@dsaraf I have recently studied Krsnaa and would like to add my two cents here. Hope it helps.
1) Promoter dilution: During FY16-19, the company issued CCPS to three investors including Somerset, Kitara and Phi Capital (raised around INR 165 Crs). Last round (Series C) was from Phi Capital Growth Fund I in Dec’18 wherein the company raised INR 100 Crs (reflected in the cash flow statement of FY19). Now, in DRHP shareholding pattern before listing shows that promoter and promoter group held ~69% of shares in the company and rest was held by individuals. The dilution to ~28% happened primarily on account of conversion of CCPS to common equity. DRHP mentions that these CCPS carried a condition of convertibility on IPO.
2) Capital intensity: To participate in big ticket PPP contracts, one needs cash. The company raised INR 165 Crs from the aforementioned PE investors during FY16-19. Roughly this business generates 1 rupee of revenue against 1 rupee of investment (fixed asset + working capital). There is another way of looking at this. A CT scan machine costs ~ INR 2 Crs. If you divide their radiology revenue by no. of CT/MRI centres, it comes close to INR 2 Crs. So the business is inherently capital intensive and the growth during FY17-23 has predominantly come from incremental investment (INR 165 Crs from CCPS and INR 400 Crs from IPO. Noting that half of IPO proceeds were deployed for retirement of long term debt).
If we see unit economics, a CT/MRI centre gets around 20-25 scans a day which is roughly 800-850 scans a month. If we take average realisation of INR 2,000 per scan the same comes to INR 16-17 lakhs a month and roughly INR 1.9 – 2 Cr a year. So, I didn’t find anything unusual about their topline growth. Yes, the pace of growth has been higher but they also deployed higher capital during this period. To my understanding, this business requires continuous capital infusion to grow beyond 9-10%.
3) Management: Overall experience in diagnostics seems low but also noting that PPP and B2C diagnostics are different games. The way I understand it, PPP requires more project execution expertise than building testing capabilities, scaling labs, brand building etc. That’s why their foray into B2C is a good optionality but the journey will be hard for the company to crack the B2C market.
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