete disruptions will take about 20 years (which means hitting the net with less than 100 players), he said.
Going from unorganized to organized, in his view, will happen to the weakest and smallest which seems difficult to sustain. Those with an annual turnover of less than Tk 25 lakh will feel the heat. Those with an annual turnover of less than Rs 1 crore will follow them. After that, there will be people with less than Rs 10 crore income. After all, those with an annual turnover of less than Rs 100 crore will not find it easy to compete against players several times bigger than them.
Seeing the price reduction as something that is bound to happen, he sees that the best rate for a thyroid test is Rs 199 and almost the same for lipid profile and liver profile. “This is a profit margin, but what has been announced at the moment is the market-garnering rate,” he said.
For a test priced at Rs 199, he said, the volumes should be in the 100,000 test area per day. “Today, small labs get 10 a day, medium-sized players get 100 a day, big boys get 1000 a day, list players get about 10,000 a day.” Obviously, there is still a long and difficult road ahead when the journey has just begun.