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Metropolis Healthcare’s Q1FY26 performance came in line with street’s/our expectations, as revenue grew 13% YoY organically on test volumes/RPT increasing 8%/5%, respectively. The management’s strategy of 1) Focusing on specialized testing (molecular oncology, genomics etc) to distinguish its brand, 2) Expansion of the collection center network in Tier 2+ cities after hub expansion, and 3) Inorganic expansions in non-core markets should accelerate growth in the medium to long term, in our view. While integrating so many acquisitions at the same time could be operationally challenging, we draw comfort from the management’s successful track record in ramping up bolt-on acquisitions. We expect margins to expand by ~170bps during FY25-28E (over normalized margins in FY25), as the standalone business sees ramp-up in lab utilization and dilution from Core wanes off steadily; we build in 16% revenue CAGR over FY25-28E, baking in the acquisitions (12% CAGR organically). Our estimates remain largely unchanged; we maintain BUY, nudging up our Jun-26E TP by ~7% to Rs2,200 (on DCF basis), implying Jun-26E PER of 44x (the CMP implies 5% discount to DLPL on 2YF PER).

In-line print; awaiting uptick in margins

Metropolis Healthcare (MHL) reported a healthy performance in a seasonally soft quarter, with revenue growing 23% YoY. Organic revenue grew 13% YoY on patient volumes increasing 8% YoY to 3.2mn, with realizations improving 5% YoY. B2C revenue grew 16% YoY and the B2B segment rose 10% YoY. TruHealth/Speciality segments grew 22%/16% YoY, contributing to 18%/38% of revenue. EBITDA was reported at Rs898mn (-14% YoY), with the margin down by 190bps YoY to 23.2% owing to Core’s consolidation. While the other two acquisitions (DAPIC and Scientific) exceeded company-level margins, Core turned EBITDA-positive. Excluding acquisitions, MHL reported 24.7% margin, down by 30bps YoY. PAT grew 19% YoY to Rs452mn, aided by higher other income. The company added 80 centers and 12 labs in Q1 (including acquisitions)

Outlook and risks

After aggressive hub expansion over the last 4Y, MHL’s focus on ramping up its collection center network, especially in Tier 2+ cities, should augur well for volumes and margins in the next 2-3Y. We expect 16% revenue CAGR over FY25-28E (12% CAGR organically). We remain watchful of MHL’s foray into radiology, especially advanced radiology, given the inherent difference in operating an integrated model vs a pathology network. MHL’s continued robust cash generation (FY27E FCF yield of 3%) and improving return ratios (lower capex intensity and margin improvement) provide comfort on valuations. Key risks: Increased competition in the organized market from growing hospital chains, predatory pricing from any market participant, and adverse regulatory ruling around pricing cap for healthcare services

Earnings Call highlights

• The management retained its guidance of 7-8% organic patient volume growth and 5% realization growth (in line with historical trends), translating to organic revenue growth of 12%-13% in FY26. At group level (incl 3 acquisitions), it is expecting a volume growth of 10-11%.
• The management indicated that margins are expected to expand in FY26 vs FY25, as lab expansion benefits kick in, with the full benefit potential (100bps margin expansion) to be seen in FY27. While Core will continue to be a drag on margins, it turned EBITDApositive during the quarter and is expected to end FY26 with high single-digit margin.
• The company is focused on completing the integration of Core and improving its margins in the first year of operations by reaping synergistic benefits. Core is expected to reach company-level margins within 3-4Y. The focus will shift to revenue acceleration in FY27.
• Following a period of rapid expansion, the pace of lab additions will moderate in FY26, as the focus has shifted to accelerating collection center expansion. MHL added 80 centers in Q1 and plans to add 400 in FY26 across regions, with emphasis on tier-2/-3 towns (majorly via franchisees), ensuring greater accessibility and coverage in underserved areas.
• MHL is present in 750 towns currently and is targeting to expand its footprint to 1,000 towns.
• MHL announced acquisition of Ambika Diagnostics in Kolhapur for Rs170mn (via internal accruals); the company already had a management contract with Ambika for the past 2Y to run on a lab-on-lease model, wherein it generated a growth of 60% over 2Y. The acquisition makes this lab the largest in the region. Ambika’s FY25 revenue was Rs80mn, with EBITDA of Rs18mn indicating EV/EBITDA of 9x; however, the management indicated that EBITDA would be at Rs34mn due to post-merger synergies, implying an EV/EBITDA of 5x. The management expects Ambika to grow higher than MHL in FY26.
• The management indicated that the competitive landscape remains largely unchanged, with unorganized players continuing to lose market share to organized players (fragmented across players). Pricing in the industry has become more rational vs Covid times. The management added that health tech players are transitioning away from discount-led volume growth to a value-based approach, resulting in their revenue growth being in line with organized labs.
• Basic radiology services have expanded to 20 locations, helping to increase RPP, with further scaling possible as 36 centers now offer X-ray and over 200 provide ECG services. The radiology addition aids patient visits and is also asset-light as the equipment are inexpensive. The company is also assessing whether to pursue opportunities in higherend radiology.
• GLP-1 testing is a significant strategic opportunity, with potential for USD10mn in profit and access to a USD500mn market, aligning with the shift to personalized and proactive healthcare.
• Centralized oncology testing has become a core competency for the company, with recent acquisitions and collaborations positioning it as the largest oncology diagnostics provider in its region, supporting its leadership in high-complexity testing.
• The management will continue to evaluate acquisition opportunities, though no announcements are expected in the next quarter.
• MHL is expanding its clinical capabilities using AI in areas like allergy tests, prostate cancer detection, and chatbot-driven test suggestions, creating differentiated offerings in proactive and longitudinal health monitoring. AI integration is higher in radiology vs pathology (AI has begun to enter customer service backend processes and some technical tests).

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