The Indian diagnostics sector is poised for a robust performance in Q4FY26, with analysts forecasting significant revenue and profit growth, outshining its healthcare counterparts due to strong domestic demand and insulation from global geopolitical risks.
Photograph: Ihsaan Haffejee/Reuters
Key Points
- The diagnostics sector is expected to post the highest Q4FY26 revenue and profit growth within the healthcare sector, driven by picking volumes and steady realisations.
- Unlike pharma and hospital segments, the diagnostics sector is domestically focused, making it less vulnerable to geopolitical risks like the Iran war or headwinds in the US market.
- Major listed diagnostic entities are projected to achieve 15-20 per cent revenue growth in Q4, significantly outperforming the mid-single-digit growth expected from the pharma sector.
- Analysts anticipate strong margin gains, particularly for Vijaya Diagnostic Centre, due to operating leverage, mix optimisation, bundled test packages, and increased customer awareness for preventive testing.
- Brokerages like Emkay Research, Antique Stock Broking, and JM Financial Research have ‘Buy’ ratings on key diagnostic stocks, projecting significant upsides due to improved growth visibility and corrected valuations.
The diagnostics sector is expected to have outperformed peer segments of pharmaceuticals and hospitals within the healthcare sector in the March quarter of financial year 2025-26 (Q4FY26). With volumes picking up and realisation remaining steady, the segment is expected to post the highest Q4 revenue and profit growth in the sector.
Domestic Focus Drives Resilience
While stocks in the diagnostics sector had underperformed their healthcare peers prior to the Iran war, their performance has been better than the benchmarks as well as the pharma and hospital sector stocks post February 28. In addition to better growth trajectory, the diagnostics space is less impacted by the Iran war as it is completely domestic focussed. While the hospital stocks have an exposure to the West Asia market and the medical tourism segment and the pharmaceutical segment is weighed down by multiple headwinds in the US market, diagnostics is not impacted.
The larger listed entities in the space are expected to post a 15-20 per cent revenue growth in Q4, while the pharma sector is expected to be a laggard, posting a mid-single digit growth.
Analyst Projections and Margin Expansion
Anshul Agrawal and Vijay Sethia of Emkay Research expect yet another strong quarter for diagnostics players, on the back of stable pricing environment, and rising customer awareness for preventive testing. They expect Metropolis Healthcare to post 24 per cent revenue growth, followed by Vijaya Diagnostic Centre at 20 per cent and Dr Lal Pathlabs at 11 per cent.
Margin gains are expected to be led by Vijaya Diagnostic Centre with an expansion of 175 basis points year-on-year (Y-o-Y). Focus on spoke additions in FY27 should accelerate margin momentum, the brokerage said. It has a ‘Buy’ rating on all three diagnostic stocks, with target prices projecting upsides of 27-40 per cent. These are the highest potential gains across the healthcare sector.
Optimisation and Operating Leverage
Antique Stock Broking expects mix optimisation and bundled test packages to help diagnostic companies post robust volumes. Also, continued traction in wellness tests augur well for test/patient volumes, point out Sumit Gupta and Ankur Bhadekar of the brokerage. Operating profit for the companies in the sector is expected to grow by 21 per cent Y-o-Y, with margins expanding 110 basis points to 27.4 per cent driven by increased operating leverage. Adjusted net profit, too, is expected to grow at a robust 20 per cent Y-o-Y. The brokerage is bullish on Vijaya Diagnostic and expects the stock to deliver an upside of 19 per cent.
Sector Upgrade and Geopolitical Insulation
JM Financial Research has upgraded the diagnostic sector as growth is coming back with a shift from online platforms to offline players, correction in valuations and limited exposure to geopolitical risks. It expects the diagnostic sector to be a standout performer in the March quarter, led by a recovery in core markets. Analysts led by Amey Chalke of the brokerage citing management feedback say that patients are shifting back from online platforms to offline players, while business-to-business (B2B) demand from hospitals is also improving.
They expect the sector to deliver revenue and operating profit growth of 15-19 per cent, with Vijaya leading in terms of both organic growth and margins. The sector could deliver a 98 basis points Y-o-Y margin expansion on account of operating leverage. The analysts have upgraded the diagnostic sector over hospitals due to correction in valuations, improving growth visibility and limited exposure to geopolitical risks. It has a ‘Buy’ rating on Dr Lal, Vijaya Diagnostic and Metropolis and a ‘Sell’ rating on Krsnaa Diagnostics. Potential upside for these stocks is 21-58 per cent.
