Is India’s diagnostics sector poised for a long-term growth upswing? Axis Securities sees opportunity in three stocks

Domestic brokerage firm Axis Securities, in its latest report, highlighted that the domestic diagnostics sector offers a compelling multi-year investment opportunity, citing a combination of structural demand visibility, scalable business models, strong cash generation, and improving returns.

The brokerage believes the sector is entering a secular upcycle, with improving utilization, stronger cash conversion, and disciplined expansion creating an attractive combination of growth and quality.

Within this theme, Axis Securities initiated coverage of Dr Lal PathLabs, Vijaya Diagnostic Centre, and Nephrocare Health Services with BUY recommendations, citing potential upside of 20%, 20%, and 21%, respectively.

"We strongly recommend that investors consider BUY positions in Dr. Lal PathLabs, Vijaya Diagnostic Centre, and Nephrocare Health Services to capture the secular growth opportunity in India’s organized diagnostics and specialized healthcare ecosystem," the brokerage said.

Dr. Lal PathLabs: Target price ₹2,315; upside potential 20%

Axis Securities has assigned a 'buy' recommendation to Dr Lal PathLabs, with a target price of ₹2,315 per share, implying 20% upside from the current market price (CMP) of ₹1,934.

According to the brokerage, the company combines a pan-India hub-and-spoke network with a strong B2C franchise, which contributes more than 70% of revenue and provides direct access to a large and diversified patient base. Its National Reference Laboratory in New Delhi anchors the network and supports high-complexity testing, while its extensive retail presence provides scale and brand recall.

It highlighted that the company's zero-net-debt balance sheet, strong operating cash flow generation, and healthy EBITDA margins of around 26%–27% further strengthen the investment case. The brokerage believes the company's brand, scale, and network density position it well to capture increasing consumer preference for organized diagnostics and sustain profitable growth.

Vijaya Diagnostic Centre: Target price ₹1,730; upside potential 20%

Axis Securities also assigned a 'buy' rating to the stock with a target price of ₹1,730 per share, implying an upside potential of 20% from the CMP of ₹1,437.

Vijaya stands out through its integrated B2C model, combining pathology with high-end radiology services such as MRI, CT, and PET-CT under one roof. With more than 140 centers and a strong leadership position in South India, the company benefits from higher customer convenience, cross-selling opportunities, and strong patient stickiness.

The brokerage mentioned that the company's differentiated integrated model has translated into best-in-class EBITDA margins of around 39%–40%, demonstrating the strength of its operating economics. The brokerage believes continued network expansion, increasing test complexity, and deeper penetration of preventive and chronic diagnostics can support sustained earnings growth and justify a premium valuation.

Nephrocare Health Services: Target price ₹750; upside potential 21%

For Nephrocare Health Services, too, the brokerage has given a 'buy' rating and sets a target price of ₹750 per share, implying an upside potential of 21% from the CMP of ₹616.

Nephrocare is India's and Asia's largest specialized dialysis service provider, with 490 clinics across 269 cities spanning India, the Philippines, Uzbekistan, and Nepal. The brokerage believes that the company's diversified expansion model across captive hospital units, public-private partnership (PPP) contracts, and standalone centers provides multiple growth avenues while reducing dependence on any single format.

The company's strong execution, with revenue from operations growing at a 31.5% CAGR to ₹756 crore in FY25, alongside a healthy EBITDA margin of 22.1% and an impressive operating cash flow (OCF)-to-EBITDA conversion of 81.2%.

Given the non-discretionary nature of dialysis treatment, rising end-stage renal disease (ESRD) incidence, and increasing access to organized renal care, the brokerage sees a long runway for Nephrocare to scale its network while maintaining strong cash generation.