The diagnostic space has been in focus ever since the pandemic broke out and testing picked up. Some large players such as Lupin, are now eyeing the space which could cause a significant disruption. To have a better understanding of the sector, CNBC-TV18 spoke to Surajit Pal, pharma analyst at Prabhudas Lilladher.

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Pal said, “The valuation given to the diagnostic sector, I believe it is mostly assuming that the COVID related inflows will continue for some time, at least for foreseeable future, instead of focusing on the core business. So, if I look into the core business, which companies were driving around 80-90 percent in the last quarter, if that be the case, then I am not very hopeful. We need to look into the cases till March 2020 before COVID came into picture, the typical core business growth in the sector was roughly around 10 to 13 percent kind of growth. So, if that is the growth and the kind of valuation jump-up that happened in the last one-and-a-half years, it is much ahead of its fundamentals.”

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On PharmEasy, he said, “I think the major part of the valuations are very high, maybe there is a potential that integrated healthcare service provider, which is an emerging trend, post-merger of PharmEasy and Thyrocare, that might come to them. Going forward, I think even many hospitals will join the race. I think bigger guys like Metropolis Health, Dr Lal PathLabs, they have the capacity of creating similar kind of assets by acquiring anyone, given the kind of money they have or the cash reserve they have. So, I think that is a valuation which I believe came about in the last one-and-a-half years, that could be one of the potential reasons for their higher valuation rise. But for PharmEasy and Thyrocare, you need to give them time, at least one to two years, to see the actual reality and success. If they succeed, I think that will be the emerging trend and this high valuation might be maintained for this sector.”

On Lupin, he said, “I think this is very baffling, actually there is no related growth into that space. I believe that management might be thinking of creating some asset going forward, say next four or five years. They might be creating some in-house asset which could be separately listed and getting some value for them.”

For full interview, watch the accompanying video.

(Edited by : Dipika)