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Diagnostics: A steady pricing regime continues

Our latest diagnostics pricing exercise across seven cities suggests continued stability in pricing trends, in sync with the higher pricing sanity seen over the past 1.5 years. Even as the pricing differential of listed incumbents with the online players stays elevated at 2-2.7X, an increasingly benign competitive landscape alleviates any major concerns on structural volume growth and margins of DLPL and METROHL. Given elevated valuations, we retain our REDUCE ratings on both DLPL and METROHL. We keep our FVs unchanged at Rs3,065 for DLPL and Rs1,925 for METROHL.

Barring Thyrocare and Suraksha, incumbents kept pricing unchanged in 1QFY25

While Thyrocare hiked prices by 4% qoq across cities, Suraksha lowered prices by 6% qoq in Kolkata in 1QFY25. The price cut by Suraksha, which still remains one of the most premium players in Kolkata, is slightly surprising considering Suraksha had taken nominal price hikes just a few quarters back. After hiking prices in 4QFY24, METROHL maintained its pricing in 1QFY25. Pricing for other incumbents such as DLPL, Agilus and Vijaya remained unchanged. We highlight the larger incumbents have raised prices by up to 9% over the past one year. Among hospitals and offline players, Lupin reduced its prices by 5% qoq in 1QFY25, while Medanta hiked their pricing by 5% qoq in 1QFY25, across KIE’s sample test bouquet. Since raising prices by ~2X in early FY2024, APHS has not taken any significant pricing actions over the past one year. After experimenting with its pricing strategy last year, Aster DM has also kept its pricing unchanged.

A calibrated tussle continues among the online players

On the online front, varied trends continued, as Tata 1mg and mFine cut prices by 1-2% qoq. On the flip side, MediBuddy has raised prices by ~38% across our sample test bouquet in 1QFY25. Among other online platforms, Healthians has also raised prices qoq. Other online players such as Netmeds, Redcliffe, PharmEasy and Orange kept their pricing unchanged in 1QFY25. Tata 1mg, Healthians and Redcliffe are now the most aggressive online players, in all seven cities except Delhi, where Netmeds stays the most aggressive player. Despite an increasingly benign pricing environment, we highlight pricing of incumbents across cities still remains 2-2.7X higher than that of the cheapest organized alternative, thereby limiting the possibility of a significant volume recovery.

Volume uptick priced in; steep valuations keep us on the sidelines

We highlight the intensity of pricing-led competition has ebbed over the past 1.5 years, thereby driving higher sanity in the market. While we expect the sheer higher quantum of organized competitors to still restrict a significant volume bounce-back, we expect volume growth for DLPL and METROHL to inch up gradually from the current 9-10% yoy. Accordingly, we bake in 13-14% overall sales CAGRs over FY2024-27E, for DLPL and METROHL, hinging on improved volumes. Owing to steep valuations, we retain our REDUCE ratings on DLPL and METROHL, with FVs of Rs3,065 and Rs1,925, respectively

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