Reliance and Adani are getting into diagnostics. So are Apollo Hospitals, Tata 1mg and many others. But why?

The diagnostics sector emerging as a lucrative market owing to free cash flows, attractive return ratios, and potential for expansion is attracting several established and new healthcare players.

The interest is evident in the flurry of new entrants into the sector, including pharma companies, hospitals, start-ups, and even large conglomerates. The Adani group, which is strong in power, energy, and edible oils segments, has also forayed into diagnostics with Adani Enterprises in May 2022 announcing a subsidiary for healthcare-related services. The subsidiary, Adani Health Ventures, would set up, run and administer medical and diagnostic facilities, health aids, health tech-based facilities, research centers, and allied activities.

Among conglomerates, Reliance Industries, promoted by billionaire Mukesh Ambani, in August 2020, acquired a majority stake in Netmeds for Rs 620 crore (Reliance Retail). In June 2021, Tata Digital had acquired the online pharmacy 1MG for a cash consideration of Rs 720 crore, and then launched its own diagnostics wing.

There’s more action happening in this segment. In July 2022, pharma major Lupin launched its own diagnostic lab called Lupin Diagnostics, and Ahmedabad-headquartered Torrent Pharma entered the diagnostics sector by forming Torrent Diagnostics Private Limited as an unlisted private company in February, 2022.  In June 2021, e-pharmacy chain PharmEasy acquired Navi Mumbai-headquartered diagnostics chain Thyrocare for Rs 4,546 Crore. Pharmacy retailer Medplus also made an entry into diagnostics in March 2022 by launching its diagnostic centre in Hyderabad. Gurgaon-headquartered Max Hospitals is continuously growing its diagnostic segments.  

Bengaluru-headquartered Aster DM, a healthcare company, is also one of the new entrants in the sector. Aster DM operates hospitals, medical centres, diagnostic centres, laboratories and pharmacies in six GCC countries and India. “These new entrants have not only disrupted the market with tech but also resorted to aggressive discounting to acquire volume,” said diagnostic industry analysts Monish Shah and Pranav Chawla from Antique. “Aggressive pricing is hurting the large players in their most lucrative margins business, that is, wellness.” 

A recent Credit Suisse report said that the competition is notably from large conglomerates (RIL-Netmeds, Tata-1mg, etc.) and pharma groups (Lupin, Torrent, etc.), which would likely pour in larger investments for a longer period.