Krsnaa Diagnostics – what is the diagnosis?

@krishnan1159 : They won’t – for the following broad reasons:

• Bulk of Krsnaa’s revenue is from Radiology (CT/MRI/X-Ray/…) – where the moat is driven through bulk procurement of devices/reagents/consumables and through a tele-radiology reporting set-up which already has attained significant economies of scale. Metropolis & Dr. Lal are predominantly into Pathology (blood/urine tests, etc,), and even if they decide to enter this (which they probably wont) it will be very difficult for them to get into this space and challenge Krsnaa’s dominance

• But what about Pathology? – the ongoing projects in Punjab & Himachal, recent tenders for Rajasthan and the wins in Odisha, Mumbai, etc. are heavy on pathology as well – would the existing B2C leaders not want to enter this space? I strongly feel that they won’t and here’s why:

1. Lack of management expertise: B2G has completely different dynamics from bidding to winning the contract, to execution to collections and recoveries. The management expertise of these B2C companies would rarely translate into success in the B2G business.
2. Shareholder/Stakeholder preference: In-spite of a similar cash flow/EBIDTA profile as Vijaya Diagnostics, and in-spite of a higher avg. growth rate – the valuation multiple of Krsnaa is around 1/3rd that of Vijaya. Most investors simply want to stay away from companies which do business with the government. I expect a significant push back from the existing investors in these B2C companies if they decide to enter in the B2G space – especially when about 80%+ of the B2C market is still unorganised!
3. Differential pricing / Market Cannibalisation: In-spite of the above if say Dr. Lal ventures into the B2G space, just imagine them having to offer a Thyroid Profile test within a government hospital at Rs. 80, for which they charge Rs. 500 at their existing collection centers – just a km away. Why would any customer in their right mind visit the collection centre anymore? The fear of market cannibalisation and resulting lower realisations is going to be the final deterrent in this effort!