KRSNAANSEQ4 FY2022June 02, 2022

Krsnaa Diagnostics Limited

10,783words

186turns

14analyst exchanges

6executives

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Management on call

Rajendra Mutha

CHAIRMAN & WHOLE TIME

Pallavi Bhatevara

MANAGING DIRECTOR - KRSNAA DIAGNOSTICS LIMITED

Yash Mutha

WHOLE TIME DIRECTOR - KRSNAA DIAGNOSTICS LIMITED

Ravinder Sethi

CHIEF OPERATING OFFICER - KRSNAA DIAGNOSTICS LIMITED

Pawan Daga

CHIEF FINANCIAL OFFICER - KRSNAA DIAGNOSTICS LIMITED

Bharat Celly

EQUIRUS SECURITIES PRIVATE LIMITED

Key numbers — 40 extracted

Rs.455 Crore

enues within the industry in both Q4 and FY2022. On a full year basis, we delivered revenues of Rs.455 Crores which is in line with our stated guidance of around Rs.450 Crores for the year. We have delivere

Rs.450 Crore

basis, we delivered revenues of Rs.455 Crores which is in line with our stated guidance of around Rs.450 Crores for the year. We have delivered a robust topline growth of 15% year-on-year led by growth in our

15%

ted guidance of around Rs.450 Crores for the year. We have delivered a robust topline growth of 15% year-on-year led by growth in our core business of radiology and pathology which grew by 70% and

70%

of 15% year-on-year led by growth in our core business of radiology and pathology which grew by 70% and this growth was offset by a decline of 78% year-on-year in the COVID- 19 revenues. Our core bu

78%

business of radiology and pathology which grew by 70% and this growth was offset by a decline of 78% year-on-year in the COVID- 19 revenues. Our core business contribution was 93% with radiology and

93%

set by a decline of 78% year-on-year in the COVID- 19 revenues. Our core business contribution was 93% with radiology and pathology contributing 55% and 38% to the revenues respectively whereas COVID-

55%

D- 19 revenues. Our core business contribution was 93% with radiology and pathology contributing 55% and 38% to the revenues respectively whereas COVID-19 business contributed 7% to the total revenu

38%

evenues. Our core business contribution was 93% with radiology and pathology contributing 55% and 38% to the revenues respectively whereas COVID-19 business contributed 7% to the total revenues in FY

ogy contributing 55% and 38% to the revenues respectively whereas COVID-19 business contributed 7% to the total revenues in FY2022. Our EBITDA was at Rs.133 Crores which is up by 40% year-on-year

Rs.133 Crore

ely whereas COVID-19 business contributed 7% to the total revenues in FY2022. Our EBITDA was at Rs.133 Crores which is up by 40% year-on-year and we maintain strong margins of 29.3% in this year. Furthermor

40%

contributed 7% to the total revenues in FY2022. Our EBITDA was at Rs.133 Crores which is up by 40% year-on-year and we maintain strong margins of 29.3% in this year. Furthermore, it is encouraging

29.3%

Our EBITDA was at Rs.133 Crores which is up by 40% year-on-year and we maintain strong margins of 29.3% in this year. Furthermore, it is encouraging to see that a profitability has more than doubled

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Guidance — 20 items

Yash Mutha

opening

“I hope you all have had the opportunity to go through the presentation and we will be happy to take any questions afterwards.”

Yash Mutha

opening

“On a full year basis, we delivered revenues of Rs.455 Crores which is in line with our stated guidance of around Rs.450 Crores for the year.”

Yash Mutha

opening

“In total we have added 20 radiology, 103 tele-reporting and 118 pathology centers which are expected to contribute meaningfully in this next fiscal year.”

Yash Mutha

opening

“During this period, our revenue from operations has grown at a CAGR of 47% and net profits grew at a CAGR of 101%.”

Yash Mutha

opening

“Radiology and pathology revenue grew at a CAGR of 40% and 52% respectively during the same time.”

Yash Mutha

opening

“Looking ahead we are confident that we will be able to maintain our growth momentum and therefore we have started a clear strategic roadmap to double the revenue and triple the profitability in next two to two-and-a-half years.”

Yash Mutha

opening

“The growth will be driven by our five building blocks for which I will hand over the call to Dr.”

Ravinder Sethi

opening

“Third pillar, if you have looked at our center's portfolio 36% of the growth blocks constitutes of semi-matured and newly launched unit, which represents Krsnaa's portfolio is still very young with maturing of centers we expect patients, test count to increase and profitability is expected to improve significantly in coming years.”

Ravinder Sethi

opening

“This will be an asset light expansion where we will be reaching out to direct consumers under our PACH model wherein P stands for pick up point tie-ups with hospitals, nursing homes, A stand for awareness, which is creating awareness through healthcare camps, wellness packages, C stand for collection center additions and H stands for home care services, which we will be launching.”

Yash Mutha

“Basically, when it comes to public-private partnerships with the government hospitals, it is not that we look at or we target, basically the government publishes a tender and these the tenders are normally rolled out for district level hospitals where there is a requirement to set up diagnostic centers, whether the CT scan, MRI or the pathology center.”

Risks & concerns — 7 flagged

We have delivered a robust topline growth of 15% year-on-year led by growth in our core business of radiology and pathology which grew by 70% and this growth was offset by a decline of 78% year-on-year in the COVID- 19 revenues.

— Yash Mutha

So government is also aware of this and they are also taking equal measures to ensure that the players or the partnership that is there as part of the PPP model, the partners do not suffer and they do get their dues in time but of course there are procedural delays normally, these processes are lengthy but we do not see a significant challenge going forward.

— Yash Mutha

I just want to say where the prices are fixed as per the contract so there is no external pressure for us to reduce the prices.

— Yash Mutha

And lastly on my end would cost on health pricing pressure that the newer players are getting in.

— Purvi

Number two our contracts are typical 10-year contracts where in the prices are also embedded and fixed so there again we do not see a pricing pressure.

— Yash Mutha

If you look at realization has been obviously lower than the last year and even on the average FY2022 realization per unit either in radiology or pathology in Q4 has been lower than your average year revenue so that run rate is likely to continue or do you see any risk here that realization like in radiology is going to improve or we have some pressure it can go down so if you can throw light segment wise.

— Ranvir Singh

The prices are contractually embedded so we do not see any pricing pressure going forward.

— Yash Mutha

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Q&A — 14 exchanges

Good afternoon everyone. My first question is I just want to understand the kind of government hospitals that were targeting for the PPP model or all the hospitals that we are targeting going to be having complex surgeries, so the reason that I am asking this question is that I understand that a large chunk of your test and inflow of patients will be coming from complex surgery patients right, so I just want to get a sense of what kind of hospitals we are targeting and what is the average size of the government hospitals where we want to set up centers?

Yash Mutha

Basically, when it comes to public-private partnerships with the government hospitals, it is not that we look at or we target, basically the government publishes a tender and these the tenders are normally rolled out for district level hospitals where there is a requirement to set up diagnostic centers, whether the CT scan, MRI or the pathology center. By virtue of which when you look at it from a complexity perspective or most of the district hospitals are where you will see most of people coming from the talukas and villages coming and visiting these hospitals for various modalities whether

Thank you for taking my question Sir. Just from the last question that is other financial asset which is a deposit, so why it is a jumped up on a Y-o-Y side like from a 21 to 22 there is a significant jump in that number?

Pawan Daga

So majority of chunk in other financial assets is mainly of fixed deposits which is more than one year and some of the IPO proceeds which is not utilized and that is part under the fixed deposits and that is also lying in the other financial assets that is why we see a jump year- on-year basis. Okay, fine Sir. The next question is related to the utilization and I can see that we are at a as per your capacity your utilization level at a 40% or 48% for a CT and MRI, so at what level do you expect this utilization to move on a blended basis? So when you mean move on as in how this capacity utiliz

My question is regarding the clinics that have been put so how long does it take for a center to mature usually and what will be the payback period?

Yash Mutha

Typically for our CT scan payback normally is in the range of 3 to 3.5 years max. MRI normally ranges up to 5 years given the investment, is also higher and our centers normally mature within 3 years of time. The first 6 months of the year is normally the installation phase where people start getting to know that there are these services that are being available and as more awareness is being created more mouth to mouth publicity happens more and more, people start coming to our centers. From a pathology perspective the payback could be just a couple of months as well. Couple of months payback

Thank you and good afternoon. Sir I have just two questions one is mainly on the account that you have already explained why the increase in financial asset so I just wanted to understand are this deposits refunded after a year or whatever the time period is and secondly on the receivable days as you explained because financial health agencies are prompted paying off so what changed this year compared to the last four years?

Yash Mutha

To answer your first question, in terms of the security deposits basically all these deposit that we have with the private hospital. These are all on refundable basis. Even the end money that is being given to the authorities to various tenders they are refundable so basically we have access to all the deposit and as and when the tenure gets over or the terms get over these deposit will be refunded back to us. To answer the second question in terms of collection and receivable days, as I mentioned earlier today across various firms we are also seeing this trust in terms of establishing stronge

Thanks for the opportunity. Just a couple of questions how much of growth that we are charting over next two years should come from B2B model and how much of it should be coming in from B2C model, a ballpark number that you may have.

Yash Mutha

If you see most of the growth that we are expecting to come is from what we call the B2C which is basically B2B to B2C through the PPP model that we have already established. Having said that and to what Dr. Sethi has also mentioned where we are trying to enter into the retail pathology market in the B2C side so I think we have aspirations to grow this. Initially it might be single digit but gradually we will also grow it to double digit contribution coming to our overall revenues. So best portion of our business is still dependent on PPP model. Yes for the next fiscal growth most of the cente

It was pretty impressive to showcase that guidance of doubling your revenues and tripling your profits in next two years so what should be the steady state margins we should be able to do because I think this year we moved to 29% as a full year but the Q4 numbers were at 26% and as you have mentioned that the prices are more or less fixed what kind of cost escalation levers do we have in passing on the prices and what could be the sustainable margins for us.

Yash Mutha

As I was mentioning, if you see the Q4 we have made investment in our employees for the new centers that are being added up going forward we certainly see an improvement in our margins as the centers start maturing. Whatever EBTIDA margins that we are currently seeing around 29%, we expect that to increase up to 30% to 35% and furthermore. From a cost lever perspective, as I mentioned earlier most of our cost structure today is lean and we expect that to continue. We do not expect any significant changes for cost structure both whether it is consumables and employee costing I think that is in

Sir my question is in the next two years versus our centers that we have today and based on whatever contracts we have on ground to be executed. Punjab is where the clarity is yet to come so if we exclude that what is the number of centers that we will go to in the next two years. This is without assuming any new contract signing that you do just what you have today on ground.

Yash Mutha

So basically your are saying considering the existing centers that we have. Firm commitments that you have. Based on whatever timelines you have. If those timelines are over the next two years then you consider next two years. Assuming that we complete all our existing projects in hand and without any new projects we should have around 150 of our radiology centers. Versus today. Around 107 what we have today. So 150 versus 107 and how about pathology. Pathology we are about 1000 collection center and we are about 30 labs. You will go to 1000 versus. Existing almost close to 600 centers. And th

Thanks for taking my question. For this revenue growth target that we have for doubling the revenue over the next two years. What kind of visibility do we have? What proposition of this gap from Rs.450 to Rs.900 do we have strong visibility on covering right now?

Yash Mutha

If you see what we have mentioned earlier as well with the Punjab centres going live we are expecting at least uptick in revenue between 30 to 40% in this fiscal and even higher if all goes well. As the center matures in the next year I mean the year after that as the centers mature we expect this numbers to be achieved so we are confident in the projection that we have made out for ourselves and hopefully in the next two years we should be achieving this target that we set out for. And secondly you talked about from 100 going to 150 centers for the radiology centers over the next two years ba

Thank you very much for the opportunity. Sir most of my questions have been answered. Just one thing what is the EBITDA margin outlook we have for FY2023. I understand you gave for next two to three years so just wanted to understand for next year specifically.

Yash Mutha

From an EBITDA perspective currently we are at about 30% so we will be able to continue that EBITDA percentage. Of course our efforts will be to improve and increase the EBITDA percentage as we go along but at the best it should be in the range of 30% to 35% is what we are expecting for this year. 30 to 35% that you mentioned over the next two to three years right. No for this year also assuming that all the Punjab and Himachal Pradesh center go live we should also expect by end of this year try to improve our EBITDA from 30 to 35%. So what is the ROE or ROCE? We have described in our presenta

Thank you for taking my question and congratulations for good number. Also appreciate the kind of presentation with a clarity you have given this time. Most of my questions have been answered. About data point I wanted that in tele radiology what was the revenue last year. Because last year revenue was merged with your total radiology business so if you could give this split and secondly if you could a split between MRI revenue and CT scan revenue for the full year so that will help.

Pawan Daga

Last year the tele reporting revenue was 23 and half Crores. What was the second part of the question if you can just repeat? Split of MRI and CT. Last year radiology revenue CT MRI both together 138 Crores. See in terms of volume you see the split is 75 to 25%, so 75% is CT scan and 25 is MRI because the pricing is different so that will give some more perspective because MRI the average realization is higher than CT scan. I think we do not have the number at the moment but we can share that with you. You want the difference CT scan and MRI right. Because volume you have already given that wi

Congratulations on very good set of number and very good guidance. My first question is historically we have very high ratio of winning tenders like 80 plus. Do you think this trend to continue also in the tenders we have bid recently. What is your view on that? What is the competition intensity?

Yash Mutha

So of course whilst historically we have got a good strike rate of wining the tender we expect the trend to continue for two reasons; one is in terms of experience that we have had. The expertise that we have built over the years and how to survey and then bid for these project, so we are confident of continuing that trend. Also more and more tenders are just coming, government are putting in clauses where they want serious players to come in either by considering the turnover criteria or the network criteria so there again we are seeing the growth. There might be competition but at the end of

If there is 100 Crores capex in the current scenario which we did not have in financing and in future repeat with financing how does that profit us any ballpoint figure for 100 Crores capex. What kind of benefit that we will achieve through vendor financing any ball point figure.

Yash Mutha

With the new model that we are envisaging. Basically as it becomes asset light model, we will be able to leverage the same, where in our ROCE will be much improved, you know currently we have a much better performance but we are trying to improve from a ROCE perspective as well. At the same time the vendors who are also now going to have skin in the game with this kind of model, so we see a lot of these other benefits also coming into play and this allows us to expand into more project without utilizing our cash on the books. We can just straight way go on pay per scan model or expand into new

Thanks Krsnaa management for giving us the opportunity to host this call. Are there any closing remarks from you here before we close the call?

Yash Mutha

Thanks Bharat and Equirus for coordinating this call and we thank every participant who have attended this call and sparring the time for us. Our sincere apologies for the glitches that we have had. We thank you for asking these questions to us so look forward to connect with you soon. Thanks everyone.

1. This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings 2. Figures have been rounded off for convenience and ease of reference 3. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Krsnaa Diagnostics Limited For further information, please contact Nikhil Deshpande Company Secretary Krsnaa Diagnostics Ltd. Ravi Gothwal / Vikas Luhach Churchgate Partners +91 20 4695 4695 investors@krsnadiagnostics.com +91 22 6169 5988 krsnaa@churchgatepartners.com

Management

Speaking time

Yash Mutha

Pritesh Chheda

Moderator

Pawan Daga

Praveen Sahay

Nitin

Prasheel Shah

Nitin Agarwal

Utkarsh Maheshwari

Avnish Khara

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Opening remarks

Bharat Celly

On behalf of Equirus Securities, I welcome you all to Q4 and FY2022 earnings call of Krsnaa Diagnostics Limited. From the management, we have with us Mr. Rajendra Mutha, Chairman and Whole Time Director, Ms. Pallavi Bhatevara, Managing Director, Mr. Yash Mutha, Whole Time Director, Mr. Ravinder Sethi, Chief Operating Officer, Mr. Pawan Daga, Chief Financial Officer. We will begin this call with the opening remarks on the management and then we can open the line for Q&A. I now hand over the call to Mr. Yash Mutha. Over to you Sir!

Yash Mutha

Thank you very much. Good afternoon everyone and welcome to Krsnaa Diagnostics Q4 and FY2022 earnings call. We have already circulated our earnings presentation which is available on our website as well as on the stock exchanges website. I hope you all have had the opportunity to go through the presentation and we will be happy to take any questions afterwards. The fiscal year 2022 has been a landmark year in the history of Krsnaa Diagnostics. We made our debut on the stock exchanges in August 2021 and now we are closing the first year as a listed entity on a strong note with the highest growth in our core revenues within the industry in both Q4 and FY2022. On a full year basis, we delivered revenues of Rs.455 Crores which is in line with our stated guidance of around Rs.450 Crores for the year. We have delivered a robust topline growth of 15% year-on-year led by growth in our core business of radiology and pathology which grew by 70% and this growth was offset by a decline of 78% year

Ravinder Sethi

Thank you, Yash. A very good afternoon to all of the attendees. Now I will elaborate about our growth strategy plans. We talked about five growth pillars: The first pillar being growing PPP opportunity: On the Public Private Partnership front, there is a large underpenetrated market and out of 700 plus districts, our presence is approximately in 70 plus districts and with government’s continuous focus on improving healthcare and we being largest PPP partner with 78% bid-win ratio, Krsnaa is very well placed to capitalize on the growth opportunity which is present. The company in the month of February 2022 has been awarded three new projects. One, Himachal Pradesh pathology comprising of 24 labs, 190 collection centers, number two, Chandigarh, one MRI machine, number three Uttar Pradesh for deploying 8 CT scans in district hospitals. We will continue to participate new tenders and build a strong pipeline for future. The second pillar is successfully rolling out our new centers: Our team

Pawan Daga

Thank you, Dr. Sethi. A very good afternoon to all attendees. I will present financial highlights for the quarter and full year ended March 2022. In Q4 of FY2022 company registered revenue of Rs.108 Crores, an increase of 13% year-on-year basis from Rs.96 Crores in Q4 FY2021. Core business comprising of radiology and pathology posted revenue growth of 28% while COVID-19 revenue declined 85%. Operating EBITDA for the quarters stood at Rs. 28 Crores compared to Rs.34 Crores in Q4 FY2021. EBITDA margins are at 26.2% in Q4 FY2022 and margin were impacted on sequential basis due to investments in operationalizing new center and in manpower. Profit after tax for Q4 FY2022 was Rs.18 Crores, a growth of 21% compared to Q4 FY2021. Net profit margin were16.6% for the quarter. Please note that the net profit has been adjusted for exceptional item. On a full year basis, the company has delivered strong growth on all parameters, revenue from operations stood at Rs.455 Crores and increase of 15% yea

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