Buy Molbio Diagnostics Ltd for the Target Rs 1,800 by Motilal Oswal Financial Services Ltd
Small device, big franchise
From Truenat to a diagnostics ecosystem; scaling up molecular, imaging and pathology together
* Molbio is a diagnostics technology company built around Truenat, its portable molecular testing platform that enables rapid point-of-care testing (POCT) with minimal infrastructure bringing molecular diagnostics closer to the patient.
* With 12,500+ Truenat devices across 90+ countries, 43 assays covering 30 diseases and a USD9.3b global POCT infectious-disease market growing at ~23% CAGR, Molbio has a long runway for growth.
* Molbio is also expanding beyond molecular diagnostics into digital pathology and advanced imaging through Prognosys/OptraSCAN, thereby broadening its addressable market and creating multiple growth opportunities.
* Over FY23-26, Molbio delivered 63% revenue CAGR to INR14.5b, led by Truenat installed-base expansion, recurring test-kit sales, broader assays and international penetration. Higher test-kit mix and operating leverage boosted EBITDA to INR3.2b from INR432m in FY23, with margins of 22.2% and RoE of 16% in FY26.
* With consistent efforts to drive up test-kit sales for new assays like HPV, diversifying beyond tuberculosis (TB) and scaling up sales in digital pathology/ imaging, we estimate 23% CAGR in revenue to INR27b over FY26-29. Operating leverage would drive EBITDA/PAT CAGR of 38%/50% to INR8.4b/INR5.7b over FY26-29.
* Considering the differentiated R&D-driven business model and strong earnings growth potential, we assign 45x (20% premium to sector multiple of 36x) PE on 12-month forward earnings to arrive at a TP of INR1,800. Initiate with BUY
Truenat: Assay expansion to broaden runway
* Truenat is Molbio’s key growth engine, contributing ~90% of FY26 revenue. Its portable, battery-operated PCR platform enables molecular testing at the point of care (PoC), with ~60-minute TAT and limited infrastructure requirements.
* The business is shifting from device-led to recurring test kits-led growth. Over FY23-26, Truenat device/test kit sales clocked 18%/84% CAGR, with TB kits contributing 74% of consumables revenue in FY26.
* Truenat is already deployed at 8,000-9,000 diagnostic centers, with significant scope to replace microscopy-based testing and increase testing intensity.
* Portability and ease of use differentiate Truenat from conventional centralized PCR, making it relevant for PHCs, remote locations and smaller healthcare facilities where centralized testing is less practical.
* We expect Truenat to remain the key growth driver, with an estimated revenue CAGR of ~16% over FY26-29E, led by expansion of the installed base and higher utilization of existing devices through usage for additional indications.
Prognosys: Imaging widens the access play
* Prognosys complements Molbio’s PoC portfolio, contributing ~11%/7% to consolidated revenue/earnings in FY26.
* Ultra-portable X-ray can leverage Molbio’s TB franchise to expand imaging access across PHCs, mobile camps and remote locations.
* PRORAD deployment could drive incremental Truenat testing by expanding TB screening, while ProDigi integrates imaging, interpretation and remote radiologist review. Notably, veterinary imaging offers a longer-term growth opportunity.
* We expect revenue to increase at 36% CAGR over FY26-29E to INR3.9b.
Valuation and view: Initiate coverage with BUY rating
* We believe Molbio is well positioned to capture the opportunity in decentralized molecular diagnostics via its integrated Truenat ecosystem, combining proprietary molecular diagnostic devices with a recurring test-kit franchise. The expanding installed base, widening assay menu and global scale-up are key levers for sustainable growth, while increasing utilization should drive operating leverage.
* We believe successful diversification beyond TB, stronger international adoption and improving cash conversion could support a re-rating, while dependence on government orders and elevated working capital remain key risks.
* We model a 23% revenue CAGR, 910bp margin expansion, and 50% PAT CAGR over FY26-29E. We assign a 45x 12-month forward earnings multiple to arrive at a TP of INR1,800, implying a 21% potential upside. (Bull case TP: INR2,575 | Bear case TP of INR1,100). We initiate coverage with a BUY rating.
Key risks
* Key risks are customer concentration, high revenue contribution of TB testing, delays in regulatory approvals and slower-than-expected adoption of Truenat.
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