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With price hikes early next year, PPP base reset in 4Q and ramp-up of newer labs, METROHL’s earnings momentum should accelerate, in our view. We expect mid-teens revenue CAGR with meaningful margin expansion (to 27%) to play out over the next 3 years. The recent 2Q performance was in line with JMFe. Core business revenue (ex-Covid, ex-PPP) grew 13.4% YoY. Reported EBITDA includes a one-time impact of INR 33mn pertaining to provision for adjustments related to employee fraud pursuant to an audit triggered by a whistleblower complaint. Adjusted for this, margin was c. 110bps ahead of our estimates. B2C business continues to deliver strong mid-teens growth particularly driven by core markets such as Mumbai (23%). The receding competitive intensity, near-completion of accelerated network expansion, robust Hitech performance, introduction of basic radiology services and improving earnings visibility build a compelling case for our long-term ‘BUY’ thesis. We value METROHL at 38x (vs. 36x) Sep’25 earnings to derive a TP of INR 1,635. We prefer METROHL as our ‘top pick’ in the diagnostic sector.

* We prefer METROHL as our ‘top pick’ in the diagnostic sector: We expect ~15% revenue CAGR over the next 3 years along with margin expansion (to 27%). METROHL’s nearterm earnings are subdued due to NACO contract expiry and aggressive network addition. While we do expect the envisaged lab addition to be completed next fiscal, the operating leverage will be realised in FY26. Pre-Covid, METROHL had reported higher margins than DLPL. The company also alluded to a price hike early next year, which should further bolster earnings. DLPL’s operating leverage has largely played out in FY24 (in the price) and we believe that there is limited room for margin expansion hereon given that DLPL seeks to reinvest surplus for organic expansion. METROHL, nearing the end of its network expansion cycle, can therefore outperform DLPL over FY24-27, in our view.

* Revenue momentum to accelerate: Metropolis’ revenue increased 3%YoY to INR 3.1bn (in line), optically subdued due to expiry of the NACO contract. Core business revenue (ex-PPP, ex-Covid) grew 13.4%YoY. B2C revenue outpaced overall growth at 16% YoY with Mumbai growing faster (23%). Core business patient volume increased to 3.1mn (+10.4% YoY) and ARPP grew ~3% YoY to INR 975. Premium wellness tests’ share was 14% of revenue (vs. 13% YoY), growing 27% YoY (21% volume growth).

* Network expansion on track: Metropolis is on course to add 90 labs and 1,800 service centres over FY21-25. This will be via increasing penetration in focus markets and widening geographical presence (reach 600 towns by FY24) in untapped markets. The company plans to deepen its presence in Chennai and Bengaluru, akin to Mumbai. The company will add ~30 labs and 800 centres in FY24 and an additional 30 labs in FY25, in our view. During 1HFY24, Metropolis (ex Hitech) added 12 labs and 242 centres across geographies, leading to margin dilution of 120bps. METROHL plans to introduce basic radiology services (ECG, X-Ray etc.) in its 400 owned centres to increase ARPP as the services are complementary to its current offering. These services will be provided through an asset light model and are not expected to dilute margins.

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