Hi Dhruv,
Had looked into this as well. In one of the con calls, management mentions that when contracts do come for renewal, government can ask for lower pricing given negligible requirement for additional reinvestment. For example, in Assam teleradiology, Krsnaa quoted lower prices with the rationale that initial investment was already recovered. Not only renewals, this can happen for initial period as well. Take Punjab for example. The payment cycle for this radiology contract is 15 days (essentially cash). In exchange for this, government can ask Krsnaa to lower their pricing. That’s the reason for drop in radiology realizations in FY23.
For pathology, this risk is even higher. Pathology contracts are of shorter duration. Generally three years and then they might extend it for another two years or so. In addition, the competition in pathology also tends to be high. I suspect that this situation can force Krsnaa to quote lower pricing for new contracts or during renewals.
The company often highlights 3-5% price escalation in the existing contracts. While that may protect the realisations during the tenure of contracts, things can change on renewals. That’s just one of the difficulties in dealing with the governments.
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