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We interacted with METROHL’s management, the discussion provided us insights into current competitive trends, growth outlook and strategy. The competitive intensity has marginally abated although pressure still persists in the B2B segment. The company is contemplating price increases in the specialised segment which remains largely insulated from competition. The management’s revenue growth aspiration remains 15%+ (excluding PPP) with EBITDA margins expected to sustain current levels (26-27%) despite new centre costs, digital spends, B2B pricing pressure and forex movements. The management cautioned against a PPP expiry in 4Q which will be gradually offset by a new contract win (~2% impact). Hitech’s performance was disrupted by a local peer encroachment which has now stabilised. Amid this disruption, the management completed transition and expects Hitech to grow in double digits with current EBITDA margins c.100bps already above company average. The management reiterated that the income tax search concluded with no unaccounted assets. METROHL’s risk-reward continues to be favourable post the steep correction, overstated concerns and improving outlook. BUY with a Mar’25 Price Target of INR 1775.

* Competitive intensity: Overall competitive intensity is gradually abating. Brick and mortar intensity has increased and is expected to continue. Between 2012 and 2018 many organised players had entered the market while very few survived. Hence it’s a time and sustainability play. The competition impact is particularly on B2B pricing wherein 20-30 semi-specialised tests are impacted. In B2B business, has witnessed higher customer churn and net addition has been lower. Secondly, Metropolis is seeing an impact on talent (due to poaching). These semi specialised tests such as thyroid, vitamins etc. are typically outsourced by new players and are hence competing more with price sensitive peers, impacting Metropolis less as they never focused on price led outsourcing segment. On the B2C side, there is not much pricing pressure. The management indicated that few unorganised players have shut down. Contribution of aggregators at present is minimal. Unlike hospitals, there is no such concept of pent up demand in pathology; pathology is driven by illness. Revenue growth momentum could have been better if competitive scenario had been more organised like hospitals.

* Price hikes: Last year minor inflationary price increase was taken (insignificant). At present, Metropolis is contemplating price increase on specialised test (Other leading peer has taken 7-8% price increase Feb’23). Earlier, the company used to take price hikes every 2 years in-line with inflationary trends. This will increase ARPP and enhance revenue trajectory.

* Growth, guidance and margins: Metropolis’ volume growth has been 10%YoY 9MFY23 with B2C reporting the highest revenue growth. Growth is primarily coming from Western and Southern regions. Mumbai (25-30% sales contribution) and Pune are fastest growing cities. Mumbai centres have increased to 491 (vs. 341 in FY22) and have shorter breakeven time. So far, METROHL has added 12 labs and 396 collection centres in 9M23. In newer cities like Delhi, Metropolis is not building a B2C business but only B2B

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