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21 May 2019 | 4:58AM IST
India Healthcare: Diagnostics and Clinical Labs
Organized channel only scratching the surface; Buy

Metropolis, Thyrocare, Dr. Lal
India’s US$9bn diagnostic testing industry has been one of the bright spots in the Shyam Srinivasan, CFA
+91(22)6616-9346 |
country’s healthcare landscape over the past five years as consumers have turned to shyam.srinivasan@gs.com
Goldman Sachs India SPL
pathology centers for blood testing on everything from liver function to cholesterol.
Chandramouli Muthiah
However, recent concern over potential price caps on essential tests have cast doubt +91(22)6616-9344 |
chandramouli.muthiah@gs.com
on whether mid teens revenue growth rates for large diagnostic chains can Goldman Sachs India SPL
continue.
For the exclusive use of YATIN.MATTA@RELIANCEADA.COM
In this report, we assess the changes and conclude that the large listed Indian
diagnostic chains - Dr. Lal, Metropolis Healthcare, Thyrocare (all Buys) - remain
beneficiaries of what we view as attractive long-term industry growth story. We see
the potential for increased inclusion of diagnostic testing in health insurance and
ample runway for higher market penetration as standards of living increase and
preventive healthcare awareness rises.
What’s different in this report? To get a more holistic view of the competitive
landscape in the industry we look at a range of smaller unlisted private competitors.
The data offers insight into emerging regional and city specific chains, as larger labs
players could look to consolidate to achieve more economies of scale. We also
analyze test pricing trends by region, for perspective on which parts of the country
offer more profitable expansion potential to testing companies and assess the
impact to prices as Private Equity deals slow. We frame a blue sky scenario to
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Industry TAM from rising awareness on preventive testing and potential
coverage of out patient diagnostics under Insurance.
In separate reports, we initiate with a Buy on Metropolis Healthcare (25% upside

to TP) on (1) growth in the B2C segment, (2) aggressive approach towards buying
smaller assets, (3) good earnings visibility from NACO contract. We initiate with a
Buy on Thyrocare with 27% upside potential driven by 1) increasing volume share
in wellness 2) broadening their B2B network and 3) stabilisation of margins that will
lead to high teens growth in earnings. We maintain a Buy rating on Dr. Lal PathLabs
(27% upside) where we like the company’s scale advantage, opportunity to grow in
Wellness and visibility from the recently set up Kolkata Reference Lab.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result,
investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC
certification and other important disclosures, see the Disclosure Appendix, or go to
www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research
analysts with FINRA in the U.S.
Goldman Sachs India Healthcare: Diagnostics and Clinical Labs
Table of Contents
We expect the industry to grow 11% p.a., driven largely by volume trends 4
Who are the emerging regional competitors? 6
Equipment suppliers - Still offer better reagent rates to large lab chains 10
Easing PE deal momentum may provide relief on price competition 11
West and East India are opportunities to deepen accredited lab network 14
What are the regional pricing dynamics in India ? 17
Draft diagnostics list to hurt large chains less than independent labs 19
US market comparison: Insurance coverage can spur growth inflection 21
Health insurance: Early days for volume uplift 23

Penetration comparison with other countries 25
Profiles of large Indian diagnostic chains above Rs500mn annual sales 26
TP Methodologies and Risks 34
Disclosure Appendix 35
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21 May 2019 2
Exhibit 1: Asia Healthcare services Valuation sheet

As of May 17
Company Mkt Cap Current 12-m Target Return P/E EV/EBITDA

Currency Rating
name (USD mn) Price Price potential 2018E 2019E 2020E 2018E 2019E 2020E
IHH Healthcare Bhd MYR 10,635 Buy 5.46 6.70 23% 45.8x 31.7x 24.3x 21.8x 15.7x 13.2x
Bangkok Dusit Medical Services THB 12,321 Neutral 25.3 23.2 -8% 38.5x 39.7x 34.3x 24.5x 23.1x 20.5x
Bumrungrad Hospital THB 3,752 Neutral 164 174 6% 33.6x 28.0x 26.8x 21.4x 17.7x 16.9x
Mitra Keluarga Karyasehat IDR 2,105 Neutral 2,090 1,590 -24% 48.0x 51.7x 45.7x 33.1x 33.5x 30.7x
Asia Hospitals Raffles Medical SGD 1,303 Neutral 1.03 1.12 9% 27.5x 30.1x 30.9x 19.3x 18.8x 18.0x
Healthcare Global Enterprises Ltd. INR 236 Buy 194 260 34% NM NM NM 17.9x 16.0x 13.0x
Apollo Hospitals Enterprise Ltd. INR 2,255 Neutral 1,138 1,200 5% 82.1x 60.1x 42.6x 19.1x 17.2x 14.5x
Aster DM Healthcare Ltd. INR 922 Buy 128 203 58% 24.7x 19.1x 14.1x 11.4x 9.5x 7.9x
Fortis Healthcare Ltd. INR 1,364 Neutral 127 130 2% NM 123.2x 67.0x 47.1x 20.8x 17.6x
Asia Hospitals Average 12% 41.0x 40.1x 32.1x 23.8x 19.9x 17.5x
30,115
India Metropolis Healthcare INR 658 Buy 921 1,140 24% 32.9x 27.4x 19.1x 15.8x
Diagnostics Thyrocare INR 334 Buy 443 562 27% 36.3x 23.3x 20.0x 18.6x 12.6x 10.8x
Dr Lal PathLabs Ltd. INR 1,240 Buy 1,065 1,225 15% 38.9x 39.9x 34.8x 25.0x 24.3x 20.7x
Company Sales growth EBITDA growth EPS growth ROE CROCI Net debt /
name 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2019E 2020E 2018E 2018E EBITDA
IHH Healthcare Bhd 3% 29% 10% 9% 29% 15% 73% 38% 30% 4% 7% 1.1x
Bangkok Dusit Medical Services 9% 6% 7% 11% 4% 12% 23% 0% 16% 14% 10% 2.0x
Bumrungrad Hospital 1% 2% 5% 4% 3% 7% 5% 2% 4% 23% 24% -1.0x
Mitra Keluarga Karyasehat 9% 8% 8% 5% -1% 9% -7% -7% 13% 15% 16% -0.4x
Raffles Medical 2% 10% 10% 8% 3% 7% 0% -15% -2% 9% 8% 0.1x
Asia Hospitals
Healthcare Global Enterprises Ltd. 18% 14% 12% 4% 14% 24% NM NM NM -3% 10% 3.8x
Apollo Hospitals Enterprise Ltd. 15% 17% 16% 26% 12% 18% 64% 36% 41% 6% 13% 3.1x
Aster DM Healthcare Ltd. 20% 14% 13% 31% 19% 18% -2% 29% 35% 8% 11% 2.9x
Fortis Healthcare Ltd. -4% 6% 9% -8% 162% 17% 44% NM 84% -6% 1% 8.7x
Asia Hospitals Average 8% 12% 10% 10% 27% 14% 25% 12% 28% 8% 11% 2.3x
India Metropolis Healthcare 18% 17% 17% 16% 17% 19% 17% 17% 20% 27% 46% -0.3x
Diagnostics Thyrocare 9% 18% 16% -2% 14% 16% -11% 18% 16% 19% 35% -0.1x
Dr Lal PathLabs Ltd. 14% 14% 14% 11% 15% 15% 16% 10% 14% 23% 30% -1.4x
Footnote: Asia ex-India estimates are for 2018, 2019, 2020 (December year end), and India Healthcare company estimates are for FY19, FY20, FY21 (March year end)
Source: Datstream, Company data, Goldman Sachs Global Investment Research
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21 May 2019 3
We would like to thank Subhash Kakarla for his valuable contribution to this report.
We expect the industry to grow 11% p.a., driven largely by volume trends
For more details, please

We see the following key trends that will drive sector growth:
refer to “Metropolis
n Aging population: The population cohort above 65 years old is growing at 4%-4.5%
Healthcare (METP.BO):
Rapid network expansion p.a in India (according to the World bank) and we note the majority of healthcare
to fuel next growth phase; spend comes from people above the age of 60
initiate at Buy” and
“Thyrocare (THYO.BO): n Rising income: We estimate 3%-3.5% of private healthcare revenue growth to
Disruption, Growth and come from the rural population moving up to the c. US$1500-US$2000 income
Yields; initiate at Buy”, both bracket every year (not accounting for inflation)
published along with this
report on May 21, 2019. n Price increases: While healthcare price hikes are coming under increasing scrutiny
from the regulators and government, we still see price increase of 0.3% to 0.5% p.a
at the minimum to cover medical cost inflation. The easing PE deal momentum that
may provide relief on price competition (we discuss in more detail later in the report)
n Preventive testing: We forecast rising awareness and the government’s recent
steps to incentivize preventive testing via tax breaks to be a tailwind to volume
growth of c. 0.5% p.a
n Case mix/others: Diagnostics players continue to add complex tests (semi
specialized and specialized) and assessments in a bid to differentiate
Exhibit 2: We expect the industry to grow at low double digits, driven largely by elderly population growth
Next 5 Years
In US$bn, constant currency 2017 FY18 FY19E FY20E FY21E FY22E FY23E
Diagnostics services TAM 5.6 6.2 6.9 7.7 8.5 9.5
yoy growth 11.5% 11.4% 11.3% 11.2% 11.2% 11.1%
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Growth Drivers
65+ Population growth 4.5% 4.5% 4.5% 4.4% 4.4% 4.4%
Increase in penetration (higher income) 3.6% 3.5% 3.5% 3.4% 3.4% 3.4%
Preventive testing 2.0% 2.0% 2.1% 2.1% 2.1% 2.1%
Pricing contribution 0.5% 0.5% 0.5% 0.4% 0.4% 0.3%
Test mix 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%
We exclude TAM from Hospital based labs in this exercise
Source: WHO, Goldman Sachs Global Investment Research, MOSPI, Euromonitor
In a blue sky scenario we factor in two more developments
1. Faster than anticipated pickup in preventive testing (40% of the upmove):

Currently preventive testings account for <10% of the overall market and is growing
at 20% CAGR. In a scenario where the government increases incentives (including
tax breaks) towards preventative testing, we believe this segment can grow at a
27% CAGR (FY19E-23E).
2. Insurance coverage for diagnostics services including outpatients (60% of the
upmove): Health insurance typically covers charges in hospital inpatient settings and
our estimates suggest that only c. 15-20% of the total diagnostics services (or
7%-8% of total TAM) delivered in such settings is being reimbursed via insurance
21 May 2019 4
claims. We believe Ayushman bharat (universal healthcare scheme) which caters to

the poorest income population will likely bring more patients under the ambit of
health cover. In a blue sky scenario, if the government decides to 1) extend the
scheme to the entire population (given populist pressure, as healthcare spend is
currently c.70%-80% out of pocket) and 2) Get outpatient settings added like BPJS1
scheme in Indonesia, as this could be a game changer for healthcare services
including diagnostics spending. Given, the magnitude of the move, we believe this
could contribute up to 25% of total industry growth within 4-5 years of launching.
In such a scenario, we see the Industry growth increasing from 11% CAGR (FY19E-23E)
to 14% CAGR or an additional US$1bn of incremental spend taking the total diagnostics
TAM to US$10.5bn.
Exhibit 3: We expect insurance coverage of diagnostics and faster uptick in preventive trends could add US$1bn to TAM by FY23E in a blue
sky scenario
Diagnostics TAM (US $ bn) - base case and blue sky
12
US$bn
10 0.6
0.4
0.5
10.5
0.7 14%
8
1.2
1.6
6
9.5
4
5.6 11%
2
0
FY18 Aging Rising income Preventive Pricing/Mix FY23E Base Additional Insurance FY23E
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population testing preventive coverage Blue sky
We exclude TAM from hospital labs in this exercise
Source: WHO, MOSPI , Goldman Sachs Global Investment Research
In our base case, we anticipate the top 15 Corporate chains to gain market share as they
benefit from gradual formalisation as smaller labs fold up into them via inorganic M&A or
become their B2B customers. In our blue sky, apart from the macro trends outlined
above, we believe stringent regulations (mandatory requirement for MD Pathologist in
the medium-sized labs) and rising quality standards could lead to the top 15 chains
gaining upto 10 percentage points of market share or doubling of their revenues in 4
years (20% CAGR).
1
Badan Penyelenggara Jaminan Sosial (Social Insurance Administration Organization)
21 May 2019 5
Exhibit 4: In a blue sky scenario, we foresee 10pp higher share for the National chains as they benefit from
formalisation
Top 15 Corporate chains (Revenue market share)
Base case share Blue sky share

26%
24.9%
24%
22%
20% 19.5%
18%
16.6%
16%
14.4%
14%
12.2%
12% 14.5%
13.6%
12.4% 12.9%
11.7% 12.0%
10%
FY18 FY19E FY20E FY21E FY22E FY23E
Source: Goldman Sachs Global Investment Research
Who are the emerging regional competitors?
To better understand the competitive landscape for our covered companies within the
Indian Diagnostic Labs market, we have looked at public information from private
companies as we believe it provides useful insight, particularly in regard to business
scale and profitability.
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Though the majority of the ~100,000 Diagnostic Labs in India operate at between the
Rs10mn to Rs30mn annual sales, we look at major 25 private companies by region and
find that:
n Large diagnostic lab chains with annual sales above Rs1bn are operating with the
highest profitability. This is unsurprising to us given these companies are able to
negotiate better rates on their reagent rentals (see more details below) and benefit
from economies of scale as they have invested in a pan Indian network of labs and
sample collection centers.
n Many emerging regional diagnostic chains with annual sales between Rs500mn
to Rs1bn are growing fast, though profitability for this group is on aggregate lower
than for the large diagnostic chains. Most of these companies are investing in sales
and marketing to expand their network and bolster the B2C part of their business.
They may need to become larger for margins to inflect as they obtain more testing
volumes at which the benefits of operating leverage will become visible.
n In an attempt to enter new geographies and increase economies of scale, some of
the regional chains are trying to bid for PPP contracts (lab testing contracts with
21 May 2019 6
state governments in India) in states that they do not have a presence in. This
strategy helps to lower reagent rental costs, and helps establish a foothold in a new
region, but typically puts a strain on receivables, which in many cases can take much
longer than six months to recover.
Exhibit 5: Sizable regional lab chains in different parts of India

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* Dr. Lal, SRL, Metropolis, Thyrocare, Medall have a national presence in addition to having strong regional footholds as mentioned above. Location of
logos signify core regional locations.
Source: Company data
n Smaller City specific diagnostic chains with annual sales below Rs500mn with
stated ambitions of expansion face a similar issue as the regional diagnostic chains
operate at a higher scale. There is a time lag between marketing investments and
testing volume growth, and some of these companies are yet to reach break even
as a result. Others have some portion of radiology exposure in their business, and
are therefore taking longer to break even as more capex is required.
n Within cities and towns, there are many standalone independent labs where
reporting of financials is not easily available, but our channel checks with some small
lab owners suggest that these companies (in a steady state) may be able to earn
EBITDA margins in the 20%+ range even on their small scale of business. That said,
it is important to note that these margins are in a setup which requires very little
21 May 2019 7
sales and marketing expenditure, and may constitute very low costs related to rent
and salary as many of these standalone labs are run in a mom and pop kind of
setup.
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21 May 2019 8
Exhibit 6: Financial Summary of Key regional diagnostics labs players in India, listed by Sales size
in Rs. mn.
Sl # Company Sales EBITDA EBITDA margin PAT PAT margin
1 Dr. Lal 10,569 2,640 25% 1,708 16%
2 SRL 9,822 1,537 16% 789 8%
3 Metropolis 6,436 1,725 27% 1,023 16%
4 Thyrocare 3,793 1,677 44% 955 25%
5 Medall 3,533 936 26% 275 8%
6 Vijaya 2,505 789 32% 347 14%
7 Suburban 1,357 17 1% (49) -4%
8 Suraksha 1,320 266 20% 88 7%

9 MedGenome 1,008 (1) 0% (175) -17%
Aggregate (Rs. 1bn plus topline group) 40,342 9,587 24% 4,961 12%
10 Aarthi Scans & Labs 806 194 24% 69 9%
11 Spandan 705 231 33% 65 9%
12 Oncquest 675 (15) -2% (20) -3%
13 Diagno 659 (281) -43% (399) -61%
14 HiTech 617 146 24% 55 9%
15 Unipath 579 78 14% 41 7%
16 Pathcare 569 24 4% 2 0%
17 Quest* 513 (173) -34% (190) -37%
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18* Supratech* 502 49 10% 18 4%
Aggregate (Rs. 500mn to Rs. 1bn

5,625 253 5% (359) -6%
topline group)
19 Sterling 311 (65) -21% (96) -31%
20 Elbit 237 (27) -11% (17) -7%
21 Core 206 (146) -71% (171) -83%
22 Neuberg Ehrlich 193 15 8% 2 1%
23* Jaya* 189 13 7% 1 0%
Expedient (runs
24* 183 (162) -89% (167) -91%
Healthians)
25 N G industries 174 30 17% 14 8%
Aggregate (Rs. 150mn to Rs. 500mn

1,493 (342) -23% (434) -29%
topline group)
Data as of FY18. * is as of FY17. Companies are private apart from Dr. Lal, Metropolis and Thyrocare
21 May 2019 9
Equipment suppliers - Still offer better reagent rates to large lab chains
One of the key stakeholders in the Diagnostics industry is equipment suppliers and one
of the key areas to monitor is their approach to seeking to expand the market via the
Reagant rental model - suppliers sell their equipment to lab testing companies at
almost no capital costs. Lab testing companies agree to buy reagent batches (batch of
testing chemicals) exclusively from the company whose equipment is installed in their
lab and pay a periodic rental (given a lease rental type agreement), booked as an
operating expense. Again, as part of our efforts to gain insight into developments and
trends in the diagnostics industry for our covered companies, we looked at
publicly-available financial statements of a group of equipment suppliers and spoke with
top management of some of these companies. The key takeaways from their
comments:
n Topline growth seems challenged: While segmental disclosures are unavailable,

management of these companies broadly said that top line growth for this sector
seems challenged given the pricing pressure they have witnessed as corporate labs
have tried extending centrally agreed prices to newly acquired small labs as well.
Further, management said that a wave of public listings has made corporate labs,
with significant volumes under their belt, more conscious of profitability and are
keen to maintain/improve margins. However, management commentary suggested
the bulk of pricing pressure is behind and there are signs of normalization in the
environment.
n Profitability holding up: Despite the pressure headwinds on the commoditized
testing, management said that margins seems to be stable as suppliers have
focused on improving revenue mix including value added services and cost controls.
Suppliers mentioned that key tenets that customers valued were 1) 100% up time -
backup instruments or standby, 2) Timely delivery of reagants and 3) Efforts to foster
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Innovation and brand building.
Exhibit 7: Financials of Indian Subsidiaries of Diagnostic Exhibit 8: Large organised players earning higher gross margins
Equipment suppliers suggest reasonable levels of profitability, than smaller diagnostic chains
though growth is slightly challenged
as in FY18
2 yr Sales EBITDA PAT

Company Sales
CAGR margin* margin 95% Large organised players earning
Medall higher gross margins than smaller
Suraksha diagnostic chains
Aarthi
Siemens Healthcare India 24,361 -1% 8% 4% 85% Vijaya
Elbit Dr. Lal
Gross margin (%)
Suburban
Thyrocare Metropolis
HiTech
Becton Dickinson India 9,023 6% 10% 5% 75% Spandan SRL Limited
Quest
Roche Diagnostics India 8,086 -6% 20% 3% 65%

Supratech,
Diagno,
Sterling,
Beckman Coulter India* 3,541 NA 19% 1% 55% Core,
Pathcare,
Healthians, Smaller chains earning lower gross
Oncquest,
iGenetic, margins than larger diagnostic
MedGenome,
Abbott Diagnostics India 3,253 7% 13% 21% 45% MedGenome
chains
Sysmex India 712 25% 25% 13% 35%

0 2,000 4,000 6,000 8,000 10,000 12,000
FY18 Sales (in Rs. mn)
* Beckman Coulter numbers are for FY16 Source: Company data

21 May 2019 10
n Expanding to tier 2 and tier 3 cities: Supplier’s are also seeing a trend of
decentralization as daily samples have risen sharply for national reference labs .
Diagnostic Labs have now started expanding in tier 2 and tier 3 cities and perform
the bulk of their routine tests in these satellite labs, funneling back to national
reference labs only those specialized tests that require more sophisticated
equipment.
n Large lab chains hold more negotiating power: Large lab testing companies
negotiate higher discounts on their reagent rental contracts in return for high volume
commitments to the equipment suppliers. Suppliers have also noticed that despite
tenders being setup typically for 5 years, there have been frequent requests for
resetting prices lower midway through the tenure, linking them to extraneous
reasons.
n Grading pricing based on volumes still exist: While some channel checks
suggested suppliers may be undercutting corporate labs by offering similiar prices
to smaller labs, the majority of channel checks suggested that the rank order of
discounts is still the most to corporate labs, followed by large labs and then smaller
labs although they could be closer to parity only in specific regions, or during
promotions rather on a steady state basis. We believe, that large diagnostic chains
get the same reagent batch at as much as 70-75% below the list price. Smaller
chains get a smaller discount. Independent chains understandably get the lowest
discounts. Industry channel checks seems to suggest that if a customer doubles his
volume, he/she can ask for 10% cut in reagant costs.
Easing PE deal momentum may provide relief on price competition
Private equity investments in the Indian Diagnostic Labs industry seems to be

normalizing following a period of high activity in 2012 when as many as seven deals
a48da07e2ee411e0a4da00215ad26546
were announced.
Private equity funds have usually operated with an exit time frame of around 5 to 7
years post investment, and in the past companies with private equity investments have
typically pushed prices lower in an attempt to gain market share in both B2B and B2C
segments. We believe that the consequent slow down in private equity deals should
herald a normalization in price led competition.
While diagnostics labs is a low-entry barrier business, issues around quality, accuracy,
standardized methodologies, staff training, IT reliability, logistics, capacity planing and
equipment calibration practices make scaling up in this business a challenging
proposition. Understandably, many mid and large scale operators use inorganic
bolt-ons as a means to expand into new geographies and increase business scale,
including our covered companies.
21 May 2019 11
Exhibit 9: Number of private equity deals in the India Diagnostic Exhibit 10: Number of control transfer transactions in India
Labs normalizing, indicating that aggression on pricing could Diagnostics on the rise, bodes well for sector consolidation and
subside going forward better operational efficiency in our view
Number of private equity deals in Indian Diagnostic Lab companies Number of M&A transactions in Indian Diagnostic Lab companies
8 8
7 7
7 7
6
6 6
5
5 5
4 4 4
4 4
3 3 3 3 3 3 3 3
3 3
2 2 2 2
2 2
1 1 1 1 1 1 1
1 1
0 0 0 0 0 0 0 0
0 0
Source: data compiled by Goldman Sachs Global Investment Research Source: data compiled by Goldman Sachs Global Investment Research
Given the challenges to scaling up a diagnostic labs business, private equity funds
appear to be more selective in their investment strategies and based on recent

transactions are looking more closely at already scaled businesses (see Ex. 8). Our
conversations with a range of private equity investors suggest that interest in the
smaller city or township specific players is waning, especially as scaling up can be a
challenge.
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21 May 2019 12
Exhibit 11: Summary of notable transactions in the India Diagnostic Labs space since CY 2000
* Private equity transactions shaded in blue
Deal Value at
Stake %, where
Sl # Year Target Acquirer Announcement
available
(US$ mn)
1 2002 Lister Laboratory Metropolis Health Services 4 50%
2 2005 Pathnet India Pvt Ltd Healthscope Ltd (Pre-2010) - 49%
3 2005 Pathnet India Pvt Ltd Metropolis Health Services (India) Ltd - -
4 2005 Gribbles Pathnet India Pvt Ltd Metropolis Health Services - -
5 2006 Metropolis Health Services (India) Ltd ICICI Venture Funds Management Co Ltd 8 -
6 2006 Thyrocare Technologies Ltd Bennett Coleman & Co Ltd 7 -
7 2006 Elbit Medical Diagnostics Biotechnology Venture Capital Fund 2 -
8 2007 Jankharia Imaging Nicholas Piramal India Ltd - 100%
9 2009 MEDall Healthcare Pvt Ltd Peepul Capital LLC 41 80%
10 2010 Diwan Chand Medical Services Pvt Ltd AVB Finance Pvt Ltd 20 76%
11 2010 Metropolis Healthcare Ltd Warburg Pincus LLC 85 27%
12 2010 Piramal Diagnostic Services Pvt Ltd Super Religare Laboratories Ltd 129 100%
13 2010 Dr Lal PathLabs Pvt Ltd (16%) TA Associates Inc 35 16%
14 2010 Thyrocare Technologies Ltd CX Advisors LLP 41 30%
15 2011 Super Religare Laboratories Ltd Avigo Capital Partners 22 9%
16 2011 Super Religare Laboratories Ltd Sabre Partners 11 4%
17 2011 Super Religare Laboratories Ltd Fortis Healthcare Ltd (pre-2011) 179 75%
18 2012 Super Religare Laboratories Ltd Jacob Ballas Capital India Pvt Ltd 45 16%
19 2012 Super Religare Laboratories Ltd International Finance Corp-IFC 22 8%
20 2012 Super Religare Laboratories Ltd Avigo Capital Partners 4 -
21 2012 Thyrocare Technologies Ltd Norwest Venture Partners 23 10%

22 2012 Core Diagnostics Artiman Ventures 5 -
23 2012 Trivitron Healthcare Fidelity India Capital 75 40%
24 2012 Suburban Diagnostics Pvt Ltd Sequoia Capital 7 30%
25 2013 Nueclear Healthcare Ltd Norwest Venture Partners 4 -
WestBridge Capital LLP;
26 2013 Dr Lal PathLabs Pvt Ltd 44 16%
TA Associates Inc
27 2013 Suraksha Diagnostic Pvt Ltd Lighthouse Funds, LLC 9 25%
28 2013 TechMed Healthcare Matrix Partners - -
29 2014 MedGenome Labs Pvt Ltd Emerge Ventures 4 -
30 2014 Medinova Diagnostic Services Ltd Vijaya Diagnostic Centre Pvt Ltd 3 36%
30 2014 Sterling Diagnostics Sterling Addlife 5 -
31 2015 Metropolis Healthcare Ltd Private Investor (Ms. Ameera Shah and her family) 90 27%
32 2015 MedGenome Labs Pvt Ltd Sequoia Capital 20 -
33 2015 Metropolis Healthcare Ltd Carlyle Group LP 140 37%
34 2016 Vijaya Diagnostic Center Kedaara Capital 63 Significant Minority
35 2017 Core Diagnostics Pvt Ltd Eight Roads Ventures; Artiman Ventures; F-Prime Capital 12 -
36 2017 Sanjeevani Pathology Laboratory Metropolis Healthcare Ltd 8 100%
37 2017 Suraksha Diagnostic Pvt Ltd OrbiMed Advisors 40 30%
38 2017 iGenetic Diagnostics Pvt Ltd Manipal Group; CDC Group plc 20 -
39 2018 MedGenome Labs Pvt Ltd Housing Development Finance Corp Ltd - HDFC 40 -
40 2018 Ehrlich Lab Neuberg Diagnostics - -
41 2018 Anand Diagnostic Labs Neuberg Diagnostics - -
42 2018 Supratech Neuberg Diagnostics - -
43 2018 MedGenome Labs Pvt Ltd Sequoia Capital India; Zodius Capital; Sofina SA 27 -
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44 2018 Quest Diagnostics Inc Strand Life Sciences Pvt Ltd - 100%
Source: Dealogic, Economic Times, Livemint, Biospectrum India, VC Circle
Pricing cuts in certain micro markets (regions or towns) should also start to normalize to
reflect stable pricing vs. recent declines, in our view due to the likelihood of less PE
interest. This should provide margin cushion to large established players - including our 3
covered companies - and better profitability prospects to smaller chains that are in the
middle of a build out in capacity and network.
Globally, market leaders (including our covered companies) in the industry have
emerged through inorganic growth via a string of acquisitions and recent statements
from our covered company management teams suggests that they will continue to
pursue bolt-on M&A; examples are LabCorp and Quest Diagnostics in the US. As
detailed in Exhibit 6, c.50% of India’s key regional diagnostics labs players reported
relatively weak EBITDA margins in FY18, with 7 reporting negative margins. We attribute
this result in part to the recent competitive pricing as well as lower scale of business
which needs to expand to cover B2C marketing and infrastructure costs. While we
expect pricing to normalize relative to declines in the prior cycle, we would anticipate
21 May 2019 13
some of these labs players could look to consolidate to achieve increased economies of
scale, notably across input costs.
West and East India are opportunities to deepen accredited lab network
Our analysis of the ~1,100 NABL2 accredited labs (out of ~1000,000 diagnostic labs in
India) as of 2018 indicates that
Regionally North India has higher accredited lab presence

n Accredited Labs are most prevalent in North India: North India has 334 NABL
Accredited Labs, up from 185 in 2014. This is followed by 318 accredited labs in the
South and 231 in the West.
n South India has the highest ratio of accredited labs per million population at
1.2, with the North and West following close behind at 1.0 and 0.9 accredited labs
per million population, respectively.
Exhibit 12: North and South India have the maximum number of Exhibit 13: South India has the highest number of NABL Accredited
NABL accredited Labs Labs per million people
NABL Accredited Labs in 2014 NABL Accredited Labs in 2018 NABL Accredited Labs per mn people, 2014 Accredited Labs per mn people, 2018
400 1.4
350 334 1.2

318 1.2
300 1.0
1.0
0.9
250 231 0.8
0.8
200 185 0.6
166 0.6
154 0.6 0.5
150 132
0.4
0.4
100 71
50 37 0.2 0.1
21 0.1
0 0.0
Central India East India West India South India North India Central India East India West India South India North India
a48da07e2ee411e0a4da00215ad26546
Source: NABL Source: NABL
Most states have a long runway to increase the number of accredited labs per person
Telangana (due to Hyderabad) and Haryana (due to Gurugram) have a higher ratio of
accredited labs per person than most Indian states, but still have a long runway ahead in
comparison to New Delhi which as a state, has the highest number of accredited labs
per million population.
2
National Accreditation Board for Testing and Calibration Laboratories
21 May 2019 14
Exhibit 14: Compared to New Delhi, there appears to be a long runway for increase in Accredited Labs in
other Indian states
NABL Accredited Labs per mn people, by state
NABL Accredited Labs per mn people, 2014 NABL Accredited Labs per mn people, 2018
8 8
2 2
2 1 1 2 1
1 1 1 1 1 1 1 1
1 1 1 1
1 1 1 1
0 0 0 0 0
0 0 0 0
0
Source: NABL
New Delhi, Maharashtra and West Bengal are the Top 3 states for NABL Accredited
Diagnostic Labs, indicating a higher degree of organized sector presence in these
clusters. We believe that it therefore makes more sense for diagnostic lab testing
companies to focus their expansion plans in other states, especially large markets, like
Uttar Pradesh, Tamil Nadu, Karnataka, Telangana and Gujarat.
Exhibit 15: New Delhi, Maharashtra, West Bengal are the Top 3 states for NABL Accredited Diagnostic
Labs indicating a higher degree of organised sector presence here
a48da07e2ee411e0a4da00215ad26546
NABL Accredited Labs in 2014 NABL Accredited Labs in 2018
160
140
140
129
120
103
98
100 91
80
80 73
65
60
48
40 34 35 36
26 29
17
20 10 12 13
3 3 4 4 5 6
1 1 1 1 2 2 2
0
Source: NABL
21 May 2019 15
Cities of Noida and Gurugram well served, others have scope for increase in accredited
testing services
Out of the Top 20 cities from an accredited labs perspective, New Delhi, Chandigarh
and Jaipur, Noida and Gurugram are all micro markets which seem to be more
saturated than other large Indian cities. Among the smaller towns, Dehradun and
Guwahati are also fairly well served, especially given the low population count.
Exhibit 16: The New Delhi market seems to be better penetrated than other large Indian cities, indicating
that only the strongest might grow here going forward
NABL Accredited Labs per mn people, by city
NABL Accredited Labs per mn people, 2014 NABL Accredited Labs per mn people, 2018
35.0
31.3 31.0
30.0
25.0 23.2
19.3
20.0
15.0
9.4 9.1 9.2

10.0 8.4
6.8 6.8 7.3 7.0 6.7 6.9 6.8
6.4 5.6
5.0 3.8 3.6 3.3
0.0
Source: NABL
Most other cities have scope for more accredited lab testing services, and represent
opportunities for regional and national players to deepen network presence in our view.
a48da07e2ee411e0a4da00215ad26546
Pune, Nagpur, Kanpur and Lucknow are some low hanging fruit especially given the
limited absolute number of accredited testing facilities in these cities.
21 May 2019 16
Exhibit 17: New Delhi, Kolkata, Bengaluru are the Top 3 cities in terms of NABL Accredited Diagnostic Labs
presence
NABL Accredited Labs
NABL Accredited Labs in 2014 NABL Accredited Labs in 2018

160
140
140
120
100
83
80 69 72
67
58
60
39
40
27 28
20 22 23
19
20 15
8 9 9 9 10 11
0
Source: NABL
What are the regional pricing dynamics in India ?
We also assessed pricing trends across different cities in India. We looked at 3 separate
sets of data
n Pricing of a basket of common tests in different cities by the most dominant regional
chain
a48da07e2ee411e0a4da00215ad26546
n Pricing data of a basket of common tests by a third party online repository across
cities
n Pricing of the fasting sugar test across cities for the same company
The three broad takeaways from this exercise were that:
1. Chains in Mumbai enjoy the highest realization per test followed by New Delhi
and Kolkata.
2. The East India region is able to charge higher per test than other parts of India,
partially because of the limited supply currently of diagnostic testing services in this
region.
3. National expansion could dilute per test realizations for chains like Metropolis and
Dr. Lal which are heavily concentrated in high realization geographies, but that is of less
relevance as we see them penetrating into new markets to keep growth ticking at mid
teen levels. Margin per test may vary by market depending on intensity of local
competition and micro market pricing strategies, but geographical expansion, even if
21 May 2019 17
it means realizations per test normalize is necessary in our view for these
companies to keep growing at the mid teens pace.
Exhibit 18: Chains in the Mumbai market enjoy higher realizations per test
Aggregate Price of basket of 8 commonly prescribed tests (in Rs.)
Region South North North Central East West West South South West
Company Medall Diagno Dr. Lal Dr. Lal Suraksha Suburban Metropolis Anand Vijaya Supratech
City Chennai New Delhi New Delhi Bhopal Kolkata Mumbai Mumbai Bangalore Hyderabad Ahmedabad
Blood count 250 290 350 200 500 230 300 430 330 250
Cholesterol 350 135 140 140 200 220 200 180 250 200
Glucose 60 80 80 60 70 90 85 70 90 70
Kidney function 700 700 780 450 1,100 1,300 1,800 940 580 900
Creatinitine 120 130 130 100 150 200 250 140 180 200
Liver function 600 675 780 550 650 900 1,400 1,050 650 1,000
Vitamin D 1,250 1,100 1,550 1,100 1,000 1,500 1,600 1,500 1,650 1,100
Thyroid 600 480 500 500 700 650 725 520 600 600
Total (in Rs.) 3,930 3,590 4,310 3,100 4,370 5,090 6,360 4,830 4,330 4,320
India Average 4,195 4,195 4,195 4,195 4,195 4,195 4,195 4,195 4,195 4,195
vs India Average -6% -14% 3% -26% 4% 21% 52% 15% 3% 3%

Exhibit 19: B2C Price - Basket of 8 common tests at well established regional chains (in Rs.)
B2C Price - Basket of 8 common tests* at well established regional chains (in Rs.) India Average
7,000
6,000
5,000 India Average

4,195
4,000
3,000
a48da07e2ee411e0a4da00215ad26546
2,000
1,000
3,930 3,590 4,310 3,100 4,370 5,090 6,360 4,830 4,330 4,320
0
Chennai Delhi Delhi (Dr. Bhopal (Dr. Kolkata Mumbai Mumbai Bengaluru Hyderabad Ahmedabad
(Medall) (Diagno) Lal) Lal) (Suraksha) (Suburban) (Metropolis) (Anand) (Vijaya) (Supratech)
21 May 2019 18
Exhibit 20: Average price of 5 commonly prescribed tests - by Exhibit 21: Average price of 5 commonly prescribed tests - by
Region township
in Rs.
Average price of 5 common tests (Rs.) India Average Average price of 5 common tests (Rs.)
700 1,000 873
900
600 India Average - 800
Rs. 505 700 599
647 654
562
500 600 481 482 482 489 490 492 495 502 512 521 537 556
500 385 404 428 442 446 456
400 400 332 353
300
200
300 100
0
200
Chennai
Siliguri
Ghaziabad
Kochi
Surat
Lucknow
Howrah
Visakhapatnam
Ahmedabad
Ranchi
Delhi
Mumbai
Bhopal
Jaipur
Pune
Meerut
Bhilai
Bangalore
Kolkata
Indore
Guwahati
Patna
Hooghly
Hyderabad
Chandigarh
100
437 481 496 499 612
0
South India North India West India Central India East India
Source: Medifee Source: Medifee

Exhibit 22: Price of Fasting Sugar Test in different regions as Exhibit 23: Price of Fasting Sugar Test in different townships as
charged by market leader - Dr. Lal PathLabs charged by market leader - Dr. Lal PathLabs
Price of Fasting Sugar Test (Rs.) Price of Fasting Sugar Test (Rs.)
India Average - Price of Fasting Sugar Test (Rs.) 90 80 80 80 80 80 80 80 80 80
85 85
80 70
90 70 60 60 60 60 60
India Average - 55 55
80 60 50 50 50
70 Rs. 68.0 50 40 40 40
40
60 30
50 20
10
40 0
Dehradun
New Delhi
Chennai
Siliguri
Kochi
Lucknow
Surat
Ranchi
Ahmedabad
Jaipur
Chandigarh
Mumbai
Indore
Bhopal
Pune
Silchar
Agartala
Kolkata
Bhilai
Guwahati
Bengaluru
Patna
Vishakapatnam
Shimla
Hyderabad
30
20
10
56 62 64 64 82
0
Central India North India West India South India East India
Source: Company data Source: Company data
a48da07e2ee411e0a4da00215ad26546
Draft diagnostics list to hurt large chains less than independent labs
Rationale behind the Draft NEDL proposal - Accessibility, Affordability and Quality
India has had an Essential Medicine List for more than 40 years, however the same
importance has not been given to diagnostics. In an attempt to improve accessibility,
affordability and appropriate use of good quality diagnostic testing in India, the Indian
Council for Medical Research (ICMR) which is run by the Government of India, released
a draft of the National Essential Diagnostics List (NEDL) in December 2018. Many
industry participants expect that this could morph into a price control list at some point,
as has been witnessed with similar legislative processes related to pharmaceuticals
(NLEM) and medical consumables (stents, impants).
Which tests are part of the Draft NEDL?

The Draft NEDL includes mostly Haematology, Biochemisry, Immunoassays,
Microbiology, Pathology and Radiology. A handful of disease tests (Hepatitis A, Hepatitis
21 May 2019 19
B, Hepatitis C, HBC, Tuberculosis, Chikunguniya, Dengue, Filariasis, Maliaria etc.) are

also included in the list.
Exhibit 24: Draft NEDL proposes broad accessibility and Exhibit 25: Top 4 chains have been able to maintain if not improve
affordability of ~150 diagnostic tests at District level hospitals realization per test in recent past due to improvement in mix, not
price increases
in Rs.
SRL DLPA Metropolis Thyrocare

450
402
Radiology and 400 381
others, 23 Haematology, 27 355
Other 350
tests, 311 305
12
301
Hepatitis, 4 Biochemistry and 300
Tuberculosis, 6 Immunoassays, 35
Dengue, 1
Chikungunya, 1 250 275 275 276
Filariasis, 2
Malaria, 2 200
Serology, 9 198 201
185
Pathology, 8 150
Microbiology, 13 FY16 FY17 FY18
Clinical Pathology,
7
Source: Indian Council of Medical Research Source: Company data
What industry participants think of the Draft NEDL ?

Most industry participants we have spoken with seem to think that the Draft NEDL
might eventually morph into some sort of price control regulation over time. That said,
the present focus seems to be on improving the accessibility of good quality diagnostic
testing services. This is visible in the ICMR’s3 customization of NEDL tests for villages,
primary health centers, sub centers, district hospitals and sub district hospitals.
Though the NEDL has conducted two rounds of consultations with stakeholders,
leading diagnostic services companies in India have said that they have not been directly
consulted in the early stages of this process. Consequently, there remains some lack of
clarity on the rationale for the test by test list of the ~150 tests on the NEDL.
a48da07e2ee411e0a4da00215ad26546
Key takeaways from comments from Industry leaders the diagnostics space in India in
relation to the NEDL List are:
1. Large players to be hurt less than small players: Larger diagnostic chains like our
covered companies with lower direct costs on a per test basis are likely to be more
competitive in their customer offerings if price controls for diagnostic testing were
to be implemented.
2. Volume growth opportunity: Testing becomes affordable to a larger base of people
if prices on common tests are regulated, providing more volume growth opportunity.
3. Cost efficiency opportunities: Though per test realizations may be affected, the
additional volumes that are likely to accompany a lower price scenario could be used
to negotiate lower reagent costs with equipment suppliers.
4. Potential to levy service charges: Testing companies with a B2C presence (patient
service centers, collection centers etc.) may find lower prices to be less feasible for
3
Indian Council for Medical Research
21 May 2019 20
themselves and for their franchisees. It is possible that these companies will be able
to charge a service fee in addition to the test price, on the final bill to the patient, in
order to compensate for the costs and risks involved in maintaining a service
network.
5. More consultation with governmental bodies: Our conversations indicate that
consultations between governmental bodies and large pan Indian diagnostic chains
have been limited in relation to the publication of the Draft NEDL. Industry leaders
said more consultation between these two parties would bode well for a more
balanced approach towards accessibility and affordability of diagnostic testing
services in India.
6. NEDL could cover upto 35%+ of testing volumes for large companies: Some
industry participants have indicated that the Draft NEDL could comprise nearly
35%+ of their testing offerings. Though large companies offer 3,500+ pathology
tests in their menus, the commonly prescribed tests are much lower in number
(~250 tests).
Price caps for endemics

Another concern has been governments imposing price caps during endemic seasons
for tests like Dengue and other vector borne diseases. In a recent judgement, the
Bombay High court halted Maharashtra government’s two year order for capping
Dengue testing prices at Rs600, on the ground thats prima facie due procedures were
not followed. This has been supportive for Diagnostics labs who have been arguing that
states have no jurisdication in fixing prices.
US market comparison: Insurance coverage can spur growth inflection
While the Indian diagnostics market is still relatively under penetrated, and has a long
a48da07e2ee411e0a4da00215ad26546
runway for growth in our view, we looked at market evolution in other parts of the world
to observe when inflection points have been visible for sector growth.
The US is a market where medicare funded spending of lab testing services constitutes
a fairly significant portion of industry revenues. We therefore use Medicare spending as
a proxy for market growth in the US.
We notice that the big inflection in industry growth rates came in the 1980s, when
government insurance schemes instituted a standardized fee schedule for insurance
reimbursement of clinical lab testing services. Other periods of growth inflection
coincided with strong economic cycles when hiring picked up and the medical insurance
coverage base consequently widened.
21 May 2019 21
Exhibit 26: Medicare fee standardization led to big growth opportunity for US Diagnostic Lab testing
industry
Medicare spending on Clinical lab testing in the US (estimated) Growth
12.0 30.0%
Annual Growth rate of Medicare Clinical Lab Testing

Period of growth inflection in 1980s
Medicare Clinical Lab Testing spend in US $bn

characterised by increasing utilisation of 25.0%
10.0 diagnostic testing at physician, hospital level
after fee standardisation for insurance 20.0%
coverage by government health insurance
15.0%
8.0
spend in the US
10.0%
6.0 5.0%
0.0%
4.0
-5.0%
-10.0%
2.0
-15.0%
0.0 -20.0%
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Calendar Year
Source: Center for Medicare and Medicaid Services, Office of inspector General, Office of Evaluations and inspections, Goldman Sachs Global Investment
Research
India is still mostly an out of pocket market for diagnostic testing services. Outpatient
diagnostic testing is not covered by the majority of private, public and employer health
insurance schemes. That said, this exercise indicates that if outpatient diagnostic
tests are to be included in more health insurance schemes, there is a high
probability of growth inflection in the industry, from the present 10%-11% levels.
Exhibit 27: India has a more fragmented labs market that is largely dependent on cash reimbursement vs more developed countries where
insurance plays a role in reimbursement
Diagnostics Labs Industry Matrix by Geography (FY18)
a48da07e2ee411e0a4da00215ad26546
Diagnostic Labs Industry Matrix by Geography
Market USA Australia Japan India
Stage of industry Mature Mature Mature Growth
Market structure Top player has 20%
Top 2 have 60%-80%
(Independent Top 2 have 44% share share, rest is Top 15 have 11% share
share
Labs) fragmented
Independent Labs
54% NA NA 63%
as % of Total Labs
Branding
Key drivers of Insurance contracts Accreditation Insurance contracts
Doctor advice
market share Scale Scale Scale
Scale
Reimbursement Insurance Government Insurance Out of pocket
Pricing power Low Low Low Moderate
Role of doctor in
decision selection Small Small Small Moderate
of Testing center
21 May 2019 22
Health insurance: Early days for volume uplift
Improving health insurance coverage is a phenomenon that continues to see good

traction driven by rising income, higher awareness on retail side and higher onset of
group insurance schemes. While the number of lives covered stood at 482mn or 37% of
India’s population in FY18 as per IRDA data, with the launch of Ayushman bharat in
September-2018 and underlying growth in private market, we believe this ratio has
moved significantly higher than 40% in FY19.
Exhibit 28: Health insurance penetration continues to rise Exhibit 29: Group insurance is the largest chunk of the market
Number of persons covered Health insurance premium split (FY19)
40% Government Group Individual US$6bn

37%
35% Health insurance penetration 34% 3%
Govt,
2%
30% 7% 11%
28% 5%
2%
25% 23%
4%
2% Individual,
20% 17% 41%
17% 4%
15% 2% 2%
3% 3% 27% Group, 48%
26%
10% 21%
17%
5% 12% 12%
0%
FY13 FY14 FY15 FY16 FY17 FY18
Source: IRDA Source: IRDA
Industry premiums have been growing at c. 20% CAGR over the years driven both by
volume growth (ie new policies issued) as well as ASP increasing by 9%-10% p.a led by
price inflation/rising age for coverage.
Exhibit 30: Growth has been driven by both volumes as well as Exhibit 31: Combination of price inflation and rising ages for
price inflation coverage have pushed premiums higher
Retail health insurance premium growth (yoy) split by constituents
a48da07e2ee411e0a4da00215ad26546
Volume ASP Average premium (Rs) Growth (yoy) (RHS)
25% 12,000 10.6%
10.4%
10,000
20% 10%
10.2%
8,000
15% 9% 9% 10.0%
10% 9% 6,000 9.8%
10,857
10% 21% 8,281 9,919
9,060 9.6%
4,000 7,501
9.4%
5% 11% 11% 9% 9%
8% 8% 2,000 9%
9.2%
0% 0 9.0%
FY15 FY16 FY17 FY18 9M19 FY14 FY15 FY16 FY17 FY18
Source: IRDA Source: IRDA
Low utilisations of preventive health checkups

With the average premiums for the industry reaching c. Rs11k/policy, we see that good
chunk (c. 40%-60%) of new policies being issued have a preventive health checkup
element attached to it. The table below summarises key such plans and we conclude
21 May 2019 23
that plans with health checkups (individual as well as family floaters) are priced at c.
25% premium to regular plans.
Exhibit 32: Plans with free health checkup are at 25% premium to regular health plans
Annual Premium (Rs) Sum assured of Rs. 0.5mn per individual Sum assured of Rs. 0.5mn per Family of 4
Company With Health Checkup Without Health Checkup Premium With Health checkup Without Health Checkup Premium
Max Healthcare 9,500 8,650 10% 20,975 18,515 13%
Apollo Munich 12,869 8,431 53% 22,999 16,442 40%
Bajaj Allianz 8,162 7,351 11% NA NA NA
Aditya Birla 8,921 7,512 19% 20,057 16,342 23%
Religare 8,993 7,363 22% 16,221 14,320 13%
Future Generali 8,651 7,331 18% NA NA NA
Liberty 9,710 7,039 38% 17,865 14,169 26%
ICICI Lombard 11,167 8,217 36% 27,449 21,726 26%
Reliance 9,733 7,421 31% 21,402 15,582 37%
Average 9,745 7,702 27% 20,995 16,728 26%
Source: Company data, Policybazaar
However our discussions with Insurance companies seems to suggest that utilisation
rates (% of customers who avail health checks) are very low - low single digit
percentages. Most policies have clauses like 3 years of no claims before being eligible
for a health checkup which unfortunately put these at the risk of policy lapsation.
Further, awareness of free health checkup is also low amongst customers, as insurers
dont actively market this.
Industry profitability improving; Ayushman bharat could provide a fillip

The profitability of health insurers as measured by claims ratios has been showing a
steady improvement over the past 5 years. Even if we add 15% of premiums as
commission charges and between 10%-15% as SG&A, we estimate the private insurers
are making underwriting profits on health insurance - an uptick over the years. We
believe this will keep them well incentivised to increase penetration further and bring
more lives under coverage.
Ayushman bharat, which was rolled out by the Union government in Sep-2018, has
a48da07e2ee411e0a4da00215ad26546
experienced a strong start by clocking 2.35mn (15K daily) hospital admissions in under 8
months of launch. Under this scheme, eligible beneficiaries (poorest 40% population)
can avail hospitalisation expenses upto Rs0.5mn (US$7000) in empanelled hospitals.
Our channel checks with the implementing team suggests that they would like to
expand this scheme to all states of India and eventually get most key private hospitals
on board. The positive fallout of this scheme is related to rising Diagnostics spends
-16% of most hospital bills is spent for doing such tests. While Ayushman bharat does
not reimburse outpatient settings currently or cover the entire population, we believe
the government could extend this scheme.
21 May 2019 24
Exhibit 33: Industry’s profitability has been improving Exhibit 34: Diagnostics accounts for 16% of inpatient bills
Health insurance - claims ratio Hospital bill split by key reimbursement category
86% Scheduled Medical devices,

Equipment
83% Drugs, 4% 2%
84% charges, 7%
82% 81%
80%
Consumables,
78% 77% 10% Non-scheduled
76% Drugs, 26%
76%
74%
Room Rent,
72% 71% 12% Diagnostics,
16%
70%
68%
66% Cost of
procedures,
64% 12% Consultation,
FY14 FY15 FY16 FY17 FY18 13%
Source: IRDA Source: NPPA
Penetration comparison with other countries

The global in vitro diagnostic market (tests done on samples such as blood or tissue) is
estimated to be worth USD 65 billion in 2017 and is expected to reach USD 100 billion
mark by 2025 (as per Allied Market Research data). Historically, the global in vitro
diagnostics market has been consistently growing at 6%-7% with USD 37billion in 2009
to USD to 43 billion by 2011 and an estimated USD 52 billion by the end of 2013.
The market though is unevenly distributed with dominance by the developed nations.
However, the growth trends globally in the last 15 years are fueled primarily by
increased expenditure on healthcare in the emerging countries including China, India
and Brazil and increased demand for healthcare from aging populations of the world.
According to the 2010 World Health Organization report, the estimated revenues were
USD 1.5billion, 0.6billion and 0.4 billion for China, Brazil and India respectively in 2009.
a48da07e2ee411e0a4da00215ad26546
Exhibit 35: Global In Vitro Market Growing at ~6% CAGR; to reach Exhibit 36: Growth in In-Vitro Diagnostics Markets across different
~94bn by 2022 countries over 2009-2018
Global In Vitro Market size in USD Billion 2009 2018

100 94 16
14.3
90 14
80
65 12
70 10
in USD billion
60 52 10
50 43 8
37
40 6 5.3 5.1 4.6
30
4
20
1.5 1
10 2
0.4
0 0
2009 2011 2013 2017 2022E USA China India UK
Source: WHO, Allied Market Research, Goldman Sachs Global Investment Research Source: WHO, Goldman Sachs Global Investment Research
The Indian diagnostics market has been historically smaller in comparison to developed
markets such as the US, with an estimated size of ~US$9bn, per our estimates. Due to
improved standards of living driven by increasing per capita income, globalization and
21 May 2019 25
preventive healthcare awareness, spend on diagnostic services is increasing over the

time. India’s diagnostics industry has, at the same time, been witnessing various
challenges such as a lack of qualified professionals, accredited labs, infrastructure
especially in the rural parts of the country. However, Indian In-Vitro diagnostics market is
estimated to be USD 5.6 billion, standing after the USA and China.
All the developing nations are facing a severe dearth of qualified professions who can
perform diagnostic tests. Although there are 1,076 NABL accredited diagnostics labs in
India, they come down to less than 1 lab per million given the high population of the
country. However, the numbers of accredited labs in India have been growing from 576
in 2015 to 1076 in 2019 at a CAGR of 17%, there is still a long way to reach the numbers
of peer nations such as UK, USA and Australia which have more than 10 labs per million.
Exhibit 37: In-Vitro Diagnostic Markets across the world Exhibit 38: 1,076 NABL Accredited labs in India
FY18E as in CY18
Estimated In-Vitro Industry Size in USD billion (FY18E) No. of Accredited Labs
16.0 6000
14.3 5414
14.0
5000
12.0
4000
10.0
8.0 3000
6.0 5.3 5.1 4.6 2000
4.0 3.3 1206 1076
2.6
1.8 1000 628 584
2.0 356 179
- 0
USA China India UK France Italy Australia USA China India UK France Australia Japan
Source: data compiled by Goldman Sachs Global Investment Research Source: data compiled by Goldman Sachs Global Investment Research
Profiles of large Indian diagnostic chains above Rs500mn annual sales
a48da07e2ee411e0a4da00215ad26546
In addition to the three companies we cover we also feature below brief factual
summaries of the other companies (all private) that make up the 15 largest companies
by sales in the sector to help understand the competitive landscape.
Suraksha Diagnostics
History: Suraksha Diagnostics was established in 1992 as Suraksha Diagnostic & Eye
Centre (P) Ltd. in Kolkata.
Radiology / Pathology / both: It is one of the first diagnostic centers in the Kolkata to
provide all pathology and radiology services under one roof.
Management: Suraksha’s directors are Sunny Sharma, Kishan Kumar Kejriwal, Karan
Kanika Verma, Ritu Mittal and Somnath Chatterjee.
Network: Suraksha has its operations in 35 centers with 66 collection points, spread
across West Bengal, parts of Delhi and Bihar. Operations in Kolkata account for ~90% of
revenues.
21 May 2019 26
In addition to these, Suraksha Polyclinics is another aspect of Suraksha’s services,

where specialist doctors can be consulted directly by patients.
Exhibit 39: Suraksha Diagnostics Summary Financials

in Rs mn
Suraksha in INR million FY15 FY17 FY18

Sales 693 1,235 1,320
YoY growth 7%
Gross profit 598 1,064 1,142
Gross margin 86% 86% 87%
EBITDA 163 223 266
EBITDA margin 24% 18% 20%
YoY growth 12%
PAT (adj) 76 45 88
YoY growth 98%
PAT (adj) margin 11% 4% 7%

Medall
History: Formerly known as Precision Diagnostics, the Chennai based pathology lab
chain, was acquired by Mr. Raju Venkatraman in 2009, which was then rebranded as
Medall Healthcare. Medall has its corporate office located in Chennai, Tamil Nadu.
Radiology / Pathology / both: Medall offers both Pathology and radiology services.
Management: Medall is led by Managing Director, Mr. Raju Venkatraman, as

entrepreneur with prior management experience in IT as well as BPO industries.
Network: Medall has its operations in 66 districts across Tamil Nadu, Kerala, Karnataka,
Andhra Pradesh, Telangana, Maharashtra, Jharkhand and Puducherry. It has over 6,000
customer touch points, 3,500 lab collection points with more than 186 laboratories.
Operating metrics: Medall offers more than 750 radiology and 900 pathology tests and
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has an annual test volume of over 43 million samples. Medall also has 16 NABL and 108
ISO certified laboratories and a network of 45,000 doctors.
Exhibit 40: Medall Summary Financials

in Rs. mn
Medall in INR Million FY14 FY15 FY17 FY18

Sales 2,036 2,331 3,323 3,533
YoY growth 14% 13% 6%
Gross profit 1,822 2,088 2,982 3,148
Gross margin 89% 90% 90% 89%
EBITDA 431 536 755 936
EBITDA margin 21% 23% 23% 26%
YoY growth 9% -19% 17%
PAT (adj) 51 67 (43) 275
YoY growth 33%
PAT (adj) margin 2% 3% -1% 8%
21 May 2019 27
Diagno Labs
History: Diagno Labs was established in the year 2012, with its first reference lab in
Gurgaon, Haryana. It has now partnered with iClinic, an online healthcare provider.
Radiology / Pathology / both: Diagno Labs offer a variety of diagnostic tests, focused
primarily on pathology services.
Management: Diagno labs is led by Mr. Sanjay Mekherji, managing director, who is a
senior professional in process engineering and customer service and Dr. C.V. Nerikar,
the group CEO, Healthcare. Diagno labs is a healthcare venture of RJ Corp, which is a
$3 billion venture, having interests in various industries including healthcare, education,
food and lifestyle among others.
Network: Diagno labs has more than 35 network labs and reference labs, with its
Gurgaon reference lab accredited with NABL and CAP. It also has a network of 4000
collection centers across India, with high concentration of its centers in North India. It
also has an international presence in Nepal, Bangladesh, Africa and Middle East.
Operating metrics: Diagno labs has served over 15 million patients from its inception in
2012. It has 34 satellite labs and offers over 1,500 tests, including routine and super
specialized.
Exhibit 41: Diagno Labs Summary Financials

in Rs. mn
Diagno in INR Million FY15 FY16 FY17 FY18

Sales 334 424 517 659
Gross profit 201 236 293 361
Gross margin 60% 56% 57% 55%
EBITDA -118 -214 -226 -281
EBITDA margin -35% -51% -44% -43%
YoY growth 44% -14% -3%
PAT (adj) -128 -266 -315 -399
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YoY growth 108% 18% 27%
PAT (adj) margin -38% -63% -61% -61%
Oncquest
History: Oncquest is a cancer diagnostic network, established around the year 2001, in
New Delhi.
Radiology / Pathology / both: Oncoquest’s focus is on pathology, with specialized

capabilities including molecular pathology, PCR and surgical Pathology among others.
Management: Oncquest is headed by Mr. Aditya. C. Burman who serves as the

director of the company.
Network: Oncquest has 38 labs operational currently and over 500 collection points
across various locations in India. It also has 15 satellite laboratories pan India, with its
network of laboratories spread across South Asia (India, Nepal, Bangladesh, Sri Lanka,
Myanmar and Tajikistan).
21 May 2019 28
Operating metrics: With over 600 clients and patient service centers in 85 major cities
in India, Oncquest offers over 1,000 tests, spanning all the oncology and pathology
assays.
Exhibit 42: Oncquest Summary Financials

in Rs. mn
Oncquest in INR Million FY14 FY15 FY16 FY17 FY18

Sales 360 419 482 541 675
YoY growth 16% 15% 12% 25%
Gross profit 216 259 296 338 452
Gross margin 60% 62% 61% 62% 67%
EBITDA -14 -6 -9 -10 -15
EBITDA margin -4% -1% -2% -2% -2%
YoY growth -65% 43% -1% 12%
PAT (adj) -21 -22 -19 -10 -20
YoY growth 5% -17% -47% 101%
PAT (adj) margin -6% -5% -4% -2% -3%
Vijaya Diagnostics
History: Vijaya Diagnostics Centre Private Limited was founded in the year 1981 by Dr.
Surendranath Reddy, as a proprietorship concern in Hyderabad, Telangana. It turned into
a private limited company in 2002.
Radiology / Pathology / both: Vijaya Diagnostics offers diagnostic services across

both pathology and radiology verticals alongside many other specialized tests.
Management: Vijaya Diagnostics is led by Dr. Surender Reddy, a medical professional

with rich clinical and administrative experience.
Network: Vijaya Diagnostics has expanded to over 30 centers spread across various
parts of India including Telangana, Andhra Pradesh, Kolkata, Bengaluru and Gurugram.
Operating metrics: Vijaya Diagnostics has a team of more than 100 qualifies
radiologists and pathologists alongside 1,000 medical technologists. Vijaya has served
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more than 10 million patients since its inception in 1981.
Exhibit 43: Vijaya Diagnostics Summary Financials

in Rs. mn
Vijaya in INR Million FY14 FY17 FY18

Sales 1,000 2,200 2,505
YoY growth 14%
Gross profit 1,890 2,140
Gross margin 86% 85%
EBITDA 248 810 789
YoY growth -14%
PAT (adj) 99 331 347
YoY growth 5%
Suburban Diagnostics
History: Suburban Diagnostics was founded in the year 1994 in Mumbai, Maharashtra.
21 May 2019 29
Radiology / Pathology / both: Suburban offers wide range of tests with focus on all
verticals of diagnostics including pathology and radiology.
Management: Suburban Diagnostics is headed by Dr. Sanjay Arora, the founder, Owner,
MD & CEO of Suburban Diagnostics, who is an experienced medical practitioner.
Network: Suburban’s operations are concentrated in western part of India, with over
140 centers in various districts of Maharashtra and Goa. The central processing lab, at
Andheri is NABL accredited since 2003.
Operating metrics: With over 4 million patients served so far, Suburban diagnostics has
conducted more than 14 million tests since inception. A dedicated 60 member
healthcare team performs about 400 tests that are undertaken daily. Suburban offers
more than 2,000 tests across pathology and radiology.
Exhibit 44: Suburban Diagnostics Summary Financials

in Rs. mn
Suburban in INR Million FY14 FY15 FY16 FY17 FY18

Sales 557 798 1,031 1,174 1,357
YoY growth 43% 29% 14% 16%
Gross profit 433 613 780 938 1,102
Gross margin 78% 77% 76% 80% 81%
EBITDA 1 (16) (82) (124) 17
EBITDA margin 0% -2% -8% -11% 1%
YoY growth
PAT (adj) (45) (22) (157) (200) (49)
YoY growth
PAT (adj) margin -8% -3% -15% -17% -4%
Hitech Diagnostics
History: Hitech Diagnostics was started by Dr. S. P. Ganesan, and Mrs. Malini
Parasuraman in the year 1986. It is based out of Chennai, Tamil Nadu
Radiology / Pathology / both: Hitech Diagnostics offers wide range tests, offering
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both pathology and radiology services.
Management: Hitech Diagnostics is managed by Dr. S. P. Ganesan, Medical Director

and CEO.
Network: Hitech Diagnostics operates primarily in Tamil Nadu, with majority of the labs
concentrated in Chennai. However, more than 600 labs and hospitals across India use
its services. Hitech Diagnostics has over 25 laboratories in Tamil Nadu and Kerala.
21 May 2019 30
Exhibit 45: HiTech Diagnostics Summary Financials

in Rs. mn
HiTech in INR Million FY16 FY17 FY18

Sales 586 578 617
YoY growth -1% 7%
Gross profit 418 423 453
Gross margin 71% 73% 73%
EBITDA 115 164 146
YoY growth 45% -17%
PAT (adj) 79 80 55
YoY growth 1% -31%
Pathcare
History: Pathcare was established around 2008, in Hyderabad, Telangana.
Radiology / Pathology / both: Pathcare focuses primarily on pathology testing.
Management: Pathcare is managed by Dr. G. V. Prasad, Chairman and Managing

Director.
Network: Pathcare has a pan India presence, with its central lab located in Hyderabad
and 35 processing labs and centers spread across India. Pathcare has a network of over
2,000 pickup points across major cities in India.
Operating metrics: Pathcare offers close to 6,000 tests, mostly in pathology. It has
focused also on corporate clients, having associated with over 19 corporates and
hospitals.
a48da07e2ee411e0a4da00215ad26546
Exhibit 46: Pathcare Summary Financials
in Rs. mn
Pathcare in INR Million FY15 FY16 FY17 FY18

Sales 277 330 360 569
Gross profit 167 189 189 254
Gross margin 60% 57% 53% 45%
EBITDA 24 19 9 24
YoY growth -33% -57% 70%
PAT (adj) 19 12 1 2
YoY growth -39% -88% 29%
PAT (adj) margin 7% 4% 0% 0%
Neuberg Diagnostics
History: Neuberg Diagnostics, founded by G. S. K. Velu in 2017, is an international
alliance of diagnostic laboratories.
21 May 2019 31
Radiology / Pathology / both: Neuberg focuses mainly on pathology and next

generation technologies such as Genomics, Proteomics, Metabolomics and Digital
Pathology.
Management: Neuberg Diagnostics is managed by Dr. G. S. K. Velu, Chairman and

Managing Director. Neuberg has acquired Supratech, Ehrlich and Anand Diagnostic
Labs.
Network: Neuberg has a presence in Tamil Nadu, Karnataka, Kerala, Telangana,

Rajasthan, Gujarat in India and Middle East and South Africa. It has 33 labs of which 26
are in India and 7 are abroad, with three global reference points in Bengaluru,
Ahmedabad and Durban. The company has over 150 collection centers.
Operating metrics: Neuberg Diagnostics has been processing about 5 million samples
and 20 million tests annually, offering more than 5,000 varieties of pathological
investigations. With over 2,000 employees, Neuberg serves more than 5,000 labs and
hospitals in India.
Exhibit 47: Neuberg Supratech Summary Financials Exhibit 48: Neuberg Ehrlich Summary Financials
in Rs. mn in Rs. mn
Neuberg Supratech in INR Million FY14 FY15 FY16 FY17 Neuberg Ehrlich FY14 FY15 FY16 FY17 FY18
Sales 146 349 415 502
Sales 30 29 28 29 193
YoY growth 139% 19% 21%
Gross profit 86 195 238 305 YoY growth -4% -1% 4% 557%
Gross margin 59% 56% 57% 61% Gross profit 11 11 13 15 15
EBITDA 27 67 73 49 Gross margin 38% 39% 47% 50% 8%
EBITDA margin 19% 19% 18% 10% EBITDA 6 5 4 1 15
YoY growth 2% -8% -45%
EBITDA margin 19% 17% 14% 3% 8%
PAT (adj) 14 25 31 18
YoY growth 86% 21% -42% YoY growth -8% -15% -82% 191%
PAT (adj) margin 9% 7% 7% 4% PAT (adj) 3 2 1 -1 2
YoY growth -23% -36% -157% -280%
PAT (adj) margin 10% 8% 5% -3% 1%
Source: Company data Source: Company data
MedGenome Diagnostics
a48da07e2ee411e0a4da00215ad26546
History: MedGenome Diagnostics is a diagnostics and drug discovery research
company founded in 2013. Headquartered in California, USA, this MNC has operations
across India and Singapore.
Radiology / Pathology / both: MedGenome focuses on Genomics and clinical data

driven diagnostics.
Management: Medgenome Diagnostics is managed by the Founder Chairman and

Global CEO, Mr. Sam Santhosh.
Network: MedGenome has its India operations across Bengaluru, Kochi, Mumbai, Delhi
and Chennai. Over 550 hospitals are presently using MedGenome’s services.
Operating metrics: MedGenome has a repository of clinical, phenotypic and genomics

data for 170,000 patients across the world, and 4,500 Indian population groups.
21 May 2019 32
Exhibit 49: MedGenome Summary Financials

in Rs. mn
MedGenome in INR Million FY15 FY16 FY17 FY18

Sales 225 592 958 1,008
Gross profit 117 305 574 621
Gross margin 52% 51% 60% 62%
EBITDA 11 55 125 -1
YoY growth 97% 41% -100%
PAT (adj) 2 3 15 -175
YoY growth 53% 345% -1228%
PAT (adj) margin 1% 1% 2% -17%
Aarthi Scans and Labs

History: Aarthi Scans and Labs is a private limited company founded in the year 2000 by
Mr. Govindarajan in Tirunelveli, Tamil Nadu.
Radiology / Pathology / both: Aarthi Scans and Labs offers all varieties of diagnostic
test and has equal focus on radiology and pathology.
Management: Aarthi Scans and Labs is managed by Mr. Govindarajan and his family,
many of whom are radiologists.
Network: Aarthi Scans and Labs is spread across Tamil Nadu, Karnataka, Telangana and
Pondicherry with over 85 branches. It operates 22 labs with specialized radiology
services and has a network of 75 collection centers providing lab services.
Operating metrics: Aarthi Scans and Labs offers services to more than 4,000 patients
per day across 4 south Indian states, with close to 1 million patients served till date.
Aarthi has completed 1.7 million tests across radiology and pathology since inception.
a48da07e2ee411e0a4da00215ad26546
Exhibit 50: Aarthi Scans & Labs Summary Financials
in Rs. mn
Aarthi in INR Million FY15 FY16 FY17 FY18
Sales 749 917 921 806
YoY growth 22% 0% -12%
Gross profit 685 784 771 680
Gross margin 91% 85% 84% 84%
EBITDA 150 165 173 194
YoY growth -11% 5% 28%
PAT (adj) 32 37 54 69
Spandan Diagnostics
History: Spandan Diagnostic Centre Pvt. Ltd. was started in 1995 at Mindpur, Kolkata.
21 May 2019 33
Radiology / Pathology / both: Spandan Diagnostics offers a variety of diagnostic tests

including Imaging, Cardiology, Pthology, Gastroentterology, Neurology and Respiratory
care. It has equal focus on both radiology and pathology.
Management: Spandan Diagnostics is headed by Mr. Pijus Kanti Pal, Managing Director.
Spandan Diagnostics is a part of family of hospitals and medical institutes, based out of
Kolkata and operational across West Bengal.
Network: Spandan Diagnostics is concentrated in West Bengal, with branches in

Kharagpur, Kolkata, Ghatal, Tamluk and Chandrakona. It is involved in a joint venture
project with the Government of West Bengal.
Exhibit 51: Spandan Diagnostics Summary Financials

in Rs. mn
Spandan in INR Million FY15 FY16 FY17 FY18
Sales 297 389 466 705
Gross profit 252 315 368 521
Gross margin 85% 81% 79% 74%

EBITDA 127 144 132 231
YoY growth -13% -23% 16%
PAT (adj) 2 17 23 65
YoY growth 703% 38% 181%
Third Party Logos

Third party brands used in this presentation are the property of their respective owners,
and are used here for informational purposes only. The use of such brands should not be
viewed as an endorsement, affiliation or sponsorship by or for Goldman Sachs or any of
its products/services.
a48da07e2ee411e0a4da00215ad26546
TP Methodologies and Risks
Exhibit 52: GS India Diagnostic Labs Coverage - 12-m TP Methodologies and Risks (Rs)
Company Ticker Rating Current Price Target Price TP methodology Risks

(1) Price capping by regulatory authorities; (2)
50:50 EV/EBITDA Pricing pressure; (3) Concentration of sales in
Dr. Lal PathLabs DLPA.BO Buy 1,065 1,225
and DCF North India; (4) INR depreciation; and (5)
Consistency in quality of tests across network.
Price capping by regulatory authorities,
Metropolis 50:50 EV/EBITDA Concentration of business in West and South
METP.BO Buy 921 1,140
Healthcare and DCF India, Execution on the NACO Contract, INR
depreciation, Franchisee relationships
High competitive intensity, Technological
SOTP on FY21 advancements and new product introductions, too
Thyrocare THYO.BO Buy 443 562
estimates much dependence on franchises due to limited
B2C exposure
Target Prices above are for 12 month time horizon
21 May 2019 34
Disclosure Appendix
Reg AC
We, Shyam Srinivasan, CFA and Chandramouli Muthiah, hereby certify that all of the views expressed in this report accurately reflect our personal
views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or
indirectly, related to the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.
GS Factor Profile
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sector peers. The four key attributes depicted are: Growth, Financial Returns, Multiple (e.g. valuation) and Integrated (a composite of Growth, Financial
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Growth is based on a stock’s forward-looking sales growth, EBITDA growth and EPS growth (for financial stocks, only EPS and sales growth), with a
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indicating a stock trading at a higher multiple. The Integrated percentile is calculated as the average of the Growth percentile, Financial Returns
percentile and (100% - Multiple percentile).
Financial Returns and Multiple use the Goldman Sachs analyst forecasts at the fiscal year-end at least three quarters in the future. Growth uses inputs
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quantifiable analysis of these three aspects of corporate performance.
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Disclosures
Coverage group(s) of stocks by primary analyst(s)
Shyam Srinivasan, CFA: Asean & India Healthcare, India Pharmaceuticals.
Asean & India Healthcare: Apollo Hospitals Enterprise Ltd., Aster DM Healthcare Ltd., Bangkok Dusit Medical Services, Bumrungrad Hospital, Dr Lal
PathLabs Ltd., Fortis Healthcare Ltd., Healthcare Global Enterprises Ltd., IHH Healthcare Bhd, Metropolis Healthcare, Mitra Keluarga Karyasehat,
Raffles Medical, Thyrocare.
India Pharmaceuticals: Aurobindo Pharma, Biocon Ltd., Cipla, Dr. Reddy’s Laboratories, Glenmark Pharmaceuticals, Lupin, Sun Pharmaceutical
Industries.
Distribution of ratings/investment banking relationships

Goldman Sachs Investment Research global Equity coverage universe
Rating Distribution Investment Banking Relationships

Buy Hold Sell Buy Hold Sell
Global 35% 53% 12% 66% 58% 52%
As of April 1, 2019, Goldman Sachs Global Investment Research had investment ratings on 2,840 equity securities. Goldman Sachs assigns stocks as
Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for
the purposes of the above disclosure required by the FINRA Rules. See ‘Ratings, Coverage groups and related definitions’ below. The Investment
Banking Relationships chart reflects the percentage of subject companies within each rating category for whom Goldman Sachs has provided
investment banking services within the previous twelve months.
21 May 2019 35
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a48da07e2ee411e0a4da00215ad26546
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21 May 2019 | 4:58AM IST

India Healthcare: Diagnostics and Clinical Labs

Organized channel only scratching the surface; Buy

In separate reports, we initiate with a Buy on Metropolis Healthcare (25% upside

Who are the emerging regional competitors? 6

Easing PE deal momentum may provide relief on price competition 11

What are the regional pricing dynamics in India ? 17

US market comparison: Insurance coverage can spur growth inﬂection 21

Health insurance: Early days for volume uplift 23

Penetration comparison with other countries 25

Proﬁles of large Indian diagnostic chains above Rs500mn annual sales 26

TP Methodologies and Risks 34

Exhibit 1: Asia Healthcare services Valuation sheet

Company Mkt Cap Current 12-m Target Return P/E EV/EBITDA

Source: Datstream, Company data, Goldman Sachs Global Investment Research

For more details, please

Source: WHO, Goldman Sachs Global Investment Research, MOSPI, Euromonitor

In a blue sky scenario we factor in two more developments

1. Faster than anticipated pickup in preventive testing (40% of the upmove):

claims. We believe Ayushman bharat (universal healthcare scheme) which caters to

We exclude TAM from hospital labs in this exercise

Source: WHO, MOSPI , Goldman Sachs Global Investment Research

Base case share Blue sky share

Source: Goldman Sachs Global Investment Research

Who are the emerging regional competitors?

Exhibit 5: Sizable regional lab chains in different parts of India

Source: Company data

Sl # Company Sales EBITDA EBITDA margin PAT PAT margin

1 Dr. Lal 10,569 2,640 25% 1,708 16%

2 SRL 9,822 1,537 16% 789 8%

3 Metropolis 6,436 1,725 27% 1,023 16%

4 Thyrocare 3,793 1,677 44% 955 25%

5 Medall 3,533 936 26% 275 8%

6 Vijaya 2,505 789 32% 347 14%

7 Suburban 1,357 17 1% (49) -4%

8 Suraksha 1,320 266 20% 88 7%

9 MedGenome 1,008 (1) 0% (175) -17%

10 Aarthi Scans & Labs 806 194 24% 69 9%

11 Spandan 705 231 33% 65 9%

12 Oncquest 675 (15) -2% (20) -3%

13 Diagno 659 (281) -43% (399) -61%

14 HiTech 617 146 24% 55 9%

15 Unipath 579 78 14% 41 7%

17 Quest* 513 (173) -34% (190) -37%

Aggregate (Rs. 500mn to Rs. 1bn

19 Sterling 311 (65) -21% (96) -31%

20 Elbit 237 (27) -11% (17) -7%

21 Core 206 (146) -71% (171) -83%

22 Neuberg Ehrlich 193 15 8% 2 1%

23* Jaya* 189 13 7% 1 0%

25 N G industries 174 30 17% 14 8%

Aggregate (Rs. 150mn to Rs. 500mn

Source: Company data

n Topline growth seems challenged: While segmental disclosures are unavailable,

2 yr Sales EBITDA PAT

Roche Diagnostics India 8,086 -6% 20% 3% 65%

Sysmex India 712 25% 25% 13% 35%

* Beckman Coulter numbers are for FY16 Source: Company data

Easing PE deal momentum may provide relief on price competition

Private equity investments in the Indian Diagnostic Labs industry seems to be

appear to be more selective in their investment strategies and based on recent

21 2012 Thyrocare Technologies Ltd Norwest Venture Partners 23 10%

Source: Dealogic, Economic Times, Livemint, Biospectrum India, VC Circle