Krsnaa Diagnostics – what is the diagnosis?

Krsnaa Diagnostics Q3FY23 earnings call notes.

• As of today, Krsnaa is a leading PPP diagnostic player with 127 radiology centers, 1,522 telereporting centers, 97 processing labs and 741 pathology collection centers.

• On the B2C side of business, we have launched wellness packages at affordable rates, which help us to expand in the B2C side. The wellness package is Ayaksham, which covers basic tests as well as special test.

• receivables normally in this time of the year, which is around Q3, the receivable days go around 94, 97 days, which is a typical trend we see in our line of business. Q3 onwards to Q4, the authorities will start basically closing out their whatever processes so that before March end they can complete the payments so that their next year budget doesn’t get impacted because they have to basically pay out, otherwise, if they don’t pay us before March or before the year-end then their next year budget also gets impacted.

• INR 107 crores of the capex we have already incurred till 9 months. INR 22 to 25 crores, which is as per the plan, which we have to get executed by this Q4.

• Rajasthan new tender, which we have bid and awaiting results, it’s roughly about around INR 450 crores, INR 500 crores for couple of years. So basically Rs. 250 cr per year revenue potential.

• Comparing between radiology and pathology, certainly, pathology margins, EBITDA margins are a bit lower than the radiology. But I think the difference will not be significantly high between radiology and pathology, over around anywhere between 5% to 7%. And also one of the reasons why because there have been more pathology tenders. And also to like we’ve been saying, we want to have a healthy balance between radiology and pathology. That is the reason why we’ve also participated in these tenders and continue to win them. And of course, from an ROCE perspective, pathology is better compared to radiology.

• BMC, where we are looking for annualized revenue of INR 30 crores to INR 40 crores, considering the 600 collection center and 1 processing lab.

• Orissa, INR 50 crores to INR 55 crores annualized revenue, which we are expecting from 5 labs and 360-plus collection centers.

• BMC to be operationalized by Q2 next year. Orissa will take time as there is wider area to be covered.

• Depreciation: So for the equipment, we do as per the life of the equipment, but for the infrastructure and other things, which we do for the life of the project.

• Punjab, we expect about close to INR 60 crores to INR 70 crores annualized revenue in the next fiscal. Revenue from Punjab in this quarter was INR 12 crores.

• One of the key things that is kind of putting an interest to the revenue ramp-up is the Punjab is purely cash business. Now typically, in government business, when it is under the free diagnostic scheme, then you will see a very good ramp-up because patients come and they avail these tests because it is entirely cash driven. That is one of the reasons that we are seeing where the ramp-up has not happened the way we had anticipated.

• FY22 had Rs. 70 cr sale from Rajasthan & Rs. 32 cr sale from Covid testing, these are down to Rs. 36-40 cr from Rajasthan & Rs. 2 cr from Covid. Taking these into affect, FY23 has shown very good growth.

• FY '24, I think from a guidance perspective and considering the Punjab experience, we are looking at about INR 700 crores, INR 750 crores is what we are currently looking. I think by end of this year, when you will have more clarity in terms of given these projects, Punjab completely getting deployed and other projects. I think maybe I’ll be able to give a much more realistic guidance in the next quarter.

• Krsnaa has been awarded with two major pathology tenders, one in the State of Maharashtra for setting up one lab and 600 collection centers and another one in the State of Odisha for setting up 5 labs and 386 collection centers.

• Punjab. We have operationalized 24 out of 25 radiology centers and the remaining 1 radiology center will be operationalized by Q4 FY '23. All the 30 laboratories and 95 collection centers in Punjab are now fully operational.

• We have operationalized entire pathology project in the State of Himachal Pradesh, and additionally, we have also successfully implemented the telereporting project in the State of Tripura, thus extending our reach to the Far East corners of India.

• We are progressively expanding our presence. And during the quarter, we have added 7 radiology, 33 telereporting, 25 pathology labs and 64 collection centers.

• what gets captured under the fees to hospital is, there are 2 components. Like one is we are also currently tied up with various medical colleges and private hospitals, where we have a center. So there’s a certain revenue share that we do to these hospitals. And then there is an element that we have in some of our bigger projects like Punjab or Rajasthan locations, where we have business associates as we call them, with whom we work in serving these patients. These are very remote locations. So in tribal areas or the remote corner, for example, if I give you Himachal Pradesh we have a center, which is near the Tibet border. So it’s absolutely impossible for people to go there. So we leverage these local partners to help us in terms of the logistics, in terms of sample collection. And these are the partners to whom we – it’s a straight away arrangement of revenue share. So basically, it doesn’t become a fixed cost. It is linked to the revenue. And at the same time, they’re also incentivized in terms of helping us not only increase our revenue, but also ensure that quality service is being delivered. So this is how the business partners and the revenue or the fee to the hospital arrangement works.