Ladies and gentlemen, good day, welcome to Krsnaa Diagnostics Limited Q4 FY 2023 and full year FY 2023 earnings conference call, hosted by Equirus Securities Private Limited. We have with us today Mr. Rajendra Mutha, Chairman and Whole Time Director, Ms. Pallavi Bhatevara, Managing Director, Mr. Yash Mutha, Whole Time Director, and Mr. Pawan Daga, Chief Financial Officer. Before we begin, I would like to remind all participants that some of the statements made on today's call may be forward-looking in nature and are based on the company's current expectations, projections, and beliefs regarding future events as on date of this call. These statements should not be considered guarantees of future performance, it may involve a risk, uncertainties, and assumptions, which be difficult to predict. For more details, please refer to page number 42 of investor presentation.
As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star and zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Pallavi Bhatevara. Thank you, and over to you, ma'am.
Thank you. Good evening, everyone, and welcome to Krsnaa Diagnostics Q4 FY2023 earnings call. I thank each one of you for joining us today. We've already circulated our investor presentation, which is available on our website as well. All the stock exchanges website. I hope you all have had the opportunity to go through the presentation. I would like to address the current landscape of the diagnostic service industry and our company's position within it. As we all recognize, high quality and affordable diagnostic services are essential components of the healthcare industry, playing a crucial role in disease diagnosis, management, and prevention in India. The diagnostic market is valued at approximately $15 billion, with a projected compound CAGR of 11.5% in the coming years.
Several fundamental drivers propel the diagnostic industry, including a large population of nearly 1.4 billion people, rising per capita income, increased affordability, increased acceptance of point of care testing, home collection, critical and precise clinical needs, and the growing demand for better healthcare services. Higher life expectancy and changes in lifestyle and health-conscious population and improvement in testing services could directly contribute to the growth of the diagnostic companies. Lifestyle diseases are on the rise, creating a need for heightened awareness of preventive health checkups. Additionally, insurance penetration and government initiatives have definitely contributed to the industry's growth. Considering the Indian demographics, there exists a vast and under-penetrated market for diagnostic services, offering significant opportunities for both organized and unorganized players.
The Government of India has undertaken multiple initiatives to make high-quality healthcare and diagnostic services accessible and affordable to the masses, in line with sustainable development goals of good health and well-being for all. Various state governments are actively exploring PPP as a viable and optimal approach to achieve their goal of providing quality healthcare and diagnostics at affordable prices. As a leader in the PPP diagnostic space, Krsna has expanded its presence across India, ensuring that the high-quality diagnostic services are available and affordable even in the most remote corners of the country. We take immense pride in announcing that our teleradiology hub in Pune has recently obtained accreditation from the prestigious National Accreditation Board for Hospitals & Healthcare Providers, that is the NABH.
This remarkable achievement marks a significant milestone in the Indian healthcare industry, as we became the first teleradiology hub in the country to receive such esteemed recognition from the NABH. This accreditation serves as an additional testament to our unwavering dedication to quality. It will not only reinforce our commitment, but also enhance the quality of our radiology reports that are transmitted to our centers through the NABH accredited teleradiology hub. By obtaining this accreditation, we aim to strengthen and improve the delivery of our reports, ensuring the highest standards of quality throughout the process. This accreditation underscores our unwavering commitment to delivering healthcare services of the highest quality. Cutting-edge technology. It is a testament to our dedication to excellence and patient-centric care, of which we are incredibly proud. Furthermore, in the past 12 months, we have achieved notable success by securing nine tenders across various states.
These projects encompass 53 CT and MRI centers, 158 pathology labs, and 2,281 pathology collection centers, significantly strengthening our growth prospects for the future. During the year, we have added 26 radiology centers, 50 pathology labs, and 556 collection centers. Currently, Krsnaa stands as a leading PPP diagnostic player with 133 radiology centers, 1,528 tele-reporting centers, 99 pathology labs, and 1,090 pathology collection centers. Looking ahead, we are confident in our ability to expand our geographical footprint and penetrate deeper into the Tier 2 and Tier 3 cities, offering high-quality diagnostic services at affordable prices. With recently installed centers, new tender wins, and ongoing evaluation of pipeline projects, we have a promising growth trajectory ahead.
I will now hand over the call to Mr. Yash Mutha, our Whole Time Director, who will discuss Krsnaa's strategic plan and future growth prospects. Thank you. Have a great evening.
Thank you, Ms. Pallavi Bhatevara. Good evening, ladies and gentlemen. I'm pleased to share with you the strong performance of Krsnaa Diagnostics in fiscal year 2023. We achieved core revenues of rupees 486 crores, representing a remarkable 15% year-on-year growth. Our EBITDA stood at rupees 124 crores with a margin of 25%. Additionally, we reported a net profit of rupees 62 crores with a margin of 13%. While recognizing our achievements, it is important to acknowledge that our margins were impacted during FY 2023 due to the necessary costs associated with establishing new centers. As we move forward, we look forward towards a positive trajectory in our margins as our recently launched centers start reaching maturity and contribute more significantly to our overall performance. On our patients front, I am delighted to announce a significant achievement.
In this fiscal year, we have successfully served over one crore patients, surpassing a crucial and a noteworthy milestone. This achievement not only highlights the sheer number of patients we have attended to, but also signifies the confidence and trust that patients have placed in our exceptional high-quality services provided at disruptive prices. As regards our growth pipeline, I am delighted to share that as part of our growth trajectory, we have successfully increased the number of our pathology labs from 49- 99, and our pathology collection centers from 534- 1,090, aligning with our expansion plans. In the field of radiology, we have achieved an impressive 24% growth rate in establishing new centers, resulting in our expansion to a total of 133 centers by the end of FY 2023.
The doubling of our labs, collection centers, and radiology centers will significantly enhance our capacity to cater to a large number of patients in the coming years, and allowing us to sustain the growth momentum. To support our future growth and expansion, we are also actively pursuing an extensive pipeline of projects focusing on pathology labs, collection centers, CT, and MRI centers across various states, which present significant opportunities. This allows us to expand our presence into new regions, as well as expand our operations deeper within some existing states. In line with our commitment to serving the B2C segment, we have introduced affordable wellness packages that cater to the diverse needs of our customers. Our iExaM wellness packages covers both basic and special tests, ensuring comprehensive healthcare solutions for individuals. Furthermore, we continue to prioritize technology adoption within our operations.
As part of phase one, we are also implementing technology-led initiatives, including digital pathology and integrated lab management, to enhance our efficiency and service quality. With our ongoing initiatives and the implementation of existing projects, coupled with the recent wins, we hold a strong outlook for the future. We are confident in our ability to capitalize on the considerable opportunities that lie ahead and drive sustained growth and value for our stakeholders. I would like to hand over the call to Mr. Pawan Daga, our Chief Financial Officer, who will provide further insights into our financial performance. Thank you.
Thank you, Mr. Yash. Very good evening to all the attendees. I will present the financial highlights for the year ended March 2023. In FY 2023, the company registered total revenue from operation of INR 487 crores and increase of 15% on a year-on-year basis, from INR 456 crores. The growth is made by the core business, comprising of radiology and pathology, which registered a revenue growth of 15% year-on-year. Operating EBITDA for the year at INR 124 crores. EBITDA margin were 25% in FY 2023. The impact on the EBITDA margin was attributed to the additional costs associated with the establishment and onboarding of teams for the newly launched center. The margins are expected to improve in upcoming quarters with the maturity of the centers.
Profit after tax for FY 2023 was INR 62 crore. For the year, tax margin was 13%. In the quarter four of FY 2023, the company registered total revenue from operation of INR 133 crore. Our core business, comprising of radiology pathology, which registered revenue of INR 133 crore, a growth of 25% year-on-year. Operating EBITDA for the quarter four FY 2023, stood at INR 35 crore, with a margin of 26% for the quarter. Profit after tax for the quarter four FY 2023, at INR 19 crore, with a margin of 14%. On the receivable front, I am happy to share that through our consistent effort and our well-established system and processes, we continue to maintain our receivable well with control, and have been successful in collecting majority of our receivables.
Our receivable days of 56 days are marginally higher compared to previous year's receivable days of 46 days, which is largely attributed to the new projects, invoice processing, getting streamlined, as well as operational delay on account of large amounts of year-end transaction being conducted on Public Financial Management System, PFMS. As regards to operations, Krsnaa generated a strong cash flow from operation of INR 89 crore, with EBITDA to cash conversion was around 72%. The EBITDA to cash flow conversion exhibit a relatively lower trend compared to previous year, primarily attributed to the increase in the inventory level, increase in data, and payment to vendor necessary for the operationalization of a new center, specially considering the existing few implementation at the state level. However, the centers mature, we look forward to normalization in the EBITDA to cash flow conversion.
From a balance sheet perspective, the company continue to be net debt free, with the net cash position of INR 240 crores as on 31st March, 2023. In the light of a strong performance, the board of directors has recommended a final dividend of INR 2.75 per share, a payout of 55% on the face value, which is subject to the shareholders' approval. We can now open the floor for question and answer session. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and 1 to ask the question. The first question is from line of Balamurali Krishna from Oman India Joint Investment. Please go ahead.
Yeah, good evening, and congratulations on great set of numbers. When I refer to this, standalone results, there is a slight drop in revenue, I think. Could you please, throw some light on that, and net profit?
Basically, there is no impact in the standalone number. What we have did, we have derived the arm's length price for revenue sharing between the holding and the subsidiary. On the basis of FAR, function, assets, and risk analysis, and economic analysis, it was conducted through a transfer pricing.
Okay. Could you please give some timeline on this execution of this pathology contracts of Rajasthan and Odisha? In which quarter we may expect it to operational?
Yeah. The Rajasthan tender that we currently have won, we expect that to get operationalized by Q3 of FY 2024. Assam, we are working aggressively to get it completed by Q2 of this year.
Odisha, can you?
The Rajasthan contract, we are expecting it to get operationalized by Q3 of FY 2024, and Assam by Q2 of this year.
Oh, I'm asking about Odisha contract, yeah?
Sorry, it was, Odisha by Q2 of this year, not Assam.
Oh, okay. Odisha. Yeah, any big pipeline tenders which are quoted and expected results in the coming quarters?
Currently there are a couple of tenders which are in pipeline, you know, it is too early for us to give any indication. Whatever has been announced, you know, we have declared it, the work is in progress.
Okay, lastly, on this BMC contract, I have seen some news regarding this delay in the reporting time of the test, and they asked you to show cause, they have issued show cause notice. Whether it is settled, and could you please share some light on that one?
That matter has been settled. These are typical PPP problems, in, you know, PPP contracts. Now the matter has been settled and the services are continuing.
Okay, thank you. That's it. All the best.
Yeah, just to clarify, it was not a show cause notice. They had indicated that they will issue a show cause notice, but, based on the response, things were settled and, you know, operations are now smooth and working well.
Oh, that's great. Thank you.
Thank you. Next question is from the line of Jainil Shah from JM Financial. Please go ahead.
Yeah, hi. Thank you for the opportunity, and congratulations on a good set of results. My first question is on the revenue guidance. I mean, what is the revenue guidance for FY 2024 and FY 2025? Also, what will be your CapEx outlay for both these years?
Hi, Jainil. In terms of the revenue guidance, we continue to focus on maintaining our CAGR growth rate. In FY 2024, we expect to achieve double-digit growth, you know, per year. Assuming, and, you know, that all our new centers which will get operationalized and implemented by fiscal end of FY 2024, we expect a higher growth rate in FY 2025. In terms of CapEx, the CapEx that we expect for this year is in the range of about INR 200-250 crores, considering these projects that we have, for which, again, you know, our existing cash flows, the internal accruals, and some vendors, vendor credit, we are comfortable to get this CapEx implemented.
Okay. We are also entering into the specialized test segment at disruptive prices. Wanted to know your strategy here, and where will we be implementing these tests, and your thoughts on that?
On the specialized tests, we already had been, you know, providing these tests at various of our projects, including Rajasthan and some other states. With these, various states that now we won the tenders, we are thinking of exploring where we also offer the specialized tests, either through the home, collection services, as well as offering it to a wider network, leveraging these, labs that we will be establishing. In terms of pricing, the prices are, you know, at the similar rate that we are already comfortable with, so there won't be any impact on margins. We will be able to provide these at prices which will be significantly lower compared to the market rates, that are there today.
Okay. Just on the gross margins, you know, they have dropped, quite significantly this quarter. Is it due to higher share of pathology centers that we have operationalized in BMC? You know, what is the reason for that, and what should be our sustainable gross margins?
You correctly mentioned the increase in the pathology contribution in the current quarter, and this will be in the similar range going forward, because the pathology projects are fully operated and activated in Himachal and Punjab.
Around 81% is what we should work with, because even the upcoming tenders are all mostly pathology. Rajasthan is predominantly pathology, so 81% is what we should work with, right?
Yes.
I have a few, but I'll get back into you. Thank you so much.
Sure. Thank you.
Thank you. Next question is from the line of Ritesh Parekh from Rockstone Capital. Please go ahead.
Yeah, thanks for the opportunity. My first question is on the guidance statement, because previously we used to give a FY 2024 guidance. Now we have changed the stance as such. Can you just throw more light on it? Also on the EBITDA margin side, how one should be looking at it?
In terms of the guidance, as I mentioned, we are continuously maintaining or, you know, trying to focus on achieving the target that we had set out for earlier. Having experienced some of these, you know, operational delays in Punjab, we just want to ensure that whatever guidance we give are also realistic. We are confident of achieving those guidelines, achieving those guidance that we have, you know, in terms of double-digit growth. Whatever we have communicated, we will continue to focus to achieve those targets. It is only in terms of because there are some big projects or tenders that we have won.
You know, these are large state-level implementations, so implementing them across the various states, and considering some of these operational or procedural delays, that is the reason why we've calibrated. All our efforts are to achieve those numbers. Likewise, in terms of the EBITDA margins, and as we've discussed, the EBITDA margins will continue to improve as the centers start maturing, which you've also witnessed in this quarter as well. As more and more centers start becoming mature of the recently won tenders, including, Himachal Pradesh, Punjab, the EBITDA margins should improve going forward as well.
What should be the range we should be looking at EBITDA margin for current and next year, indicative range?
The EBITDA would be in the similar range. We'll probably expect a couple of, you know, 1% or 2% improvement, depending on how the business goes.
Second is, on page number 30 or slide number 30, we have operationalized the VA of the CPU project implementation track. We operate a DMC collection center of 347, but the agreement has not been executed. How can that be issued?
No, the reason is, in the agreement, there were smaller numbers, but after the discussions happened, they asked us to also increase the number. There are just some final, you know, smaller changes to be implemented. Both the government, if you see the kind of communication that has been going on between the authorities, you know, the project is live. There are some final modalities to be completed. That is why we just stated the timeline.
Lastly, in terms of Rajasthan contract, means now we have been awarded as such. We suggested in the previous that we will be implementing from Q3. My understanding was that we already have the effect on ground, and it has to be just operationalized. Getting executed from Q3 onwards is, like almost one year lost in between, transition as such.
The Rajasthan agreement, basically, if you see, it's a pretty wide in scope. There are almost 150 labs, and almost under 1,500 collections to be established. The previous scope had only 60 collection centers and few labs, while some of the equipments could be utilized, for the new project, there is also a new requirement because the test menu is different, therefore, the establishment of labs, and considering the number of labs to be established, it will take some time. We have considered around Q3 by when all these labs will be established.
Thank you. I have a couple of questions, and I join back with you.
Okay. Just to add that we could leverage our existing labs and build upon it to start with, and over the period of time, get the other labs implemented.
Okay, thank you.
Thank you. Next question is from the line of Gaurav Gandhi from Glorytail Capital Management. Please go ahead.
Yeah. Hi. Congratulations on the good set of numbers. My first question is, sir.
Gaurav, you are sounding little distant.
Hello?
Yes, thank you.
Yeah. sir, my first question is, do we provide a test at subsidized rates in private hospital also, or is it just in the government facilities?
Gaurav, our model is wherever we enter into partnerships with private or on the private hospital side, our rates are significantly lower. Most of the hospitals where we are partner are either trust or hospital or medical colleges, and given it's a captive customer base, we are able to offer these rates, which are significantly lower than the market rate.
In that case, sir, in private hospitals, if we are providing tests at lower rates, do the economics work there properly, the margins and everything? Because the, we are not getting anything like, you know, when we bid for government contract, you know, we get something at subsidized rate, maybe land, maybe area, or, you know, we don't have to share, fees with them. In private hospital, that is not the case, so how do the economics work there?
Again, Gaurav, in terms of private hospital partnerships, our rates would be higher than the government rates to the extent of revenue share that we have to give to the hospital. Rest all in terms of space and everything else we get from the hospital partnerships. To the extent of revenue share that we have to offer, the rates will be higher, but even if you consider that, they'll still be significantly lower than the market rates.
Okay, okay. How do we see the walk-in patients coming to in our government facilities? What is the traction there, you know? I mean, if you understand.
Again, as we know over the years and what a lot of our centers now becoming live and the kind of branding and awareness that has been created, we are seeing an increased footfall of private walk-ins, as we call them, coming to our government centers. In fact, in some of the centers, the walk-ins could be as high as 50%-60%. This also benefits the government because as more and more people are utilizing the services, they are getting this quality healthcare at affordable rates. It creates more mouth-to-mouth publicity, and we're seeing the traction building upon.
I mean, we are not restricted to market such facilities, right? I mean, the government doesn't restrict us to do marketing of such facilities and availing such services.
In fact, the more these services are promoted, it basically showcases that government has also implemented in these various initiatives and created the infrastructure for creating access to quality healthcare. You could also see this, you know, resulted in the number of patients that we've served during this year, crossing the one crore milestone, which again reposes the faith and confidence that both the patients have in our high quality services, as well as the support that the government receives when patients come and avail these services.
All right. All right, that helps. Thank you. Thank you very much.
Thank you. Next question is from the line of Cinderella Carvalho from JM Financial . Please go ahead.
Thanks for the question. Hi, Yash. Just want to understand if we are a speaking issue with DMC contract?
Yes, all those speaking issues have been resolved now.
Okay. In terms of we are successfully almost achieve INR 130+ top line on a quarterly run rate basis, how should we see this over coming quarters, given that we have projects coming in Q2 as well as Q3? Are there any other tenders that we should build in or wait for FY 2024 at this point in time? How should we see this?
In terms of, you know, the run rate that we've delivered for Q4, we expect to continue the momentum and build upon it. As regards the new tenders that we've already won, which we have, you know, disclosed, they will start getting implemented, you know, from the respective periods, and then the revenue contribution. Initially, it will be a trickle, and then eventually they start building up. Apart from this, there are a couple of tenders, almost three to four tenders, that we are currently working on. In terms of the timelines, you know, it will be too early for us to talk about it. Maybe in the subsequent quarters, as and when we get updates, we will share it, you know, with you all.
Thank you for that. If I try and see our trend, you did mention that you want to maintain the double-digit growth guidance that we have been talking about. Is there any like, you know, any delays that you envisage in the existing pipeline at this point in time, like how we experienced in terms of Punjab? Is there anything in near term that you see any risk?
The three states that, you know, currently, for example, if you take Rajasthan or Odisha, the states where we have won, we already have enough experience of working out of there. Rajasthan, we already were the incumbent player, we don't expect significant delays in operationalizing these centers. However, considering that these are large projects, you know, in terms of size and scale, we're just being cautious when we are considering the guidance. Our full effort is to ensure, you know, we maximize and, you know, get the centers operationalized at the earliest, right? Even in Odisha, currently, we had some prior experience with couple of the centers being there, that gives us an advantage compared to Punjab, which was an absolutely virgin territory for us.
As of now, we don't expect any significant delays in terms of the timeline that we have established. And of course, we'll keep you updated as time goes on.
Okay. Overall, do you see any change in terms of our annual run rate for pathology and radiology combination? You did indicate that gross margin may look a little lopsided, do you envisage any overall change in terms of radiology share to our annual run rate?
Well, if you see, considering that we won most of these pathology contracts, and that is something we've also been maintaining, that we would like to have a good, healthy split between radiology and pathology, 50-50. This is something we believe it eventually should pan out. Again, you know, since it's, the projects are yet to be implemented, it will be too early to comment on how the numbers will shape up. Yes, I think directionally, pathology share will continue to increase as these projects get implemented, as well as the existing centers start contributing more in revenues to the overall pie of revenues, and thereby, pathology share will increase.
Now, gross margins, of course, at a gross margins level, because consumables are normally, you know, the cost of consumables in pathology are slightly higher than radiology. Overall, I think the metrics will still, you know, help us achieve, the growth guidance as well as the EBITDA numbers that, we are talking about.
Okay, this is helpful. One more, if I may. Can you help us understand the overall like, you know, the upcoming contracts growth or the new center growth for FY 2023 versus earlier years, or the matured growth, whichever one you can share?
Sorry, if you could just repeat that question, please.
The new center growth, can you help us with that number? New center growth or the existing project growth, whichever one you can share.
In terms of the new centers, I think we've already disclosed, you know, that we've grown, both in terms of radiology as well as pathology centers, the number of centers we've added. That's part of the presentation as well as we've discussed. I don't know if there's anything else, beyond this, that you are asking?
No, no, I was just trying to understand, like, you know, the portion of new growth coming from the new centers, if that is what I was trying to understand. If it is there, I will refer to it. No problem. Thank you for that.
So.
I'm done.
Hello?
Yeah, I'm here. Yes.
Basically, if you see the contribution of growth, that is coming from the new centers, currently, like, you know, it's about a single digits in terms of percentage-wise as an overall contribution, but as the centers start maturing, that share will also continue to grow. Our same centers, our existing centers are also growing, and at the same time, the new centers will also contribute. Currently, while we are at, in terms of, you know, let's say, a single digit percentage contribution to the overall revenue, as the centers start maturing, they'll start contributing more and more.
Okay. Thank you so much. All the best.
Thank you. Next question is from the line of Aditya Khemka from InCred PMS. Please go ahead.
Yeah, hi, thanks for the opportunity. Yes, in the slide deck, I saw a slide where we are given the ROC from mature centers, semi-mature centers, new centers, where the mature center ROC seems to be 32%. I just wanted to understand, are these at the unit economic level, or are these numbers derived after allocating operator and, you know, other overhead expenses to these centers?
Aditya, this is at level of center level.
Okay, these are at unit economic level. Understood. The second question I had was that, which centers do you consider mature, as in, is it to consider center as mature center, is it time that is variable, as in three years after launching it, so on? Could you define what you are calling a mature, a semi-mature, and a new center?
The mature centers, the range is more than three years, and the semi-mature, which is in the range of 1-3 years, and the newly launched centers, which is less than one year.
Right. Okay, thank you. Last question I have is on the pathology versus radiology debate that we are having through this call.
Yeah, sorry, sir, your voice is not coming clear. Can you come in a better reception area, please?
Yeah, I'm sorry. My question was if the pathology versus radiology debate, in terms of margin, would while radiology is a better margin business, I guess, compared to pathology, in terms of ROCE, which of the two would you consider a better business? Or are they similar in terms of their ROCE profiles? Thank you.
Aditya, in terms of ROC, of course, pathology will be better in terms of ROC, given that the investments are lesser compared to radiology, which is a very CapEx-heavy business. As you rightly pointed out, radiology does have better margin profile, but the ROC gets a bit suppressed because of high CapEx. When we look at it from an overall project perspective or a cohort of, you know, these various mix of radiology and pathology centers, we try to ensure that the ROC overall looks, you know, in the double-digit that we are expecting, and that is how the combination of these various projects are being considered.
Okay, got that. Thanks a lot for your time, Pawan. All the best to you all.
Thank you.
Thank you. Next question is from the line of Ankur Kumar from Alpha Capital Advisors. Please go ahead.
Hello. Hi, audible?
Yes, we can hear you, but there's a lot of static from your line.
Yeah. Hello, sir. Can you hear my questions?
Slightly better, sir.
Yeah, thank you for taking my question. Sir, one question is, as in last year, we had re-reduction in EBITDA margins because of new centers. Over the coming year also, we have a couple of new centers coming in, like Odisha. What makes us confident that our EBITDA margins will continue to go up from here?
There are two aspects. One is the new centers. Last year, we had again, huge, large project that was getting implemented, wherein the, like for example, Punjab, there was a significant manpower that had to be deployed, and the revenue got delayed. Whereas in the current way, and based on our experience, we are also planning to ensure that the deployment of these manpower resources or the projects is aligned to how the business is coming up. That is also why we've said that the centers will take time to operationalize in Q2 or Q3.
Considering this, that the existing centers are going to ramp up, if you take a combination of, both the existing, centers, the new centers that got implemented, their EBITDA contribution, and at the same time, scaling up of these new projects, we believe that we'll still be able to maintain the EBITDA levels or rather improve, have a better EBITDA margins as we go along.
Got it, sir. Sir, on the guidance side, earlier we were talking about INR 700 crore, when these things will reach, like, good utilization. Given next year, we are not giving guidance for concrete guidance, but say over FY 2025, do we expect this number to reach when these things, where, when Odisha, BMC, et cetera, will reach the full utilization?
Yes, absolutely.
700 we can expect by 2025?
Yes. In fact, as I said, we are targeting to cross that number significantly. You know, given the various contracts that we have at hand, we are confident about crossing that benchmark or the number as well.
Got it, sir. Last question on the B2C side, how is that going, and what is our thoughts on that?
See, from a B2C side, as we discussed in the earlier calls as well, B2C market, we have already enough sales. We are trying to leverage our lab networks or the existing network, it will be a gradual grow and not a sudden.
Got it. Thank you, and all the best.
Also, to add, currently, if you see the number of projects that we already have in hand, we'll also be focusing on expanding or installing these projects. Hence, you know, priority-wise, we'll be focusing on the PPP, while B2C will take its own steady progress.
Got it. Thank you, sir, and all the best.
Thank you. Next question is from the line of Nitin Agarwal from DAM Capital Advisors. Please go ahead.
Hi, thanks for taking my question. Yash, on the contracts that you've outlined, we won across pathology and radiology in FY 2023, will you be able to give a broad sense of the peak revenues for all of these cumulative tenders that we won in FY 2023?
Can you just repeat the question?
I'm saying the tenders that you've outlined for, you know, in FY 2023, that we've won across pathology and radiology businesses, can you give us a sense of the potential peak revenues as in when they come, for all of the business that we've won in FY 2023?
If you consider Rajasthan, Assam, Odisha, all these tenders and Mumbai, we expect it to be almost about close to INR 400 crores as baseline revenues that we should expect from all these projects put together.
This is the pathology, and even this includes the radiology contracts also?
No, this is only the pathology business I'm talking about.
The radiology contract that you've won this year, how much will that sort of add up to at the.
Radiology, if you consider the Maharashtra project, that should be about INR 70-80 crores we can expect, once the center will implement.
Okay. All in all, about give or take about INR 500 crores is the value of the business at peak, whenever these contracts are fully sort of rolled out?
Just to correct, the Rajasthan, sorry, the Maharashtra, CT scan project, we are expecting about INR 30 odd crores. If you take 400 + 30, it should be about INR 430 crores of overall revenue that we can consider.
Okay. In the balance contract that you're currently doing, like Punjab and some of the existing contracts that are still rolling out, is there still scope for a meaningful growth on some of these contracts, or all of them are reasonably in a mature state? I mean, contracts that you won prior to FY 2023.
Yeah. If you see Punjab and Himachal put together, we expect again, good growth there, you know, in terms of the overall growth, we are expecting in double digit. That also will continue to grow as the other future centers continue to grow. We are also expecting a growth in these two projects as well.
If I'm going to just sort of paraphrase that, barring the Himachal and Punjab contracts, other contracts are reasonably mature. They will grow at whatever rate, you know, and maybe single-digit growth, single-digit rate. These two contracts still have some scope to grow till the time they reach their peak. We've got the whole new contract that we won in FY 2023, that'll scale up over the next two or three years, till the time they hit maturity.
Correct. Absolutely.
Over this period of time, as you mentioned earlier, also, the mix will start probably slightly skew towards pathology, you know, when all of these contracts are completely rolled out.
Correct. If you see, these are again, you know, even if you just consider the revenue that I've mentioned, they're almost close to about INR 430 + crores. If you take that and the existing revenue, the split should be about 50/50 in the radiology packages, what we expect in the years to come.
Okay, fair enough. From a margin perspective, obviously, you've indicated that at a peak, even radiology, pathology businesses are reasonably profitable, you know, while slightly lower than radiology, but they're reasonably profitable businesses.
Yes. Yes.
Sorry, lastly, INR 250 crores is a CapEx for the projects that you won in FY 2023, or you'll be required to do something beyond that in FY 2025 on these projects also?
No. This is something we expect to be, you know, for the entire, these, Rajasthan and, the Odisha project. Of course, Assam might require a bit, but that we can consider, you know, maybe in FY 2025.
The last one, in terms of the visibility of further contracts, you know, in terms of what the various contracts that you likely see getting floated and rolled out in FY 2024, 2025, I mean, qualitatively, how is the visibility? You know, are you seeing a larger volume of projects, on the offer, or what is what you've seen in the last year or so?
Well, it will be difficult to predict right now, but yes, there are conversations going on. We are also hearing a lot of government, you know, discussions going on some large PPP contracts as well. Like Pallavi also mentioned in the call, with the SDG goals that have been announced, we expect more and more states to adopt PPP. Some of the states which have never adopted PPP are also having discussions. We do look forward to some more bigger opportunities for us to come in the, you know, coming months.
Okay. Thank you, and best of luck.
Thank you. Next question is from the line of Punit Mittal from Global Core Capital. Please go ahead.
Hi, thank you. Can you hear me fine?
Yes, we can hear you.
Thank you. Just one question. I see there is a significant drop in the prices of your MRI scan and CT scan that you have listed compared to last year, versus the peers whose prices have not declined that much. Can you throw some light on that, please?
Well, I don't know where you're referring to the prices, but typically, just to give you, our prices are linked to the tenders, and these are again, contractually embedded. These prices are what we quote when we bid for a particular PPP project. And these prices are considering the investments that we have to make in that project, the size of the tender, and accordingly, these are priced. Having said that, I don't think so there has been a significant decline in the prices of our MRI or CT scan. They are definitely lower than the market rates, but again, these are linked to the contracts as a concessionaire we signed with various authorities. And once these rates are embedded to the contracts, there is no decline in the prices as such.
In fact, we have a price escalation, embedded into our contracts, which allow us to increase the prices, you know, as and when the clause gets triggered.
I was referring because on the Slide 21, you have listed the price of Krsnaa compared to the peers. The same slide, last year, FY 2022, the prices were much higher. CT brain scan at INR 2,000 versus INR 973 now, MRI at INR 3,500 versus INR 2,200 now.
Participants, please take a line for the management prompt. We have the line for the management being connected. Go ahead.
Yeah. The prices that.
I don't know if you heard the question.
Yeah, I heard the question. The prices that you are referring to the slide is basically what we showcase as the average prices that we see across a combination of various projects. As I mentioned, as the various tenders that we participate, considering the scale and the size and the volume that we expect, the prices are accordingly, you know, provided at the tendering stage. These are a reflection of those prices and not necessarily a decline, because in some projects. Hold on.
Go ahead.
Yeah. Can you hear us?
Yes, sir, we can.
Yeah.
If you see, for example, in Punjab, which was again a big project, there were certain, the prices that we had quoted, were lower compared to all the other projects that we had, given the size of the state and the scale. Thereby the overall prices, you are seeing a decline. We are not, you know, under any pressure to reduce the prices. It is based on the overall which tender we are participating and what are the metrics of that particular tender.
Sure. Just two related questions to that. One is, when you participate in the tender, naturally price element is a big factor in it. Is there a specific ROCE or margins that you're factoring, the minimum level that you need for these tenders and projects?
Yes, we have certain thresholds when we consider for bidding for any project. You know, typically from an EBITDA perspective, if you ask, we look at, you know, the EBITDA levels at a center level to be anywhere in the range of 35%-40%. The overall IRR or ROCes are, you know, double digits that we consider for each of these projects. You know, these are some of the baseline or benchmark that we have in our system before we bid for these projects.
Okay. You just mentioned that you have price escalation clauses in these tenders. What are the typical price escalation levels for these tenders?
The price escalation varies between 3%-5%. In some of these contracts, it could also be 7%. It depends on each authority and, you know, how they have structured the tender. It ranges between 3%-5% if you take an average.
This is, these escalation happens annually in a structure where the market is, for those, the prices of the market for those prices.
Yes. These prices are, you know, they are part of the contract. They are embedded into the contract, and they basically happen by default because that is part of the tender when it was published. Neither the authorities can deviate from it because it is part of the contract, and that is on the basis of which you would have made our assumptions and, you know, planned for the investments.
Understood. Thank you very much for answering those questions, and all the best.
Thank you.
Thank you. Next question is from the line of Ashwin Agarwal from Akash Ganga Investments. Please go ahead.
Hello. Sir, with Rajasthan coming in by, say, FY 2025, we understand, as you have alluded, previously, you said revenues will be in the range of INR 700 crore plus, but what we understand, it can be about INR 900 crores or something of that sort, right? Is the understanding right?
Correct. There is a possibility for the upside as well. You know, just to be prudent and conservative, we are giving a kind of a baseline expectation.
Okay. What about the EBITDA margin guidance?
See, from an EBITDA perspective, as I mentioned earlier, we will continue to have, focusing on the EBITDA, you know, increasing it from the levels are it is today. As I said, you know, depending on how the overall project gets implemented and, how much the numbers grow, if of course, the numbers do increase, the EBITDA will definitely have to increase.
Okay. Any ballpark number or guidance that you are providing?
As of now, our focus is to ensure, you know, continuing the existing levels of EBITDA, and of course, you know, also improving it as the time goes by.
For Punjab, we have incurred a total CapEx of INR 120 crores. Is any more less to incur?
No, I think the entire project, I mean, we've also communicated, the entire project now stands implemented.
Okay. Sir, congratulations on getting this accreditation. Can you talk about the potential of this teleradiology reporting business and all, and, what is the current contribution, and how do you see the future prospects of this business?
Yes. In fact, it was a proud moment for us to get the NABH accreditation for a teleradiology hub. I think it's a first in India, and even the authorities took time to go through all the process and audits. In terms of opportunities, it certainly gives us an edge in terms of, you know, demonstrating that our hub now has a certain level of standard in terms of accreditation. It also allows us to look into other private, you know, verticals where there are radiology centers who might now leverage our telereporting hub to get their reports done and reported as well.
Yes, it is certainly exciting, and we look forward to see how we could leverage these accreditation to further augment addition revenues, as well as look at new tender opportunities that might also come up our way.
Thank you. Ashwin, I'll request you to join back the queue for a follow-up question. The next question is from the line of Manoj Dua from Geometric Securities. Please go ahead.
I'm audible?
Yes, Manoj, there's a lot of background noise as well.
Okay, hold on. Is it much better?
Yes, sir. Thank you.
Okay. As I see, most of the profit in Punjab will go in the subsidiary. What's the plan? How we will take that reserve into the standalone as we go forward? By dividend or something, what's the plan regarding that?
We will continue to be doing a similar, nature of business, being it's part of agreement, and, we adopted the arm's length price between the holding and subsidiaries based on the static statement. We will continue to be maintained in a similar fashion.
Manoj, your line is on mute.
Hello?
Yeah, go ahead.
Okay, that's not my question. Thank you.
Thank you. Next question is from the line of Jay Shah from JM Financial. Please go ahead.
Hi. Thanks for the follow-up. I just wanted some more clarity on the guidance. You mentioned that we'll be growing at our historical rates in FY 2024, and also that we'll get some immediate benefits from Rajasthan, you know, tender. Like the previous one, there would be some overlap, and we start getting benefits immediately. Is it fair to assume that FY 2024, you're guiding for 30%-35% growth rate? When will the benefits start flowing in for Rajasthan?
Well, Jay, to be honest, that is a growth rate we are also aspiring to grow. In all, you know, prudence or being conservative, I would expect that to grow at about between 25%-30%, to be, you know, considering some of these projects might get delayed. Of course, if you consider FY 2025, given these, all these projects would be implemented, this growth rate that we have been demonstrating in the past, we are confident that we should be able to achieve it, or we might even surpass it.
Because Yash, our Rajasthan contract, if I remember correctly, used to contribute somewhere about INR 70-odd crores. That benefit we should get immediately, right?
Yes, the Rajasthan tender will take time to implement, right?
Okay. Okay. 25% is what we should work with.
Hello?
Sorry, if you could repeat that.
Yeah. 25%-30% is what you're guiding for?
Yeah, we are. Of course, you know, our endeavors and efforts will always be to cross this threshold in terms of the overall CAGR guidance that we've been or the CAGR growth that we've been achieving or maintaining over the last so many years.
Okay. Okay, thanks a lot, Yash. All the best.
Thank you. Next question is from the line of Utresh Parekh from Rockford Capital. Please go ahead.
Yeah, thanks for the follow-up question. Just wanted to know about our B2B fee strategy, since we have not mentioned anything about it in our presentation. What has been the progress and how it is shaping up?
See, in terms of B2C, like you mentioned, though, we've started, you know, focusing on the B2C as well, either through our, you know, the KBs that we have planned, as well as leveraging our existing network of labs and diagnostic centers across various states. We look forward to further increase our offerings on the B2C space. At the same time, given that we have these large PPP contracts on hand, which again needs to be implemented in time, our focus will be to complete the PPP projects, because once they're implemented, then the centers start, you know, scaling up and revenues will start coming through. Parallelly, the B2C approach will continue to go on.
We had a dedicated manager for the B2C strategy appointed at some point, and, I think number of co-centers also we had identified. Any, which rollout, what is the status on it?
We already have a team which is currently working on the B2C strategy. We have hired individuals from, you know, various experienced levels, and they are currently working on building up the B2C strategy. At the same time, since if you know, like we mentioned earlier, the PPP contracts that we have on hand, they are almost huge, significant in size, and hence, the primary focus will be to complete these PPP projects while the B2C runs its parallel course, and we are equally focusing on them.
Lastly on this, any major contract which is coming up for negotiation, which we can quantify in FY 2024?
As of now, there are no significant contracts which are coming up for renegotiation.
Okay. Thanks, that's it.
Thank you. Next question is from the line of Aditya from IIML. Please go ahead.
Yeah. Hi, sir, thank you for the opportunity. My question was regarding.
Aditya, may I request you to speak little louder, please?
Yeah. Am I audible now?
Slightly better.
Yeah. My question was regarding the ROE profile of the company. Even if I adjust the excess cash which the company is carrying from the network of the company, we are making around 12% ROE, and we are making similar ROEs even before pre-COVID period. Just wanted to understand, is this the normal ROE profile of the company, regard, suggesting the government business makes around 12%-13% ROE, or there are levers for us to increase the ROE in the next few years?
Yeah. If you see the reason why the ROE looks suppressed today is because we have been continuously investing in the various projects, and they have not yet matured. As the centers start maturing, as I mentioned earlier, they will be contributing to better revenue and therefore better margins. As the profile improves, the ROE will also look, you know, and this ROE will start improving or increasing. Since the company has been in a high growth phase and we continue to increase our capacity, whilst the revenue and the EBITDA margins increase, at the same time, equally, there has been investments made in the center.
Once, you know, we come to a stage where these investments do not happen, and you'll see a immediate share of, you know, the ROE increasing significantly.
Right. Just one follow-up. In your Slide 31, where you mentioned the ROC profile of mature, semi-mature, and newly launched centers, I just wanted to know what kind of EBIT margins you make in the different centers.
Typically, at the center level, as I mentioned earlier, EBITDA margins are in the range of about 35%-40%.
Okay. I was basically asking for the average EBIT margins you make in the mature, semi-mature, and the newly launched centers.
See again, from a maturity profile perspective, mature centers would contribute about 35%-40%. If you consider semi-mature centers, they would be in the range of between 20%-25%. The newly launched centers would probably be, you know, negative EBITDA, because the expenses will be higher compared to the revenue. They will not be commensurate to the revenue that we are generating.
Sure, sir. Thank you.
Thank you. Ladies and gentlemen, we'll take that as the last question. I now hand the conference over to the management for closing comments.
Hi. Thank you, everyone. Thanks for your time as well in attending this conference call. Wishing you a pleasant evening ahead. Thank you.
Thank you very much. On behalf of Equirus Securities Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.
Thank you, everyone.
Thanks. Thank you.