Diagnostics companies are expected to see revenues rise 17-20 per cent this fiscal. The surge in revenue will be driven by regular tests that will also offset the moderation in revenue witnessed by these companies due to price caps imposed last fiscal. There was a revenue growth of 13 per cent last fiscal, said a CRISIL report.
The report also stated that operating margins will improve by 150 basis points to 27.5 per cent this fiscal, which is an all-time high. Better operating leverage, cost control, robust balance sheets and minimal capital expenditure will support an improvement in credit profiles.
A study of 11 diagnostics companies, including five large pan-India chains had an aggregate revenue of over Rs 5,000 crore last fiscal, stated the report.
“Last fiscal, higher volume and realisation from Covid-19 tests had driven revenue growth, while regular tests were fewer on-year because of lockdowns. But this fiscal, with the pace of vaccination increasing, revenue from regular tests will recover strongly, while that from Covid-19 tests will get impacted by price caps,” stated Anuj Sethi, Senior Director at CRISIL Ratings.
The CRISIL report mentioned that eased lockdowns, reduced cases will increase footfalls that will lead to a growth of 25-27 per cent in overall test volumes and strong revenue growth this fiscal. Pent-up demand and more home collections will also support the upward trend.
“Higher capacity utilisation will benefit diagnostic companies as ~50% of their cost structure is fixed. Companies are also optimising costs via automation and digitalisation. The pandemic has accelerated online bookings and home collections. All that would drive a 150 bps uptick in operating margins. Notably, last fiscal had also seen a 50 bps margin expansion compared with the pre-pandemic level,” said Rakshit Kachhal, Associate Director at CRISIL Ratings.
Balance sheets of diagnostics players benefited from healthy cash generation and modest capital spend in the past few years. CRISIL stated that better revenue prospects and improving margins will drive an improvement in credit profiles this fiscal too.
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