Diagnostic demand rises in towns; organised players lead expansion plans

This report has been updated  Demand for diagnostic testing is rising rapidly from smaller towns pushing the organised diagnostic services players to focus on penetrating deeper into these markets.

 

According to Aditya Kandoi, CEO, Redcliffe Labs, tier-2, tier-3 and smaller towns are growing at a 25 per cent compounded annual growth rate (CAGR), while the metros are growing at 10 per cent (due to high base).

 

According to rough estimates, tier-2 and 3 towns contribute around 40 per cent of the overall industry revenues for diagnostics, while the remaining come from the top cities. While the metro markets are growing at 10 per cent, the smaller towns are growing at 25 per cent or so. Kandoi feels that within 2-3 years the revenue split between big cities and smaller towns will be 50:50.

 

The diagnostics industry in India is currently valued at $14-15 billion and is growing at 13-14 per cent annually. The share of the organised sector is almost 25 per cent in this segment (15% in labs and 10% in radiology).

 

By 2030, 140 million additional households in India will be classified as middle-class, and additional spend on healthcare is expected to grow by 3-4 times. Diabetes, cardiovascular disease and cancer burden will reach 226 million by 2030.

 

The Healthcare Federation of India reports that over 50 per cent of aspirational districts identified by NITI Aayog -- which lack essential infrastructure -- are served by diagnostic chains. Public-private partnerships further extend access to diagnostic services in tier 2 and tier 3 cities, felt Anand K, Managing Director & CEO, Agilus Diagnostics. 

 

“At Agilus Diagnostics, 70 per cent of our customer touchpoints are in these cities, contributing to 60 per cent of our overall revenue. We plan to expand deeper in the 25 states we are present in. 60 per cent of our future expansion will be in tier 2 and tier 3 cities,” he told Business Standard.

 

Similarly, tier-2 and 3 towns contribute around 34 per cent of Metropolis Healthcare’s revenues as of the first half of financial year 2025 (H1FY25).

 

Metropolis currently has a presence in over 700 towns, with a significant portion located in tier 2 and tier 3 cities. The company plans to expand its reach to more than 1,000 towns in the next 12–18 months, further strengthening its network in these regions.

 

Surendran Chemmenkotil, CEO, Metropolis Healthcare said, “The revenue from tier 3 cities alone has grown by an impressive 23 per cent Y-o-Y, reflecting the increasing importance of these markets in the company’s overall growth strategy. This strong growth is driven by factors such as rising healthcare awareness, expanding healthcare infrastructure, and the growing need for specialised diagnostic services in smaller towns.”

 

Approximately 50 per cent of new lab additions by Metropolis are planned in these regions. It already has 46 labs in tier 2 and tier 3 towns, and is on track to establish an additional 25 new labs by FY25.

 

Newer players like Redcliffe Labs have consciously chosen to focus on tier-2 and 3 towns, from where the lab chain draws almost 60 per cent of their revenues. However, around 80 per cent of its network is in smaller towns.

 

Redcliffe Labs raised $42 million in September. Of this around $20 million is going to be spent on growth and expansion in underserved areas, and the remaining is going to go towards making acquisitions in radiology.

 

Kandoi highlighted that 70 per cent of the Indian population lives in smaller towns and villages, but the supply is not even half of what we have in the metros. Due to this under penetration, it becomes a commercially viable option for the diagnostic players.

 

In fact, Kandoi highlighted that patients in smaller towns are willing to pay a premium for better quality diagnostics. There is lesser competition than metros, and the ticket sizes are better at times.

 

This rapid growth is driven by a combination of changing consumer preferences, rising awareness, and improved access to advanced healthcare services, the industry insiders felt.

 

“Traditionally, these markets relied on primary care, but we are now seeing a shift toward specialised diagnostics, preventive healthcare, and even tertiary care. With better infrastructure, rising incomes, and greater access to information, people in these markets are prioritising their health like never before, leading to a surge in demand for quality diagnostics and treatments,” Chemmenkotil said.

 

Healthcare companies have recognised this potential and are taking action.