Krsnaa Diagnostics – what is the diagnosis?

Some Q2 highlights

1. Margins: The company expects to sustain EBITDA margins between 26% to 28%, with aspirations to improve them. It was noted that margins might vary in quarters where expenses are frontloaded due to new tender wins, as initial expenses (like setting up equipment and infrastructure) do not immediately correspond with revenue. However, as volumes increase, revenue and margin are expected to improve​​.
2. Rajasthan Tender: The revenue potential from the Rajasthan contract was revised from Rs. 150 crores to Rs. 300 crores due to the addition of 17 more districts. However, delays have pushed expected revenues from this project into the next fiscal year. Despite this, the company remains confident about its growth momentum and expects other projects to compensate for the delay in the Rajasthan revenue contribution​​.
3. Revenue Guidance: The company is aiming for a 30% Compound Annual Growth Rate (CAGR), excluding the impact of the Rajasthan project. This growth is expected to be driven by various projects across different states. For example, projects in Assam, Odisha, Punjab, Himachal, and Maharashtra are anticipated to bridge the gap left by the delayed Rajasthan project. The company also expects significant revenue growth from new tenders in the next fiscal year, projecting about Rs. 140 crores of additional top-line revenue, potentially rising to almost Rs. 200 crores as the centers mature​​.
4. Project Implementation and Impact on Margins: The implementation of projects like Assam labs and others may impact margins in the short term due to high initial expenses. However, from the fourth quarter onwards, these projects are expected to contribute positively to revenue and margins. The company is actively engaged in various Public-Private Partnership (PPP) projects to bolster its presence and growth. It also focuses on the B2C segment with cost-effective wellness packages to cater to diverse customer needs​​.
5. Investments and Expenses Related to Rajasthan: The company has not made significant capital investments in the Rajasthan project. Operational expenses and basic setup work have been expensed out, with no major investments recorded on the balance sheet for this project​​.
6. Other Operational Highlights: The Punjab tender is on track, with revenues ramping up and operational challenges resolved. The business in Punjab is primarily cash-based, different from other PPP projects. The introduction of home collection services in Punjab is expected to further increase revenues​​.
7. Current Projects and Future Plans: The company is working on installing 39 CT-scan units across Maharashtra, with revenue projections expected in Fiscal 2025. Additionally, their project in Odisha has commenced operations and is poised for substantial revenue growth from the fourth quarter of Fiscal 2024​​.
8. Private Hospital Partnerships: The company’s relationships with private hospitals and Krsnaa business associates are increasing. The contracts with private hospitals are typically long-term, similar to PPP (Public-Private Partnership) projects. The key difference is that in private hospital partnerships, Krsnaa Diagnostics pays a revenue share to the hospitals for operating out of their premises. The prices in these partnerships may be slightly higher than PPP projects to accommodate the revenue share paid to private hospitals​​.
9. BMC Contract: Krsnaa Diagnostics has rapidly expanded under its BMC contract, operationalizing around 462 centers. The volumes they expected to complete in four years were achieved in just 6 to 9 months. The company is also expanding its Mumbai lab, and they anticipate increased revenues over time​​.
10. Home Collection Services: BMC has mandated Krsnaa Diagnostics to start home collection services across the Mumbai region. This service allows them to charge an additional convenience fee for collecting samples from homes or other locations. The monthly revenue run-rate from these services, initially in the range of Rs. 2 crores to Rs. 2.5 crores, is expected to increase to Rs. 4 crores to Rs. 5 crores​​.