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<ul><li>Metropolis is committed to expanding its reach, strengthening its portfolio, and driving sustainable growth.</li><li>Even though Reliance’s Netmeds is offering lower prices, Metropolis has strategically positioned itself to cater to the top end of the market, focusing on high-quality services and specialised tests.</li><li>Company plans to repay ₹40 crore outstanding debt by the end of this fiscal before it goes after new acquisitions. </li></ul> The one sector that did brisk business during the pandemic was diagnostics, as people queued up to get tested for Covid. As the healthcare sector’s capacity came under enormous strain, new players entered the <keyword id="10985234" type="General" weightage="60" keywordseo="diagnostics-sector" source="Orion">diagnostics sector</keyword> to capitalise on the boom, as Indians became more conscious about health and wellness. The stocks of these companies have also rallied between 25-35% in the last six months, even though competitive intensity has sharply risen with new players entering the sector. Business Insider caught up with <keyword id="584350" type="General" weightage="70" keywordseo="ameera-shah" source="Orion">Ameera Shah</keyword> promoter and Managing Director of <keyword id="178996" type="General" weightage="80" keywordseo="Metropolis-Healthcare" source="Orion">Metropolis Healthcare</keyword> along with the company’s CEO <keyword id="15740822" type="General" weightage="40" keywordseo="Surendran-Chemmenkotil" source="Orion">Surendran Chemmenkotil</keyword> to understand if the sector is still in the pink of health after the pandemic. Typically, private equity investments in a sector and increased competitive intensity inevitably leads to a price war, but Shah says Metropolis has strategically positioned itself to cater to the top end of the market, focusing on high-quality services and specialised tests. In a recent interview with BI India, Shah shed light on the impact of competition in the sector and the company's future plans to create more value for customers and investors. Despite all the noise around new age tech players that are doing a lot of bundling of tests at significantly lower prices, Shah says, Metropolis is committed to expanding its reach, strengthening its portfolio, and driving sustainable growth. Impact of Competition in the Diagnostic Sector Competition in the diagnostic sector has been steadily increasing since 2010, with the first private equity investment occurring in 2006. As the industry started to grow, more private equity companies began investing, and numerous new players entered the market. To compete effectively, many local and regional players have resorted to price competition, leveraging lower prices as a means to attract customers. While this has led to a decline in net prices, the distribution margin has increased. Shah emphasises that Metropolis has chosen to focus on the top hospitals, doctors, and corporates as its core customer base, thereby targeting the top end of the market. By providing the best infrastructure, technology, pathologists, and logistics, Metropolis has established itself as a trusted partner for these high-end customers. However, Shah highlighted that talent scarcity was a significant challenge in the sector till recently and attrition rates were high. Furthermore, the entry of tech players during the COVID-19 pandemic, offering home services, temporarily disrupted the market. However, the demand for home services has declined post-pandemic, affecting these tech companies. Shah also mentioned that certain healthcare and non-healthcare companies have set up diagnostic chains, primarily focusing on the lower-margin segment of the market. In contrast, Metropolis remains committed to its high-touch model, prioritising customer needs and human expertise. In its latest quarterly analysis, Kotak Institutional Equities says that the worst of the pricing-led competition in diagnostics is behind the industry, but it is still far from a benign pricing environment. Reliance’s Netmeds has upped the ante in the last few months with pricing now 25-65% lower than Tata 1mg and other national incumbents, respectively. KIE says that after dropping prices in Delhi NCR by 15% in 1QFY24, seemingly on an experimental basis, Metropolis has raised prices in 2QFY24. Its pricing remained largely unchanged in other cities. Metropolis' Future Plans: Metropolis has outlined several strategies to drive growth and maintain its position as a leader in the diagnostic sector. The company aims to increase its reach by opening new labs and service centres, with a target of establishing 90 labs within 30 months. Already having added 30 labs, Metropolis plans to add another 60 in the near future. Additionally, the company plans to expand geographically, both deeper in existing markets and wider in new geographies. Metropolis has 180 labs in all and the company has added 45 ew labs in the last one year and will be adding another 45 labs in the coming months. It has 3700 collection centres every year it plans to add 700 new centres. Explaining the company’s growth plans, Surendran Chemmenkotil says:“We plan to increase reach by opening new labs and service centres. We are strong in the West and South. Expansion geographically is one key strategy to grow. We will go deeper in our existing markets and wider in new geographies. We want to increase wellness revenue in the coming years. Once a consumer takes a wellness package, quite likely they will keep coming back from more, which will help build a sustainable revenue stream.” Recognizing the potential of wellness services, Metropolis aims to increase wellness revenue from the current 14% to 20% in the coming years. By offering comprehensive wellness packages, the company aims to build a sustainable revenue stream, as customers who opt for wellness packages are likely to return for further services. Metropolis also continues to strengthen its portfolio of specialised tests by engaging with specialty doctors and adding new tests, including genetic testing for critical illnesses. Despite the challenges posed by the accelerated rate of expansion, Metropolis remains confident in its financial performance. Explains Shah: “While margins have slightly declined, primarily due to the opening of new labs, the core EBITDA remains unaffected. We plan to repay Rs 40 crore debt we have on our books by the end of this year.” The company is not just content expanding across new and existing markets, it is also on the lookout for <keyword id="30334" type="General" weightage="40" keywordseo="acquisition" source="Orion">acquisition</keyword>s to boost market-share. The company's robust cash flow allows for debt repayment and provides opportunities for potential acquisitions. Says Shah: “We have debt of Rs 40 crore from the acquisition of Hitech Diagnostics, which we will repay by end of fiscal. Our free cash flows after that will be available for potential acquisitions. While large deals are available right now in the market, we will not look at them.” If Metropolis continues to focus on the top end of the market by expanding its portfolio of specialised tests, it will not have to enter into a price war with new age players with deep pockets.

Metropolis on the prowl for acquisitions as sector's competitive intensity eases

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Metropolis on the prowl for acquisitions as sector's competitive intensity eases

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