The diagnostics sector delivered robust performance in Q1FY27, with most listed majors beating estimates despite the traditionally soft June quarter. According to Business Standard reports, cumulative test volumes grew 11% year-on-year and patient volumes increased 8% year-on-year, indicating continued volume-led growth momentum. Kotak Research noted that sales growth for key players Dr Lal PathLabs and Metropolis Healthcare was healthy at 18% year-on-year and 11% sequential growth respectively, driven by robust volume growth, improved realisations and sustained traction in the business-to-consumer channel.
The sector demonstrated strong operational efficiency with operating profit growing 29% year-on-year and operating profit margin improving 240 basis points to 28.7% according to Kotak Research. 360 One Research highlighted that margins at the operating level expanded 180 basis points to 30.5%, resulting in a 27% jump in adjusted net profit for companies under its coverage. This healthy operating leverage was supported by organic growth, resilient B2C demand and improving realisations across the sector.
The competitive environment remains stable with flattish pricing trends helping incumbents gain market share, as reported by Emkay Research. The sector's focus remains on specialised segments such as genomics, histopathology and high-end radiology, with companies not expecting major impact from cost inflation due to the West Asia war despite increases in reagent and solvent prices. 360 One Research notes that incumbent diagnostics chains have maintained pricing year-to-date and are well positioned to continue capturing market share through investments in specialised technology and aggressive network expansion.
Emkay Research expects the September quarter to be seasonally strong for the diagnostics industry, potentially moving past the aggressive pricing-led competitive environment seen in prior years. According to Business Standard, led by Vijaya Diagnostics, the top four listed majors have delivered average market-beating returns of over 50% in the last six months. However, brokerages flag potential risks including hospital chains venturing into retail diagnostics, which could be a headwind for incumbents with strong healthcare ecosystem presence.
