Diagnoses ready for telecom history replay with price war and market expansion spurt: Velumani


It was a tweet that sparked a tidal wave of further discussion within the Indian diagnostics industry over its direction. The tweet was about an advert from Tata 1mg Laboratories offering a range of diagnostic tests for just Rs 100 each compared to around Rs 600 which many others in the industry currently charge. “Interesting. A new game begins,” A Velumani concluded in his tweet on that hot Sunday morning in mid-May. He should know that, having attempted a somewhat similar “disruption,” as he likes to call it, albeit in a B2B framework.

Velumani, the founder of Thyrocare, a major listed Indian diagnostics company, is best known as the man who established and then left Thyrocare after selling his stake for a whopping sum close to Rs 5,000 crore.

Lower prices for medical diagnostic tests are certainly a welcome development for patients. However, concerns within the industry stem more from the timing. Questions abound about how well-equipped players are to tolerate an upward price trend when most appear to be poised to roll back, largely on COVID testing, to testing revenue. non-COVID routine steamers that have not yet been collected. That this is happening at a time when new players are entering the space and those trying to solidify their presence only seem to add to the woes.

Financial Express Online spoke to Velumani about the picture he sees emerging. Where does he see the industry heading with this price war with many players already starting to respond to this price competition? Where could all this settle? While price cuts bode well for consumers of diagnostic services, could they come at the expense of quality? What can all of this mean for the finances of industry players, especially smaller ones? Who can support this and how is India’s diagnostic landscape changing?

Laboratories at collection centers

In his characteristic style of speaking from personal experience and peppering his narrative with concise Hindi quotes, Velumani says, “Today there are 100,000 labs altogether. These every five years will lose a zero and eventually they will reach 100 players. However, the rest of the players unable to support will not disappear but will become collection centers, he believes.

Seeing India’s diagnostics market all set for a replay of Indian telecommunications history that has seen steep price declines, market consolidation and market expansion, he says, “not only the diagnostics market , but all sectors where there are unorganized players will see a replay of the history of Indian telecommunications.Today, there are no barriers to entry to offer diagnostic services.

Reducing prices, he argues, “will increase volumes, expand the market, which should normally result in higher profitability if accompanied by greater business model efficiency.”

But then there is a need to look closely at the business model in the diagnostics space with some having local testing labs spread across the region while others seek centralized labs for greater efficiency, the latter has found more favor with Velumani during the Thyrocare era.

Need a 7-Eleven and a Walmart

Explaining approaches to the two main components of diagnostic testing – for acute illnesses (such as colds, coughs, fever) and chronic illnesses (such as diabetes, hypertension, cancer, stroke, among others) ), he says, “for acute disease, we need to deliver results faster, so you need to have a solution (local lab model) in every city. But for chronic disease, you need centralized labs. So , you must have a 7-Eleven (with a limited menu but quickly accessible) and also a Walmart model (more central and larger).”

“The price war,” he says, “is already underway. Today if the price is (400 to) 600 for the lipid profile it is because this is the rate at which everyone does it. However, if someone reduced this further, others would follow and because they reduced the price, their volumes would increase and, therefore, their profits would be higher. Price wars, he argues, usually result in huge market and volume expansion. “That’s the story we saw unfold in the telecom industry,” he recalls.

But then, if the volumes are increasing and the activity is developing, why are the finances of the diagnostic players under pressure? To that, he says, “I charged the least and enjoyed the highest EBITDA in the industry.” In other words, by arguing that it is doable provided service providers have built efficiencies into operations, as he puts it, he succeeded and ended up reaping the rewards.

But then, on the point of the current scene per se, he says, “today the reasons why this is not reflected in the finances of some of the major players is that there are several other factors also at play. game, such as the transition from COVID to non-COVID which has disrupted the normal routine and is taking longer than expected to generate revenue.Then there is the entry of new players, all equally eager to make a profit like the biggest actors.

Growth and competition

Then there is the dimension of market structure and its growth pattern. “While the market is growing at 15% per year, the competition – number of new players entering the field (largely smaller players), who can potentially be disrupted – is growing at 25% per year and that’s because “There is no barrier to entry. This, he recalls, is apart from larger new entrants, many of whom are trying to disrupt the market.”

Despite the impending pain, he says, the trend of market expansion is currently happening because brand awareness has not seeped deep, but over a period of time the big players will become dominant – that whether regionally or nationally – and the market will see consumers opting more for branded players.

Fix inefficiencies

Turning to the telecommunications industry for an example of correct pricing and why it sees higher prices as a consequence of inefficiencies rather than intent to cheat, he says, “Once upon a time MTNL was charging big We are for an STD call, say from Mumbai to Delhi, but today it is roughly one paisa per second, it does not mean that MTNL was looting, but it just reflects an inefficient system.

Ask him about a model where a small lab having a pathologist who personally views all the test samples versus a large environment that relies on digital signatures given the large volumes, he contradicts it by asking, when an ATM distributes money, how many branch managers check? Nothing! Similarly, when a well calibrated instrument in a lab delivers results, in 99% of cases it is perfectly normal and in only 1% of cases it is susceptible to manual release and therefore there are many myths about it that need to be dispelled. “It all boils down to efficiencies that can be built into the system.” he says.

Pictured in five years: In five years there will be partial disruption, but for full disruption to occur it will take around 20 years (by which he means reaching the lower net count of around 100 players), he said.

According to him, the transition from the unorganized to the organized will happen, with the weakest and smallest being the first to struggle to hold on. Those with an annual turnover of less than Rs 25 lakh will be the next to feel the heat. They would be followed by those with an annual turnover of less than Rs 1 crore. Then there would be those with incomes below Rs 10 crore. Finally, those with an annual turnover of less than Rs 100 crore will not find it easy to compete with players several times their size.

Seeing price cuts as something inevitable, he sees all of this leading to what he calls an optimal rate of Rs 199 for a thyroid test and about the same for lipid profile and liver profile. “It’s a profit rate, but what’s been announced so far is a market rate,” he says.

Volume reading

For a test priced at Rs 199, he says, volumes should be in the region of 100,000 tests per day. “Today, small labs get 10 a day, mid-sized players get 100 a day, bigger ones get 1,000 a day, some of the listed players around 10,000 a day.” Apparently there is still a long and arduous way to go as the journey has only just begun.

Previous Kerala CM will inaugurate KPPL newsprint company tomorrow
Next Spizzler Reviews – Leading Earwax Remover Tool or Cheap Scam?