SRL Diagnostics gets future-ready

Having emerged as a number one player in terms of its network of labs in the last fiscal year, Gurugram-headquartered SRL Diagnostics is positioning itself strongly in the domestic diagnostic market. The subsidiary business of Fortis Healthcare Ltd, SRL, the second largest player in terms of revenue (Rs1,618 crore in FY22) after Dr Lal PathLabs (Rs2,087 crore), has made big strides in the last few years. The company was formerly known as Super Religare Laboratories. SRL befitted when the second largest healthcare operator in the world, Malaysia’s IHH Healthcare, which also has a significant presence in the global diagnostic market, picked up 31.1 per cent stake in Fortis Healthcare in 2018 after winning a prolonged four-way bidding war. 

Despite Covid-related challenges, SRL has aggressively expanded its network in focused geographies. In the last fiscal year, it has significantly grown its footprint by adding over 800 customer touchpoints (CTPs) and embedding over 1,700 direct clients. Its network currently consists of over 400 labs, 3,000+ customer touchpoints and 5,600+ direct clients with daily collections of samples.

In an endeavour to get closer to customers and provide services at their doorstep, the company has consistently added to its network of touchpoints and thus improved its CTP per lab to 15.3. This has also helped it improve its B2C share to 55 per cent (as against 45 per cent B2B) from around 45 per cent around 3 years ago. 

Pan-India presence

Backed by the International Finance Corporation as also PE players like Resurgence PE Investments and NYLIM Jacob Ballas India Fund III, the company, enjoying a pan-India presence across 600 cities in 28 states and 8 UTs, is one of the largest employers in the diagnostics space with 7,000-odd employees, including over 450 pathologists and radiologists. IFC, along with the two PE players, currently holds 31.5 per cent of the company, while the promoter group (Fortis Healthcare) holds 57.68 per cent and others 10.80 per cent. 

Apart from the domestic market, SRL also caters to international markets like South Asia, Africa, Dubai and other part of Middle East. Its international network consists of more than 120 collection centres and 800 direct clients. These centres send samples in a temperature-controlled environment to SRL reference labs in India, which process them and make the reports available on a real-time basis using SRL’s efficient and highly acclaimed IT system and robust logistics network.

The company has also put up state-of-the-art labs in Dubai, Kathmandu and Biratnagar in Nepal. Started in 2003, the international division, currently contributing around 2 per cent to the revenue, also assists its international clients and partners in the planning and implementation of laboratory management services, along with complete IT support through its indigenously developed lab management software – CLIMS.

“The last couple of years, in particular, have been quite eventful for us. Despite the pandemic-related challenges, we have been aggressively expanding our network in focused geographies and are looking to maintain this momentum and our leadership position going ahead. We have built up a wide test menu consisting of the most basic tests to super specialised and advanced genetic tests. In order to be future-ready, we are now on the path to building our next generation diagnostic capabilities. We intend to position ourselves as a full-service clinical lab which is preferred by patients and referred by doctors,” states Anand K, CEO, SRL Diagnostics. 

SRL’s high-flying moment came in 2021 when it was selected as the official diagnostic lab partner by the Indian Olympic Association to provide diagnostic services to Indian athletes and officials for the Tokyo 2020 and Paris 2024 Olympics. As the first corporate lab chain in the country, SRL, in the past 25 years, has been a trendsetter and an innovator in the industry. Recently, it became the country’s first lab to be integrated with Ayushman Bharat Digital Mission as a Health Information Provider. SRL’s lab software, CLIMS, is now ABDM-integrated under the National Health Authority. 

Next generation tests

SRL has been building its next-generation diagnostics capabilities. Over the last two years, it added close to 200 tests to its test menu of around 4,000 tests, with a special focus on genomics in cancer, reproductive disorders, rare diseases and inherited disorders. Pre-implantation genetic screening & pre-implantation genetic diagnosis, whole genome sequencing for tuberculosis, Myeloid Panel, TERT mutation analysis on pyrosequencing, are just some examples of such solutions. Next generation diagnostic tests, which currently contribute 2-3 per cent to the company’s overall revenue, are expected to expand its share to around 10-15 per cent in the next 3-5 years. 

“Currently, we are undertaking a number of new initiatives, especially in the area of genomics, proteomics and pharmacogenomics that will enable us to be ready for the next big shift in diagnostics. This year, we will particularly look at co-marketing initiatives, clinical trial studies and contract validation for kit manufacturers and technology providers, and the co-development of new biomarkers as one of our key areas of growth. Besides, we are progressing well on our project with Microsoft to develop an AI algorithm for the diagnosis of breast pathologies. This would be a breakthrough in digital pathology to usher in new AI driven tools in histopathology,” explains the SRL CEO.

Experts believe that SRL’s focus on genomics, next generation diagnostics, along with its work in digital pathology and specialised testing categories will help differentiate it and also enable it to be future-ready. SRL has been at the forefront of embracing change and quickly adapting to changing customer expectations. 

The last two years have been difficult on account of frequent disruptions due to new variants of Covid-19. Repeated infections, supply chain disruptions and a shortage of essentials have created challenging times for the healthcare industry as a whole. In fact, the pandemic has acted as a catalyst for change in how the industry is perceived amongst patients, clinicians, regulatory bodies and even the general public.

With a renewed health and fitness consciousness, the company has seen a considerable pickup in its wellness portfolio. The growth in the preventive healthcare/wellness segment has been driven by well curated wellness packages coupled with its offering of smart health reports that are easy to understand. SRL’s home collection service capabilities are now available in over 150 cities across India. 

SRL has, in recent times, been focussing on various digital priority areas. Its digital revenues doubled in FY22 compared to FY21. As part of its digital drive, the company collaborates with online platforms to reach out to new customers. It has taken a slew of measures to improve the customer experience – from live phlebotomist tracking to introducing smart health reports and being available on demand on messaging platforms like WhatsApp.

The WhatsApp chatbot, especially, enables customers to book tests, get a report status, get reports delivered securely, solve any difficulties understanding the same and search for the nearest centre.

“We have ramped up our testing capacity and opened more centres and drive-through sites to collect samples across the length and breadth of the country. We have 22 RT-PCR labs and have added 800 customer touchpoints in the last fiscal year, which is the highest addition in the history of SRL. This has helped us in our endeavour to get closer to our customers and provide services at their doorstep. All these initiatives around customer-centricity and digital transformation have helped us build an organisation that is technologically ready for the future,” says Anand. 

Importantly, the business has continued to have a well-diversified geographical mix without over-dependence on any region, allowing it to optimally capitalise on its pan-India network. SRL’s regional revenue contributions are 34 per cent from the North, 23 per cent from the West, 27 per cent from the South, 14 per cent from the East, and 2 per cent from international markets. 

Financial performance

During the last fiscal, the company recorded a revenue growth of over 52 per cent to around R1,618 crore as compared to the previous fiscal year, even as the PAT was up 252 per cent to R636 crore. The business served a total of over 21 million patients during the year, compared to 11 million during FY21. It completed 44 million tests in FY22 as compared to 23 million tests performed in FY21. Apart from other initiatives, the improved financial performance has been primarily attributed to the acquisition of DDRC SRL Diagnostics Pvt Ltd and the increase in treating Covid and its allied tests. 

In the last couple of years, Covid tests have been contributing over 25 per cent to SRL’s annual revenue. However, by Q1 FY23, this contribution was down to around 6 per cent, adversely impacting growth, and revenue was down to around Rs333 crore from Rs441 crore in Q1FY22. Analysts are of the view that though the dwindling Covid revenue could result in short-term aberrations, given SRL’s size, scale and spread, it should be able to mitigate this. SRL’s conscious initiative to enlarge its next generation diagnostics portfolio and other efforts will go a long way in adding to its topline in a profitable manner. 

Early last fiscal, the company completed the acquisition of its 50:50 joint venture, DDRC SRL, by acquiring the remaining 50 per cent for a consideration of Rs350 crore. This acquisition has given SRL direct access to Kochi-based diagnostic player DDRC’s 200 labs in the southern state. SRL had become a 50:50 joint venture partner of DDRC, when it first acquired a 50 per cent stake in 2010.

Promoted by Joy Joseph and his family, 35-year-old DDRC is a dominant player in the state. The transaction will help SRL consolidate its position in Kerala. It also complements SRL’s strategy of scaling the B2C business and expanding its product portfolio in the areas of lifestyle diseases, specialised tests and preventive packages.

The diagnostic service provider, which commenced its first reference lab in Mumbai in 1996, has recently launched a state-of-the-art reference laboratory at Ashok Nagar, Chennai. Spread across over 20,000 sq ft, the lab has the capability to conduct more than one lakh tests each month, ranging from the most routine tests to esoteric and genetic ones. The facility will also be a ‘Centre of Excellence’ for transplant immunology. 

Apart from the highly specialised compatibility testing and evaluation needed for successful transplants, the Centre of Excellence will also focus on research, academics, knowledge sharing and skill building. The lab also houses all clinical laboratory departments including clinical chemistry, haematology, histopathology, biochemistry, flow cytometry, microbiology, etc.

With this, SRL now has a network of six reference labs. It has one global reference laboratory in Mumbai and five regional reference laboratories in Gurgaon, Chennai, Bengaluru, Kochi and Kolkata. Besides, there are four Centres of Excellence across HLA & transplant immunology, histopathology & AI, genomics and molecular pathology.

In fact, the company currently has the largest network of 45 NABL accredited labs, including two CAP accredited labs (College of American Pathologists, the global gold standard in laboratory accreditation) in Mumbai and Dubai. SRL’s network of labs also includes state reference laboratories in different states that help it provide reports in the shortest possible time. Moreover, the STAT or satellite laboratories in Tier II and Tier III cities and towns help it service the deeper pockets of many regions.

The company also has a full-fledged R&D division established as early as 2001. The R&D team works on new assay (tests) development, new technology evaluation, test validations, translational multidisciplinary research, contract research (clinical and biotechnological) and knowledge management activities. 

“Over the last two years, one of our strategic priorities has been to improve the retail network; ie the B2C part. We have considerably strengthened our channel mix increasing our B2C share to 55 per cent as compared to 45 per cent around three years ago. To this effect, we have been consistently adding new network touchpoints and have reinforced our network by adding close to 1,500+ centres and over 20 new laboratories,” says Anand who joined the company in August 2020 from the Apollo Hospitals Group where he was the CEO of its diagnostic business unit AHLL, based in Hyderabad.

Anand has over 25 years of work experience in the healthcare industry, specialising in diagnostic and laboratory services in India, South Asia, Africa and the Middle East. He is a proven healthcare leader with extensive experience in leading diagnostic companies, including Metropolis Healthcare, Neuberg Diagnostics and others. Organised players today hold around 16-17 per cent of the industry and Anand has played a big role in this movement through the 20+ acquisitions that he has steered over the past 25 years.

B2C presence

Recently, he also played a decisive role in completing the 100 per cent acquisition of Kochi-based diagnostic player DDRC (by SRL) which has put up a strategy to expand both organically and inorganically. In the last few years, SRL has positioned itself quite strongly by building up capabilities in existing as well as newer areas.

The company is now consciously moving towards consumers by increasing its B2C presence in the domestic market which is rapidly changing in favour of large, organised players. SRL is looking to add 1,000 more collections centres by the next year and also 30-40 labs in the next year. It has plans to invest around Rs100 crore in the next couple of years in ramping up its infrastructure and building up newer capabilities. 

“The scope for growth in the Indian healthcare industry, especially the diagnostics industry is considerable. The shift in industry trends, wherein the market share is moving from the unorganised to the organised sector has accelerated. Consumers prefer the assurance of quality and efficiency offered by a branded, pan-India player, something that unorganised players cannot offer. Also, post the pandemic, people are paying more attention to their health,” says Dr. Arvind Lal, Executive Chairman, Dr Lal PathLabs.

The domestic diagnostic industry is one of the fastest expanding service verticals in India. The industry is estimated at $9 billion, and is anticipated to increase at around 10 per cent CAGR over the next 5 years. 

Most of the market is dominated by the fragmented standalone centres while the largest organised player has a market share of less than 5 per cent. The diagnostic chains command 16 per cent of the market share and around 10 per cent of the total market share is with national players. Also, more than 65 per cent of the business comes from urban areas. So, there is a huge opportunity for national players to grow organically and inorganically in highly penetrated areas like cities as well as rural areas where penetration is low.

“A growing preference for evidence-based treatment and personalised medicine will expand the role that diagnostics plays in clinical decision-making. Increased insurance penetration, aging population, rising income levels, preventive care and wellness, increasing incidence of chronic and lifestyle diseases, are growth levers that will propel the industry forward. We have taken measures to improve productivity, automate processes to build efficiencies and better leverage our existing infrastructure. As a healthcare organisation that is committed to enabling superior care, we have always stayed a step ahead and walked the extra mile for all our stakeholders. Our resilience, ability to adapt, and a progressive vision will chart the way for the company’s performance going ahead,” says Anand.

With all these developments in place, SRL is betting big on the rapidly-transforming domestic diagnostic market which is consolidating in favour of large, organised players. Over the last few years, particularly during the pandemic, it has shown not only a great deal of resilience but has also meticulously ramped up its overall testing and delivery network.

The company has consciously tried to connect with consumers by improving its presence in the B2C segment. Moreover, it is also building its capabilities in next generation diagnostics, which will not only help diversify its portfolio but also be a differentiating factor in a market where new players are also entering to add to the competition.