BackCovid-19 tests improve volumes at diagnostic chains, but recovery remains slow
For now, patients are undergoing only essential tests. The increase in testing from hospitals while encouraging is only limited to emergencies and operations. Much of the outpatient inflows into hospitals remain low
PremiumMUMBAI: The rise in business volumes at most diagnostic firms after they were allowed to conduct covid-19 tests had sent a bit of cheer through the sector, pushing up stocks 7-17% this past month. But volume growth at these firms remains well below peak levels. Not surprisingly, the stocks have started to show signs of fatigue and slipped in trade on Tuesday.
The updates on covid-19 tests over the past few weeks have been encouraging. Recently, Thyrocare Technologies Ltd announced it has conducted significant number of antibody tests, which detects whether people exposed to the virus have developed antibodies.
Analysts say that this is bringing back people in a small way. Besides, pent-up demand and the ongoing flu season has also aided recovery.
"Recent run-up in diagnostic share price is because they have started doing antibody testing, which will aid volumes in forse able future. The flu season also means that other tests which include dengue and malaria are on the rise, and diagnostic chains are reporting decent growth vis-a-vis April'20 month. Volumes have increased to about 65% of last year’s levels, up from the 30-35% seen in April during the lockdown" said Bharat Celly, analyst, Equirus Securities.
But for now, patients are undergoing only essential tests. The increase in testing from hospitals while encouraging is only limited to emergencies and operations. Much of the outpatient inflows into hospitals remain at low levels.
Analysts have pointed out that there could be an inflow of seasonal flu patients, including a rise in dengue or malaria cases. That could add a bit of footfalls in the coming months. In the longer run, preventive testing will rise. While this accounts for less than 10% of the market, the segment has been growing at about 20% annually.
Still, the road to the profitability levels seen just before covid-19 is some way off.
Operating costs are likely to be high as companies incur additional expense on covid-19 protection kits. Besides, costs on sample-collection staff will also increase. However, some of these cost increases are likely to be offset by lower advertising costs.
Even so, stocks of diagnostic chains are not coming cheap. Both Dr LalPath and Metropolis trade at over 60 times trailing earnings. Besides, higher operating costs during covid-19 will mean lower return ratios. That may keep shares of diagnostic firms under pressure.
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