Metropolis Healthcare Limited, a pathology laboratory chain, has announced the acquisition of Delhi NCR-based Core Diagnostics, a company specialising in advanced cancer testing for Rs 246.8 crores. The deal involves a mix of cash and equity, with 55% funded in cash and 45% through an equity swap. In an interview with Business Today, Ameera Shah, Promoter and Executive Chairperson of Metropolis Healthcare, discussed the growth potential of the Indian oncology market, the need for advanced cancer testing, and Metropolis’ plans to expand its presence and offerings in specialised diagnostics across the country. Edited excerpts:
BT: Could you elaborate on what makes Core’s oncology diagnostics unique compared to Metropolis’s current offerings?
AS: Core is a specialised diagnostics company focussing on cancer testing, and this acquisition positions Metropolis as the number one cancer testing company in the country. From biopsies to the most complex oncogenic tests, everything will now be offered under one roof through these two companies. Metropolis already offers oncology testing, but we primarily provide entry-level and specialised testing. Core, however, focusses on more super-specialised oncology testing. This acquisition enables Metropolis to cover the entire test menu. More importantly, it allows us to work closely with the 1,600–1,700 oncologists Core collaborates with and the approximately 1,200 laboratories and hospitals, which are some of the top healthcare facilities in the country outsourcing advanced oncology diagnostics to Core.
BT: How does the collaboration with these oncologists and hospitals enhance Metropolis’s market position?
AS: Oncology is probably one of the fastest-growing therapeutic areas in the country and globally. Over the next decade, oncology and neurology are projected to see maximum growth in disease prevalence. Faster and more accurate diagnostics can help detect cancer early, allowing timely treatment and potentially saving lives. For Metropolis, being a company focussed on partnering with people for their health, especially during illness, this acquisition aligns perfectly with our purpose. Additionally, Core is headquartered in the Delhi National Capital Region (NCR), and a majority of its revenue comes from the northern and eastern regions of India. While Metropolis ranks third or fourth in these markets, this deal strengthens our position in these regions.
BT: What is the current contribution of cancer diagnostics to Metropolis’s revenue and how will this change post-acquisition?
AS: Currently, cancer testing contributes about 4% of our revenue at Metropolis. With this acquisition, oncology’s share will increase to 10% of our total business. Oncology is one of the fastest-growing therapeutic segments. Being in this high-growth space aligns with our strategic goals, and we aim to establish leadership here.
Metropolis already has the largest share of specialty testing among our peers, contributing 37% of our revenue. For Core, this figure is 85%. With this acquisition, our specialty testing contribution will rise from 37% to 41%. Specialty tests generate higher revenue per patient and are critical for those requiring quality diagnostics.
BT: What are the global trends in acquisitions of specialty diagnostic companies, and how does this deal align with those trends?
AS: Globally, companies focussing on single-specialty areas in diagnostics often struggle with scalability and profitability. Larger firms like Quest Diagnostics and Laboratory Corporation of America (Labcorp) in the United States are acquiring such specialty laboratory chains to achieve synergy and scale. We are adopting a similar approach in India. Core is operationally profitable but not significantly so. Under Metropolis’s umbrella, we believe we can unlock its full potential by driving revenue and cost synergies.
BT: How do you plan to scale Core’s operations after this acquisition?
AS: There are three key areas of focus. First, the oncology market in India is expected to grow at a compound annual growth rate (CAGR) of 17–18% over the next five years. As leaders in this space, we expect to outpace market growth. Second, we’ll leverage cross-selling opportunities. Core’s customers include 1,200 hospitals and laboratories and 1,600 oncologists. We can offer them Metropolis’s 4,000-test menu. Conversely, Core’s advanced oncology tests can be introduced to Metropolis’s existing customers. Third, we will realise cost synergies to improve margins.
BT: Could you clarify the financing structure of this acquisition and its impact on shareholder value?
AS: The deal involves a mix of cash and equity. About 55% will come from internal accruals and a small amount of debt, while 45% will be through an equity stock swap. While most acquisitions dilute return on capital employed (ROCE) and return on equity (ROE) in the short term, this deal is earnings per share (EPS) accretive from year one. Marginal dilution in ROCE and ROE is expected in the first two years, but from the third year onward, these metrics will become accretive.
BT: How soon will this acquisition contribute positively to Metropolis’s bottom line?
AS: We anticipate that Core Diagnostics will contribute positively from the first year of operations in the financial year (FY) 2025–26. While its margins won’t match Metropolis’s initially, they will improve over 3–4 years. With effective execution, this acquisition will significantly enhance our profitability and shareholder returns.