Thyrocare Technologies has seen a decline of 44% in 2022 so far.
Covid-19 has influenced every sector in the past two years. Many were beaten down and even the fundamentally strong stocks fell.
However, a few sectors saw their fortunes improve. Those stocks turned out to be multibagger stocks as soon as the tide turned. One such sector was the diagnostic sector.
These stocks saw a sharp decline in earnings during the initial Covid-19 wave. However, the industry saw a significant rise in revenue and valuation in the second and third covid wave.
As people became more aware of their health, Covid testing and other testing increased and diagnostic stocks were the biggest beneficiaries.
However, since the beginning of 2022, the fortune of the sector has faded. The stock performance of this sector has more than halved.
All companies have seen a sharp fall in their share price.
India’s longest-listed pathology company Thyrocare Technologies has seen a decline of 44% in 2022 so far.
So, what led to this downfall? And will the fortunes improve again?
Read on to find out more…
Why Thyrocare shares have almost halved in 2022
The primary reason for the correction in Thyrocare can be the decline in the PE multiple of the company.
The company, in March 2021, saw a PE multiple of 43x. This was higher than the average PE multiple of 3 years of 33%.
The cause of this high PE ratio was surging healthcare spending and demand for Covid tests. It led to multi-fold share-price gains for the pathology firms.
As Covid cases are easing and nations are reopening, those profits have begun to disappear. This is due to the reduction in the demand for the Covid tests.
As a result, net sales of Thyrocare saw a YoY decline of 11.1% to Rs 130.6 crore from Rs 146.8 crore in the March 2022 quarter.
The operating profit of the company saw a YoY reduction of 27.9% to Rs 39.7 crore.
This reduction in profit has led to a fall in the PE multiple to 18x.
As can be seen, diagnostic companies’ operational performance in the March quarter was subdued as Omicron led-wave weighed on non-Covid business. This even brought down Dr Lal PathLabs to a large extent.
Another reason why the stocks from diagnostics sector are under pressure is due to intense competition and consolidation challenges.
Tata group-owned platform Tata 1mg recently announced its pilot launch of crucial laboratory tests in Bengaluru. It’s offering tests at as low as Rs 100.
This is at a very low cost as compared to what Thyrocare and Lal PathLabs are charging.
These were the main two reasons why Thyrocare share price is falling.
Another probable reason is promoter pledging.
While promoter pledging isn’t really a bad thing, it is considered as a red sign by many.
In September 2021 quarter, promoters of Thyrocare pledged their entire holdings. At present, promoter pledging stands at 100%.
The road ahead for Thyrocare and other diagnostic players…
Recently, Thyrocare Technologies said that it has stopped investing in the business-to-customer segment. It’s focusing on growing its core business of being a backend testing platform servicing online health platforms, including its parent PharmEasy, franchisees, doctors, and hospitals.
We also reached out to Tanushree Banerjee on what she has to say on diagnostic sector stocks.
Here’s Tanushree,
As the demand for Covid testing declined and several mew diagnostic businesses got listed, the prospects of sustaining margins seemed dimmer in recent quarters. Cut throat pricing by VC funded e-pharmacies and diagnostic startups also threatened to dethrone market leaders.
The concerns are not entirely unfounded. It may take a slight while for the market leaders to recoup their market share without compromising on margins. Markets have reacted sharply to such near term concerns with stocks across the sector getting back to near 2020 lows.
However, for long term investors there is a silver lining.
Pan Indian and technologically astute businesses can use the opportunity to strengthen the business during the crisis.
How shares Thyrocare Technologies have performed recently
So far in 2022, shares of Thyrocare have fallen over 40%.
The stock touched its 52-week high of Rs 1,374.9 on 13 August 2021 and a 52-week low of Rs 603 earlier this week on 21 July 2022.
About Thyrocare Technologies
Thyrocare Technologies Limited is an Indian multinational chain of diagnostic and preventive care laboratories
The company is one of the leading pan-India diagnostic chains that conduct an array of medical diagnostic tests and profiles of tests.
API Holdings, the parent company of Indian E-pharmacy and online healthcare aggregator PharmEasy, purchased a controlling 66.1% interest in the company.
To know more about Thyrocare, check out Thyrocare’s financial factsheet and Thyrocare news and analysis.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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