Similar to Hospital, in past 3 years diagnostics sector has witnessed multiple transactions and all-time high funding volumes. In this piece we attempt decoding the business models and understanding what’s causing such wave of transactions.
The industry has grown exponentially over the past decade on the back of increasing health awareness, rising chronic diseases, and technological advancements. The market is currently valued at approximately $18.5 billion and is expected to grow at a CAGR of 13–14%
Number of labs are expected to reach 1.5L in 2026
This increase correlates with the rise in chronic diseases and other health conditions:
Diabetes cases: 77 million in 2019 → expected to reach 134 million by 2045Hypertension patients: 220 million in 2020 → growing at ~10% annuallyCancer cases: 1.39 Mn new cases in 2020 → expected to reach 1.57 Mn by 2025Kidney disease prevalence: 17% of India’s population suffers from some form of kidney disease
While increase in chronic diseases remain the primary reason, there are multiple other drivers that have built upon and around it:
Rising Health Awareness: Post-COVID, there is an increased focus on preventive healthcareDigital Disruption: AI and blockchain-based diagnostics, cloud-based reporting, and tele-diagnostics are helping the businesses scalePrivate Equity & FDI: Increasing investments from global PE firms in organized diagnostic players have led to higher penetration in tier 2 & tier 3 markets
Understanding the Business Models
There are primarily 5 types of diagnostic practices:
Pathology: Blood tests, biochemistry, hematology, immunology etcRadiology & Imaging: X-rays, MRIs, CT scans, PET scansOnline Imaging & Tele-radiology: AI-driven digital scans and remote diagnosticGenetic & Preventive Diagnostics: DNA testing, personalized medicine, cancer screeningPOCT (Point of Care Testing): Rapid diagnostic kits used in clinics and homes
Adding to the type of practice, below mentioned factors give rise to different type of business models
Mutliple factors affect the scalability and margin profile
1. Type of practice: Each type of practice has different dynamics, for example pathology labs can have multiple collection centers and one main lab, while in case of radiology the patient must come to the lab
2. Collection Model: Having a centralized processing lab involves more and more collection center and lesser number of labs. Whereas, there are models where there are more labs for faster turnaround.
3. Lab Operations: The labs can be operated directly or be franchised
4. Asset Ownership: The ownership of real estate and lab equipment
5. Customer profile: Some players solely focus on having a high B2B business which involves tie-up with corporates or hospitals. While some focus on direct customers.
Different models have distinct investment requirements and profit margins, here’s a brief overview of business models of some of the players
Above image reflects that almost every player has a different model from other player and adding to that, the quality of offering, we get different margin and scale for all players
Thryocare commands the highest margin apart from Krsnaa which is a B2G player
The margins are function of the business model, and there are multiple reasons due to which a Diagnostic business will command higher margin than others and make it more attractive:
Economies of Scale — Centralized lab means bulk testing at lower cost per sample.B2B Focus — Corporate/hospital tie-ups provide consistent volume, reducing per-test operational costs.Asset-Light Model — No real estate burden, minimal CAPEX, and franchise/partner-led collection centres.Low Marketing Spend — Unlike B2C players, B2B players doesn’t need aggressive consumer advertising.B2C Players have lower margins due to following reasonsMarketing & Branding Costs — Need to acquire individual customers through advertising.Collection Centre Costs — More locations = higher operational expenses.Customer Convenience Costs — Home sample collection and doorstep testing increase logistics expenses.
Below are player level insights that help us understand the margin profile better
Margin profile of different players
What makes the space interesting and investible?
The sector has recently attracted a lot of interest from private and public markets.
One of the major reasons is the fragmented market that creates consolidation opportunities. The national chains control only ~5% of the market, with standalone centers and Hospital based labs having 48% & 37% share respectively.
Market share in %
What factors will lead to such consolidation?
The standalone centers are witnessing a gradual shfit from their customers to biggher chains on account of multiple reasons such as
Centralize Patient Experience: Larger chains have built end-to-end digital ecosystems — from test booking and payment to report delivery and doctor consultations — all accessible via apps or websitesHealth Records: Ability to maintain and analyse the health records (past reports stored securely)Faster Turn Around Time: Leading diagnostic centers are implementing TLA (Total Lab Automation) systems to streamline laboratory operations. These systems help reduce turnaround times, reduce manual errors, and ensure consistent quality in test results.
These factors have led to an increased customer switching cost and tendency to stick with larger chains
Patients switch to larger diagnostic chains for speed, insights, and records
Where does this shift leave the standalone centres and smaller chains?
Partner with Digital Platforms (Practo, 1MG) — Boost bookings through aggregators but lose margins and customer ownership.Sell to Larger Chains — Exit the business by getting acquired (e.g., Metropolis buying local labs), monetizing their brand/location.Become Collection Centers for Big Chains — Shift to a franchise model, handling samples for bigger labs but losing independent operations.
All of the above options contribute towards consolidation in some way or the other meaning the bigger chains have runway to scale and grow
Other major factors that makes the space interesting include:
Sustainable Margins: Diagnostic chains enjoy EBITDA margins of 20–35% and PAT margins of 10–20%, making them more profitable than many healthcare services.Scalable Models: Unlike hospitals, diagnostic chains can expand rapidly with low capital investment using franchised collection centres and labs.Asset-Light, Tech-Enabled Growth Potential: Tech integration has led to more efficiencies and newer business models which are more investible. Orange health used at-home diagnostics service across major Indian cities, leveraging tech-driven logistics for faster sample collection and testing. It raised close to $47 Mn.Government & Insurance Tailwinds: The push for NABL accreditation & regulatory standardization favours well-funded players over unorganized labs. These labs are also getting advantage from Insurance companies covering diagnostic tests, as the high-end customers usually prefer such labs for their tests.
Overview of recent transactions in India:
Past 5 years saw a total of 24 rounds with a total of ~$500 Mn being raised. The median funding amount has been close to $4 Mn.
Post covid there has been a strong increase in fund raise activites
Following are some of the major Transactions in past 5 years:
PharmEasy’s acquistion of 66.1% stake in Thyrocare for INR 4,546 crore in June 2021, remains the most pivotol transaction in the space. The deal aimed to create a seamless online-to-offline healthcare ecosystem, leveraging Thyrocare’s infrastructure for diagnostic services alongside PharmEasy’s e-pharmacy and telehealth offerings.
Some of the other recent and notable transactions include:
1. Redcliffe Labs raised $ 42 Mn in a Series C round led by IFU (20M), with participation from LeapFrog Investments (15M), HealthQuad, and Spark Growth Ventures. The funding will drive expansion into Tier II & III cities, scaling labs, collection centers, and home diagnostics.
2. In May 2022, Pathkind Diagnostics raised $25 Mn from Bessemer Venture Partners to accelerate its expansion into Tier II & III cities. This will accelerate Pathkind’s aggressive growth strategy, leveraging asset-light collection centers and a hub-and-spoke model to tap into rising demand for affordable and accessible diagnostics.
3. In May 2022, Orange Health raised $25M from Bertelsmann India, General Catalyst, Accel, and others to expand its tech-driven, on-demand diagnostics across cities, disrupting traditional pathology with rapid at-home testing.
Our outlook on the next few years:
On back of strong drivers and investments, we believe that the Diagnostic sector will continue growing and will see a similar wave of consolidation and IPOs/SME IPOs like Hospitals.
1. Consolidation & More IPOs — Large players will acquire regional labs to strengthen networks, while big names like SRL Diagnostics are gearing up for IPOs. More public listings could follow as companies seek expansion capital. Access to capital will further enhance the penetration in Tier II and Tier III
2. Tech & Digital Disruption — AI-driven pathology, tele-radiology, and digital reporting will bring in efficiencies. The shift towards home collection services will improve patient convenience.
3. Regulation & Better Integration — NABL accreditation, standardization, and tighter quality norms will make industry more formal. Diagnostics will also integrate deeper with insurance and digital health platforms which will further drive growth.
