Clinitech Laboratory IPO: Don’t Get Duped by This Bloodbath in the Making?

Clinitech Laboratory Limited Introduction

Clinitech Laboratory Limited is a well-established diagnostic and health testing service provider, founded in 1990. Initially known as Nayak Clinical Laboratory, it has grown to become one of the most trusted diagnostic centers and pathology labs in Navi-Mumbai.

Brief about Clinitech Laboratory Limited

Summary of the business of

Clinitech Laboratory Limited is a provider of diagnostic and healthcare tests and services through chain of 8 diagnostic centers in and around Thane and Navi Mumbai. Our Promoters have 30+ years of experience in diagnostic business. We conduct more than 3 Lakh tests per year in our NABL (National Accreditation Board for Testing and Calibration Laboratories) accredited labs equipped with modern technology and high-end equipment.

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History

Company was incorporated as Clinitech Laboratory Private Limited on March 19, 2010 under the Companies Act, 1956 with the Registrar of Companies, Mumbai bearing Registration number 201078. The status of the Company was changed to public limited and the name of our Company was changed to Clinitech Laboratory Limited vide Special Resolution dated July 24, 2023 pursuant to conversion of the Company into public limited Company. The fresh certificate of incorporation consequent to conversion was issued on August 25, 2023 by the Registrar of Companies, Mumbai.

Clinitech Laboratory Limited corporate identification number is U85195MH2010PLC201078.

The Promoters of Clinitech Laboratory Limited Company are Jagdish Umakant Nayak and Jyoti Jagdish Nayak.

Promoters & Board of Directors

• Jagdish Umakant Nayak and Jyoti Jagdish Nayak are the Promoter of Clinitech Laboratory Limited Company.

Board of directors

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Share Holding pattern

Strength

• NABL Accreditation
• Chain of Diagnostic Centers
• Experienced Promoter and management team with strong industry expertise and successful track record.
• Strong and long-standing customer relationships

Strategy

• Leveraging our existing products / services portfolio
• Leveraging our Infrastructure
• Collaboration and continuous Training
• Inorganic Growth

Industry Outlook

Indian diagnostic industry – Market structure

The market share is categorized as: unorganized (47%), hospital-based lab (37%) while the remaining (~16%) is with the organized players. Doctor referrals constitute a large part of this business. This includes commission payments to doctors in lieu of referring a diagnostic lab. Further, currently, the illness diagnosis segment is more prevalent than wellness segment in India.

Services

Pathology testing or invitro diagnosis involves the collection of samples in the form of blood, urine, stool, etc., and analyzing them using laboratory equipment and technology to arrive at useful clinical information that assists in treatment of diseases. It includes biochemistry, immunology, hematology, urine analysis, molecular diagnosis, and microbiology.

Imaging diagnosis or radiology involves imaging procedures such as X-rays and ultrasounds that help determine anatomical or physiological changes inside a patient’s body, thus assisting doctors in diagnosing. It includes more complex tests such as CT scans, MRIs, and highly specialized PET-CT scans.

Wellness and preventive diagnostic services aim at identifying pre-existing diseases or the likely risk of particular diseases before the onset of symptoms. It is expected that wellness and preventive diagnostic services will assist people more accurately identify risks so that they can take corrective or precautionary measures before any chronic condition develops. Wellness and preventive tests are generally aligned to either specifically screen for a chronic disease or contain a series of tests to ascertain the overall health condition of an individual.

Asset Light Model for Growth:

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• Hub and spoke model:
  • Most organized diagnostic chains operate on hub and spoke business model, which brings economies of scale benefits. To gain a competitive advantage, reap scale economy benefits and control operating costs, these diagnostic chains constantly endeavor to increase their network rapidly. They do so by adding satellite laboratories and collection centers (majorly on a franchisee model).
• Reagent rental model:
  • Suppliers sell their equipment to lab testing companies at almost zero capital costs. Lab testing companies agree to buy reagent batches (batch of testing chemicals) exclusively from the company whose equipment is installed in their lab and pay a periodic rental (given a lease rental type agreement), which is booked as an operating expense.
• Shop in Shop model:
  • Diagnostic players are entering into outsourcing contracts with hospitals, whereby they would handle the entire diagnostic operations for them. Such models of outsourcing clinical tests to private laboratories are expected to rise to streamline and increase efficiency.
• Home collection:
  • Home sample collection and testing has been on the rise, provided by almost all organized players and some unorganized ones as well. Phlebotomist collects the sample and transports it in a specially designed transportation box (cold box) to the designated processing center. Home sample collection is one of the key reasons for the success of diagnostic chains and their rapid penetration in the urban market.

Formalization of Diagnostic Industry:

The diagnostics industry is highly fragmented with large chains, standalone centers, and hospital-based laboratories. Owing to low entry barriers, the industry is fragmented and is witnessing a lot of small and medium sized players; however, very few are able to scale in a profitable manner. Regional Standalone Laboratories have a limited test menu and, hence, lack the capacity needed to expand in terms of service offerings and perceived quality of testing, which may not be as good as that of an established chain’s. Hospital-based laboratories are restricted to the hospital’s inpatients, with a limited test menu and charges that are higher than diagnostic chains.

Diagnostic chains, on the other hand, have an advantage of years of experience, brand trust and recall, global quality standards and accreditations, brand experience, expansive test menus, patient touch points to service patients locally, value added offerings for patients and the ability to sustainably grow in new markets.

Diagnostic chains have managed rapid growth through opening more collection centers, which has improved their asset utilization. Moreover, large chains have greater bargaining power that allows them to keep their input costs (bulk purchase of reagents) lower than standalone centers. Standalone ones also tend to lose out on some business as they are unable to carry out complex tests and customers hold the perception that their quality does not match that of branded chains’. Hence, we can say diagnostic chains would continue to eat into standalone centers’ market share.

Their situation is further strengthened after the COVID-19 breakout, with the shift from unorganized to organized players expected to happen at a faster rate now, as patients prefer visiting branded and recoginzed labs that give better quality and enhanced safety. Organized players are also likely to benefit from rise in home collection, given their strong brand recognition, reliability and quality services. The unorganized and smaller labs offer a chance to the bigger players to expand their reach and presence through acquisitions and franchisee operation model.

Challenges faced by industry:

• Lower/no entry barrier:
  • One of the key reasons for the industry to be fragmented is low entry barrier. The historically high growth rates (20-25%) had attracted quite a few PE investors into this setup. Private equity (PE) players were very active in this space during 2011-15; but the number of deals has gone down on the back of high competition. Also, limited test menu/offerings by regional standalone laboratories and partial coverage of hospital-based laboratories have resulted in higher opportunities for diagnostic chain players.
• Challenge in entering new geographies:
  • India is a vast country with diverse cultures and disease profiles across its various regions. The diversity in demographics, disease profiles, and healthcare systems present big challenges. Large diagnostic players face competition from local players who have an edge due to their familiarity with local market dynamics. Also, most players have substantial presence in metros and Tier I. However, the Tier II, III and IV cities are something that has not been tapped aggressively and is largely run by local standalone players offering basic tests. Nevertheless, companies have now started to tap the interiors in order to drive volumes by partnering with local players, which is driving consolidation. National diagnostics players, after having set up centers in new locations, take time to engage with doctors (as referrals contribute high share in this sector) who have long relationships with regional players. Doctors take their own time, which also depends on how much visibility the national players have created of their services in local areas. These national players garnering higher market share from unorganized counterparts take time to scale up their operations.
• Pricing pressures:
  • India’s diagnostics industry is highly competitive with unorganized players still garnering approximately 84% market share. This increases competition among organized and unorganized diagnostic chains in terms of volumes of patients’ samples and pricing of diagnostic tests.
• Vulnerability to technological advancements:
  • Medical devices and analyzers are constantly undergoing technological advancements. To stay ahead of the competition, diagnostics centers have to constantly upgrade their technology. However, these upgrades not only involve significant capital investments, but also increase maintenance costs. This is critical, especially for smaller players who face a paucity of funds.

Recent Trends:

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• Focus on Preventive and Wellness services:
  • Organized players are increasingly targeting healthy individuals with sedentary lifestyles, who are more prone to lifestyle diseases such as cardiovascular ailments and diabetes. Bulk business from employer schemes is a key driver of this market. Emerging trend of precision medicine and focus on preventive care and walk-in/direct-to-customer diagnostic services are expected to drive growth in the diagnostics arena.
• Consolidation, shift from unorganized to organized:
  • India’s diagnostics industry is highly fragmented. With emergence of pan-India diagnostic chains, the sector has seen more and more consolidation via mergers and acquisitions and increased market share of organized chains.
• Brand building initiatives:
  • All the major diagnostic players are investing in brand building and creating online and offline marketing campaigns to differentiate their offerings, quality, and test accuracy from their competitors. They are launching advertising campaigns, healthcare camps, and various wellness and preventive test packages under their own brands. Their focus on repeat sales and conversion of referral customers into owned ones is the path they are following in this competitive market.
• Emergence of Online Aggregators:
  • Online aggregators provide a robust website platform for customers to the most suitable diagnostic packages. They also provide a feature for choosing the service provider along with display of the price it offers. Individual health check-up providers suggest various packages to customers based on their requirements and handle the booking of packages at designated service providers. These facilities are bringing diagnostic and testing services to the fingertips of customers, offering them a number of available options almost instantly.

Conclusion:

The diagnostic industry has emerged as an attractive play in India’s growing healthcare sector and is one of the fastest growing service segments in the country. Diagnostic is a business of economies of scale and the most important metric is the cost of processing a sample. The existing players are still in the nascent stages of their growth cycles and have a long runway ahead. We are positive on the national diagnostic chains in India, given their advantages of many years of experience, brand trust and recall, global quality standards and accreditations, wide test menus, extensive patient touchpoints to service patients locally, value-added offerings, and ability to sustainably grow in new markets. Potential consolidation in the industry, organic and inorganic expansion, complemented by their strong balance sheets and return ratios, would provide tailwinds to their growth in the medium term.

The large listed Indian diagnostic chains – Dr. Lal, Metropolis, Thyrocare – remain beneficiaries of what we view as attractive long-term industry growth story. Given the outbreak of COVID-19 and its impact on people mindset about healthcare and preventive measures over the next one to two years; we are giving higher valuation to these stocks. We see the potential for increased inclusion of diagnostic testing in health insurance and ample runway for higher market penetration as standards of living increase and preventive healthcare awareness rises.

Business Data of Clinitech Laboratory Limited

Verticals

• Biochemistry tests
• Immunology tests
• Hematology tests
• Molecular Biology tests
• Serology tests
• Microbiology tests
• Histopathology tests

Below details of number of patients handled by us and tests conducted during last 3 years and upto September 30, 2023:

Product wise break-up

Revenue contribution from Geography presence

• All our diagnostic centres are located in Thane and Navi Mumbai region, 100% of our operations are concentrated in these regions. We have derived 100% of our revenues for the period ended September 30, 2023 and for the financial years ended March 31, 2023, 2022 and 2021, respectively.

Supplier dependency

Competition

Clinitech Laboratory Limited is operate in a competitive market and competition is based primarily on quality of service, timely delivery and pricing of such products & services. To remain competitive in the market we strive to improve our sales & marketing efforts, reduce cost and improve operating efficiencies. If we fail to maintain our strengths, our competitors will gain an advantage over us, which would adversely affect our market share and results of operation. We face competition from those who may be better capitalized, have longer operating history, have greater brand presence, and better management than us. If we are unable to manage our business it might impede our competitive position and profitability. We intend to continue competing vigorously to capture more market share and adding more management personnel to manage our growth in an optimal way.

In the future, we may also face competition from new entrants in the segment. Some of these players may already have robust business networks, which could eat into our market share. Some of our competitors are larger than we are, have greater financial resources than we do, and may be able to deliver products and services on more attractive terms or to invest larger amounts of capital into their businesses, including expenditure for better and more efficient marketing and delivery.

Peer companies comparison with Clinitech Laboratory Limited

Subsidiary companies

• Clinitech Lab (CL)

Business risk factors

• Clinitech Laboratory Limited operations are concentrated in Thane and Navi Mumbai, and any loss of business in such region could have an adverse effect on our business, results of operations and financial condition.
  • All diagnostic centres are located in Thane and Navi Mumbai region, 100% of our operations are concentrated in these regions. We have derived 100% of our revenues for the period ended September 30, 2023 and for the financial years ended March 31, 2023, 2022 and 2021, respectively.
• Clinitech Laboratory Limited have not entered into long-term contracts with our customers and typically operate on the basis of orders from our walk-in customers, any loss of customers could adversely impact Clinitech Laboratory Limited revenues and profitability.
• Substantial portion of our purchases has been dependent upon limited number of customers.
  • Purchases from our top 10 vendors constituted 80.31%, 79.76%, 92.75% and 88.19% of our Purchases for the period ended September 30, 2023 and financial years ending March 31, 2023, 2022 and 2021.
• Because Clinitech Laboratory Limited operate in a highly competitive industry, our revenues, profits or market share could be harmed if Clinitech Laboratory Limited are unable to compete effectively.
• Failure to introduce new tests, services and technologies or acquire new or improved equipment could adversely affect Clinitech Laboratory Limited business, results of operations and financial condition.
• Clinitech Laboratory Limited have experienced negative cash flows in the past. Any such negative cash flows in the future could adversely affect business, results of operations and prospects.

Financials

Key Financial Ratios

Key Operational and Financial Performance Indicators

(₹ in lakhs, except for percentage)

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Balance Sheet

(₹ in Lakhs)

Profit & Loss

(₹ in lakhs, except for percentage)

Cash Flow

(₹ in lakhs)

Capital structure

(₹ in lakhs)

SWOT ANALYSIS Clinitech Laboratory Limited

• Strengths
  • Established Reputation: With over three decades of experience, Clinitech Laboratory has built a strong reputation and trust among its clients.
  • Comprehensive Test Range: Offering a wide array of tests, including biochemical, immunology, hematology, and more, caters to diverse diagnostic needs.
  • IPO Launch: The upcoming IPO provides an opportunity for expansion and increased capital, enhancing growth prospects.
  • Technological Advancements: Utilization of advanced diagnostic technologies ensures accurate and reliable test results.
• Weaknesses
  • Market Competition: The diagnostic and pathology lab market is highly competitive, with numerous established players.
  • Geographical Limitation: Primarily operating in Navi-Mumbai, limiting its reach to a broader audience.
  • Dependency on Technology: High reliance on technology may pose risks if there are technical failures or cyber threats.
• Opportunities
  • Expansion Plans: The IPO funds can be used to expand operations to other regions, increasing market presence.
  • Growing Health Awareness: Increasing health consciousness among the population can drive demand for diagnostic services.
  • Partnerships and Collaborations: Potential to collaborate with hospitals, clinics, and healthcare providers to expand service offerings.
• Threats
  • Regulatory Changes: Changes in healthcare regulations and policies can impact operations and profitability.
  • Economic Fluctuations: Economic downturns can affect consumer spending on healthcare services.
  • Technological Disruptions: Rapid advancements in technology may require continuous investment to stay competitive.

IPO Details

Clinitech Laboratory IPO Details

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