Antique Stock Brokerage: Antique Begins Metropolis Coverage, Dr. Lal With Sales Calls

Mumbai: Antique Stock Broking has launched coverage on Dr Lal PathLabs and Metropolis Healthcare diagnostic chains with sell quotes. The brokerage has set a price target of ₹1,643 on Dr. Lal, which is more than 30% below Monday’s closing price of ₹2,369.35. Its price target of ₹1,232 is about 10.5% below Metropolis’ closing price of ₹1,377.05. Shares of Dr. Lal fell 2.9% and shares of Metropolis were down 2% on Monday. ET examines why the brokerage is bearish on these stocks and the industry:

Why is Antique seeing a further decline in its stock price?
The new competition will put the profitability of existing players under pressure. The brokerage said the industry’s growth rate had accelerated post-pandemic, but it had also led to a large number of new players entering the market – online aggregators, chains hospitals expanding their diagnostic offering, pharmaceutical companies and pharmacy chains. “With competition and tailwinds driven by Covid-19 now behind us, the industry is looking at a lower CAGR scenario for years to come,” Antique analysts Monish Shah and Pranav Chawla said in a client note.

How do the numbers compare now to the pre-Covid period?
Antique said the profitability of these companies is at risk due to new competition. The brokerage expects performance ratios such as return on capital employed (RoCE) to be under pressure at 20-25% for both companies, from a pre-pandemic level of over 33%. He said there was room to downgrade the valuation of the entire sector.

How has the drop in Covid cases impacted business?

Covid-19 has been a game-changer for the industry with windfall profits. Antique said while realization per test for Covid also fell from ₹1,200 in FY21 to ₹500 in FY22 resulting in lower margins, companies are struggling for growth, with the core business growing high-digits due to the high base effect of FY21 revenue. “Aggressive pricing is hurting the big players in their most lucrative margin business, that is, say well-being,” analysts at the brokerage firm said.

“The patient’s elasticity to brand is lowest and highest to price. We believe that these price wars will only put further pressure on high-margin wellness businesses. ”


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