paragraph

The diagnostics sector saw decent traction in the last few years, especially after the coronavirus pandemic hit the world.

But the pandemic was not the only factor which made the sector investors' favourite. Due to its asset-light structure and scope for generating high cash flow, the sector has been under the radar of investors.

However, the entry of new players into the sector has been a cause of concern for the already established players in the sector. As Yash Gupta, Equity Research Analyst at the brokerage firm Angel One pointed out diagnostics stocks have corrected more than 50-60 percent in the last six months, due to an increase in the competition in the industry and margin pressure while covid benefits faded away.

The variable of strong competition remains an overhang for the sector. So, what should be the strategy for diagnostics players?

"Once the favourite of investors, due to asset-light structure, high cash flow generating capability, healthy return ratios and visibility of sustainable growth over medium to long term, diagnostic companies are now losing the charm with a sharp jump in competitive intensity led by new entrants backed by large conglomerates," brokerage firm ICICI Securities pointed out.

The brokerage firm believes while the Indian diagnostic sector is expected to grow in the low to mid-teens over the next few years supported by industry tailwinds, there is tremendous pressure on incumbents and new entrants to grow faster than the industry.

Low-entry barriers and historically lucrative returns could entice more players towards the sector resulting in lower-than-estimated growth for organised players in the market. Still, ICICI Securities believes the sector has enough positive attributes to outweigh the negatives.

"We continue to remain overweight on the sector. The near-term growth is likely to be under pressure due to the waning covid-19 opportunity. Additionally, intensified competition has dented the sentiment of the sector, resulting in steep price correction of listed stocks (nearly 50-60 percent from their all-time highs). We believe the current valuations largely account for these concerns. Industry tailwinds, high B2C contribution, speciality tests and geographical expansion provide enough growth opportunities," ICICI Securities said.

The brokerage firm has 'buy' call on Dr Lal Pathlabs (target price: ₹2,981), Metropolis (target price: ₹2,187), Thyrocare (target price: ₹980) and Vijaya Diagnostics (target price: ₹614).

Gupta of Angel One believes diagnostics companies' valuations seem to be reasonable at the moment, down from EV/EBITDA of 50-60 times to 20-25 times.

"We have a buy call on metropolis as we believe that all near term negatives have been priced in the stock and as covid cases increasing in MMR region company will get some benefit of the Covid business," he said.

However, some analysts have a dissenting view on the sector as they believe the sector's highly competitive nature is a major negative.

Akhilesh Jat, Category Manager - Equity Research, CapitalVia Global Research is of the view that the diagnostics market along with the home testing has picked up as people have become more conscious about their well-being and, hence, get themselves tested regularly.

"Competition from the unorganised players in tier-2, tier-3 cities and remote areas is a major hurdle for the diagnostic industry. The near-term market trend of the diagnostic stock is weak and one should avoid investing in these stocks. The diagnostics industry enjoys greater value and importance, however, it is highly unorganized," said Jat.

Disclaimer: The views and recommendations made above are those of individual analysts or broking firms and not of MintGenie.

Diagnostics sector: Is it time to bet on it?

Due to its asset-light structure and scope for generating high cash flow, the sector has been under the radar of investors. But the intense competition is a drag.

<ul><li>Due to its asset-light structure and scope for generating high cash flow, the sector has been under the radar of investors. But the intense competition is a drag.</li></ul>

Time to buy? Macquarie sees Titan hitting ₹3,000 in next 1 year

Six key parameters to keep in mind while choosing a stock during a bear market

Top 100 firms’ FY22 capex spends rise to ₹4.65 lakh crore: Report

JPMorgan defends Reliance Industries upgrade post investor pushback: Report

Multibagger textile stock hits 52-week low; down 55% from recent high

Before Market Opens: 9 things to know at 9 am on June 21, 2022

Oil Advances as Investors Weigh Outlook for Demand, US Economy

Gold inches higher as dollar dips; wider rate-hike narrative in focus

All demat accounts maintained by stock brokers need to be tagged by June-end: Sebi

Cryptocurrency prices today: Bitcoin, Ethereum rise marginally; most others trad

Bitcoin, was trading at $19,130, up nearly 0.43 percent, steering away from its past seven days routine. Ether, the second largest token, rose by 2.15 percent to 1,045 at 17:00 IST.

Your Questions Answered: Should you choose debentures over debt mutual funds, or vice versa?

Here we aim to address some of your most pressing personal finance queries. Read further to make the optimal use of your money!

ITC shares hit 52-week high; up 30% this year; analysts see more upside

<ul><li>The stock has been witnessing remarkable traction this year while the market has been under pressure. The stock of ITC has gained about 30 percent this year so far (YTD) against a 9 percent fall in the benchmark Sensex.</li></ul>

Reliance cracks 7% as govt imposes surprise duty on crude exports

stock markets

Higher crude oil prices have boosted the refining margins of oil refiners and RIL is one of the key beneficiaries of it.

<ul><li>Higher crude oil prices have boosted the refining margins of oil refiners and RIL is one of the key beneficiaries of it.</li></ul>

Titan sheds 6% in intra-day deals as govt hikes gold import duty to strengthen falling rupee

Titan fell as much as 5.9 percent to its day's low of ₹1,827 in intraday deals on BSE. However, the stock ended flat, up 0.2 percent at ₹1,926 as against a 0.2 percent decline in BSE Sensex.