KRSNAANSEQ2 FY2023November 10, 2022

Krsnaa Diagnostics Limited

7,929words
110turns
11analyst exchanges
3executives
Management on call
Rajendra Mutha
CHAIRMAN & WHOLE-TIME DIRECTOR, KRSNAA DIAGNOSTICS LIMITED
Yash Mutha
WHOLE-TIME DIRECTOR, KRSNAA DIAGNOSTICS LIMITED
Pawan Daga
CHIEF FINANCIAL OFFICER, KRSNAA DIAGNOSTICS LIMITED
Key numbers — 40 extracted
10 billion
t, management and even prevention of diseases. Today, the Indian diagnostics market is valued at $10 billion and projected to a CAGR growth of 14% in the next 5 years. The key fundamental drivers of the dia
14%
Today, the Indian diagnostics market is valued at $10 billion and projected to a CAGR growth of 14% in the next 5 years. The key fundamental drivers of the diagnostic industry such as large populat
1.3 billion
next 5 years. The key fundamental drivers of the diagnostic industry such as large population of 1.3 billion people, rising per capita income, allowing increased affordability and need to assess better heal
rs,
as per the agreement with the government for procurement operation and maintenance of 25 CT scanners, 6 new MRI machines, 30 pathological labs, 1 referral laboratory and 95 collection center
88%
erral labs and 95 collection centers in the state of Punjab which amounts to completion of almost 88% of the project as on date. We are progressively expanding our presence and during the quarter, we
Rs. 123 crore
ncial performance during the quarter, during the second quarter, Krsnaa registered co-revenues of Rs. 123 crores, a growth of 19% year-on-year despite the high base in Q2 FY22 due to the second wave of COVID-1
19%
quarter, during the second quarter, Krsnaa registered co-revenues of Rs. 123 crores, a growth of 19% year-on-year despite the high base in Q2 FY22 due to the second wave of COVID-19 and 9% on a sequ
9%
rowth of 19% year-on-year despite the high base in Q2 FY22 due to the second wave of COVID-19 and 9% on a sequential basis. The COVID-19 revenues declined from Rs. 5 crores in Q2 FY22 to Rs. 0.3 cro
Rs. 5 crore
to the second wave of COVID-19 and 9% on a sequential basis. The COVID-19 revenues declined from Rs. 5 crores in Q2 FY22 to Rs. 0.3 crore in Q2 FY23. Krsnaa continues to grow its core revenues with a focuse
Rs. 0.3 crore
D-19 and 9% on a sequential basis. The COVID-19 revenues declined from Rs. 5 crores in Q2 FY22 to Rs. 0.3 crore in Q2 FY23. Krsnaa continues to grow its core revenues with a focused approach. Our EBITDA stood
Rs. 31 crore
Q2 FY23. Krsnaa continues to grow its core revenues with a focused approach. Our EBITDA stood at Rs. 31 crores with margins of 25.2% and net profit of Rs. 15 crores with margins of 12.5%. Compared to previou
25.2%
grow its core revenues with a focused approach. Our EBITDA stood at Rs. 31 crores with margins of 25.2% and net profit of Rs. 15 crores with margins of 12.5%. Compared to previous quarters, which saw a
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Guidance — 20 items
Yash Mutha
opening
“Today, the Indian diagnostics market is valued at $10 billion and projected to a CAGR growth of 14% in the next 5 years.”
Yash Mutha
opening
“With this, the company has now operationalized 20 CT scanners, 5 MRI machines, 18 pathology labs, including one referral labs and 95 collection centers in the state of Punjab which amounts to completion of almost 88% of the project as on date.”
Yash Mutha
opening
“We expect all the centers mentioned in the RHP to be operationalized by the end of the third quarter of the current fiscal.”
Yash Mutha
opening
“The centers will be equipped to offer specialized services in genetics, genomics and molecular diagnostics along with routine investigations of biochemistry, serology and histopathology.”
Yash Mutha
opening
“With this expansion, the company would be providing premium quality diagnostic services to patients which will be accessible to them at highly attractive rates.”
Yash Mutha
opening
“On the technology front, we are also implementing the latest CRM for one of the leading vendors, this will help create efficient, automated business processes to increase productivity, provide the team with relevant data points to enhance customer engagement with an overall aim to improve the customer experience and satisfaction.”
Rajendra Mutha
qa
“I think new tender will be uploaded in couple of days, then in that how many bidder come, we will be able to know.”
Rajendra Mutha
qa
“According to us by 15th December the new tender will be opened.”
Avnish Khara
qa
“So, 15th December, the tender will be opened and then are you expecting a lot of competition here according to you?”
Rajendra Mutha
qa
“Further we expect a time period of 15 days for pre-bid meeting to be conducted and within a month, tentatively by 12th or 15th December, 2022 tender will be completed.”
Risks & concerns — 4 flagged
Compared to previous quarters, which saw an impact of margins, our margin for this quarter has stabilized with increased contribution from newly launched center and therefore giving us confidence that our margins are expected to improve in the upcoming quarters with the maturity of newly launched centers.
— Yash Mutha
Since the project has now been stopped from August onwards, that is why you see a decline in the revenue or the fees to the hospital paid as well.
— Yash Mutha
10 crore delta, not looking at Y-o-Y, looking at Q-o-Q revenue growth where COVID was a small component of business, now in the presentation we have talked about that a lot of our Punjab contracts has got operationalized over the last 6 odd months, so is there impact of the Punjab revenues, Punjab project already fit in the numbers and if it is not, by when we will start to reflect through?
— Nitin Agarwal
The only challenge that we are seeing is in terms of certain delays and I think that is why we would want to calibrate and come back.
— Yash Mutha
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Q&A — 11 exchanges
Q
Sir, my first question is on the Ayushman tender, so there was a very large tender over there, so what exactly happened over there, can you just share some light on that?
Rajendra Mutha
Sir, there were 4 participants in that tender. We are given to understand that out of them one participant was blacklisted. Another Participant who was supplying services to Rajasthan Government during Covid period had participated in Tender through Consortium. The other party in that Consortium was blacklisted. Hence, the entire consortium got blacklisted. and after that the third party who was there withdrew. At the end, only one participant remained and authorities cannot open the tender with a single participant. In such cases, the Government retenders the Tender and if, at the time of ret
Q
Sir, in the balance sheet, I am just noticing there is a line item called other financial assets, Rs. 118 crores in H1 FY23 which was a negligible number last year, could you throw some light as to what this other financial asset is?
Pawan Daga
We see the other financial assets include the fixed deposits of long-term tenure more than 1 year. So, you are yet to execute the tender, so you have to put a fixed deposit with the government, is that what is that? So, some fixed deposits are of our internal accruals and partially some fixed deposits of proceeds from IPO, which we are utilizing the funds for our upcoming projects and the project earmarked in the IPO. But I am slightly confused as to why that could be classified as other financial asset, generally more than fixed deposit, if that come under bank balance or cash and cash equiva
Q
So, my question is on, if you look at the Q-o-Q revenue growth, we are looking at about Rs. 10 crore delta, not looking at Y-o-Y, looking at Q-o-Q revenue growth where COVID was a small component of business, now in the presentation we have talked about that a lot of our Punjab contracts has got operationalized over the last 6 odd months, so is there impact of the Punjab revenues, Punjab project already fit in the numbers and if it is not, by when we will start to reflect through?
Yash Mutha
Punjab has already started contributing revenues to the overall business. In this quarter, we have seen about Rs. 10 crores of revenue coming from the Punjab project which has been increasing steadily and I think now with these centers getting live, more and more contribution will be seen from the Punjab project as well. What is the for example Rs. 10 crores that we have done in this quarter, what percentage of the peak potential of the Punjab contract will that represent? As of now, I think it will just be about close to 15%, there is a significant opportunity as these centers get live and th
Q
As I see, margins are affected by two things, one is employee expense which is raising from last year quarter 2, it has been steadily raising at the percentage of revenue, secondly other expenses, major part of other expense is reporting charges, so these two expenses have risen a lot, so what is the reason for that?
Yash Mutha
I think that is good observation. Basically, the reason for raising manpower cost is linked to the projects of Punjab and Himachal Pradesh where significant resources have been deployed. Just to give you a perspective, there are 25 CT scans, 6 MRIs, number of labs coming up equally in Himachal Pradesh, so we have deployed manpower, so whilst the manpower has been added, however, the revenue has not been commensurate to the extent of the manpower because it is a ramp up which is currently going on. So, I think beyond this there won't be a significant addition to the manpower once the projects a
Q
My question is on the gross margin, there has been some impact on the gross margin this quarter, so if you can throw some color on the mix or what is it, is it temporary and how should we look at it going forward?
Pawan Daga
So, the gross margin is slightly impacted because of the low volume in the new operationalized center where we see our consumption cost is at a higher price and this is the reason only where we see an impact on the gross margin, but going forward, we will see the improvement in the gross margin as well as the stability in the gross margin. And Yash, if we look at the growth X of our Punjab contracts, it is just like around 3%-4%, so what is impacting this growth in the base business and how should we even look at the lumpiness in quarter over quarter, so like 2Q is supposed to be a very good q
Q
My question is regarding the material cost, so the material cost has gone up from 10.5% to 14% this quarter and just wanted to know the reason of such a significant increase and related question is, is it related to change in the business mix as in the revenue mix of radiology, pathology and Tele-reporting if you could give, if you have the numbers at the top of the mind?
Yash Mutha
I think one of the key reasons for increase in the consumable cost is of course because of the pathology business raising, there again because as you mainly ramp up there are lot of controls and calibrations to be done which requires, in the initial phase, these testing have to be carried out which adds to the consumption cost. As the volumes increase, you will see the consumption cost coming down and gradually stabilizing at the levels that we are used to. So, it is just a matter of the ramp up currently going on where machines have to be tested, calibrated periodically to process as the volu
Q
Can you share the thoughts about the retail game plan especially with respect to the franchisee models and what kind of EBITDA margins can we expect, will it be marginally different from what we have been clocking in our PPP centers?
Yash Mutha
So, the franchisee model that we have conceptualized, as I said both from a pricing perspective, it is an aggressive pricing compared to the market, our rates are highly competitive and yet at the same time given that there is no significant investment to be made by Krsnaa, most of the investment will be done by the franchisee, again which is not significant investment for them, the rest of the support comes from Krsnaa in terms of branding collateral and the system. With all these inputs, I think from a margin perspective we will be having the same margin that we see from a center which will
Q
Just one question, basically if the model in terms of I think in some states we have a restriction on marketing and reaching out to customers, so giving a model how will we then grow if we are not able to market, reach out to customers? Just one more point that I would like to add to this, so I think Punjab is one of the states where in we have a restriction of reaching on to customers and today in the conversation we are mentioning that the B2C segment we will start with states like Punjab, HP and Maharashtra, so with such condition, how do we then leverage the B2C business in those markets?
Yash Mutha
Basically, there is no such restriction in terms of marketing our efforts, I think what the government tenders normally stipulate is that if there is a government patient you need to give service what is stipulated in the tenders. Government doesn’t discriminate between a private patient and a government patient, but because these are under the PPP, they expect that especially for those people who don’t have access or the poor people and the people from low income families they get the due treatment and service. In fact, all the states where we are present, we have equal share of people coming
Q
Yash, just wanted to understand from the base business perspective if you see for this quarter, the sluggishness that we have seen, is it volume led or is it realization led, you mentioned as we will come back to concentrate on the existing centers we should ramp up, but I want to understand from the volume aspect or from the realization aspect?
Yash Mutha
It is more from the volume side, as I said with the centers getting deployed and delayed, so the kind of footfall that we expected in terms of ramp up that has not been achieved. Once we start achieving, you will see the trend. I think if I give you the parallel analogy or example of Himachal Pradesh, Himachal Pradesh we started somewhere in September and we are always seeing revenue run rate of almost Rs. 2 crores per month in the first 2 months. So, unlike all the other states, Punjab has been a bit impacted because of delay, so now the center is getting operationalized and government also t
Q
Earlier, we used to say that the revenue from our Punjab contracts used to come from subsidiaries, but when I look at the difference between your consolidated and standalone revenue, it is around Rs. 2 crores and we just said that we got around Rs. 10 to Rs. 11 crores, so what is the disconnect over here?
Pawan Daga
So, basically, at the consol level, the revenue between the subsidiaries and holding company gets knock off, so the assets were deployed by the Krsnaa Diagnostics Limited, parent company, so we have an internal arms length transaction with the subsidiaries where we share a revenue because the assets were deployed by the holding company. So, that is why this gap is arising and the sharing which holding company is getting which is added in the topline of the standalone number. That is why this gap is arising. Just to add, these are 100% subsidiaries created only for the Punjab project which was
Q
Thank you everyone. Thank you for your time and for attending this conference call. Thank you very much. We hope we have answered all your questions and if any questions remain unanswered, please feel free to connect with us or our investor relationship team at Churchgate Partners. Looking forward to interacting with you in the future. Thank you.
Management
Speaking time
Yash Mutha
39
Moderator
13
Pawan Daga
9
Aditya Khemka
9
Nitin Agarwal
9
Jainil Shah
5
Cyndrella Carvalho
5
Avnish Khara
4
Shashwat Desai
4
Yogansh Jeswani
4
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Opening remarks
Yash Mutha
Good afternoon everyone and welcome to the Q2 FY2023 Results Conference Call of Krsnaa Diagnostics Limited and thank you everyone for joining us today. We have already circulated our earnings presentation which is available on our website as well as the stock exchanges website. I hope you all have had the opportunity to go through the presentation. From an industry perspective, the need for high quality and affordable diagnostic services are clearly visible as it is an integral of our healthcare industry which plays an imperative role in diagnosis, assessing disease and plays a major role in the treatment, management and even prevention of diseases. Today, the Indian diagnostics market is valued at $10 billion and projected to a CAGR growth of 14% in the next 5 years. The key fundamental drivers of the diagnostic industry such as large population of 1.3 billion people, rising per capita income, allowing increased affordability and need to assess better healthcare services, emergence of
Pawan Daga
Thank you, Yash. Very good afternoon to all the attendees. I will present the financial highlights for the second quarter and half year ended September 2022. In the second quarter, the company registered total revenue from operation of Rs. 123 crores, an increase of 13.6% on a year-on- year basis from Rs. 108 crores and 8.9% on a sequential basis from Rs. 113 crores in Q1 FY23. The growth is led by our core business comprising of radiology and pathology, which registered revenue growth of 18.7% year-on-year and 8.9% on a sequential basis. The COVID revenue declined by 94% from Rs. 5 crores in Q2 FY22 to Rs. 0.3 crore in Q2 FY23. Operating EBITDA for the quarter stood at Rs. 31 crores, an increase of 9.5% compared to the previous quarter. EBITDA margins were 25.2% in Q2 FY23. In spite of the new center being launched, the profitability margin remained stable quarter-on-quarter. The margins are expected to improve in the upcoming quarter with the maturity of the newly launched centers. P
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