Shares of Metropolis Healthcare, Krsnaa Diagnostics, Vijaya Diagnostic and Dr Lal Pathlabs were trading over a percent lower on September 13 morning after a Credit Suisse report warns of “a perfect storm” hitting the industry as COVID ebbs.
At 11.30 am, Dr Lal Pathlabs was down 1.4 percent at Rs 2,461 apiece, while Metropolis Healthcare declined a percent and was trading at Rs 1,490-level on the NSE. Vijaya Diagnostic shed 1.5 percent to Rs 427.
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Credit Suisse has initiated “underperform” call on Dr Lal Pathlabs with a target of Rs 1,400 a share. The brokerage firm also resumed “underperform” rating on Metropolis Healthcare with a target of Rs 1,165.
“Industry has high ROCE currently and low entry barriers on limited cap requirement. We expect ROCE to settle down to 20-25 percent by FY27, implying margins of 20 percent” Credit Suisse analysts said in a note on return on capital employed.
Margins of Dr Lal Pathlabs and Metropolis Healthcare have already declined by 300 basis points (bps) from pre-Covid levels, and it expects steady contraction by 300-400 bps more by FY27, the note added.
One basis point is one-hundredth of a percentage point.
These stocks had dream run between March 2020, when COVID-19 outbreak intensified in India, and September 2021. Demands for tests skyrocketed as the epidemic spread.
Dr Lal Pathlabs and Metropolis Healthcare surged 2.5-3x in that time when India was hit was waves of COVID-19.
In 2022, as coronavirus outbreak ebbed and demand for testing fell, the stocks have taken a beating. Dr Lal Pathlabs is down 35 percent, while Metropolis Healthcare has shed 57 percent so far.
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