I recently had the chance to meet the management of Vaidya Sane in person, here are my notes from the meeting. I’d like to thank @Marathondreams for helping me with some of the questions for the meeting.
Meeting pointers:
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The most important metric to track for new sales growth is the ‘new patient footfall’ metric (which grew by 24.43% in FY24). The overall footfall metric is mainly used to track the overall health of the business (grew by 2.85% in FY24). New footfall metric indicates arrival of new patients for disease reversal and for their 1-year disease reversal program. Total footfall includes all patients - new, old and existing.
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The main KPIs the company tracks to monitor the health of the business includes, (i) Customer Retention (ii) New Footfalls (iii) Total Footfalls (iv) Care plans sold to diseased patients for disease reversal (v) Medicine sale (vi) Expense management
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The main reason for flat sales in FY24 was attributed to product marketing viz a viz their usual marketing of care plans for disease reversal of diabetes, artery blockages etc. The new marketing plan with Medulla Communications is to start in the first week of July 2024 and will be run on a pilot basis for 4-5 weeks to see its impact. If it works, the management will launch a full blown campaign. In the meantime, they have their basic marketing plan running.
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Q1FY25 (Apr - Jun) has gotten off to a slow start due to (i) Summer and elections (ii) Panchkarma treatment is not preferred by patients during summers (iii) People are away on summer vacations (iv) generally the business picks up July onwards for the co (historically H2 has always been better) (v) the new marketing campaign is yet to start
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Though in a big positive for Q1FY25 (Apr - Jun) the cost saving initiatives have already started and this would lead to margin expansion in FY25. As per the management, even if there is zero sales growth in FY25 vs FY24, the EBITDA margins will still expand to ~11-12%. With the ~20% sales growth stated for FY25, the EBITDA margins will get even better as operating leverage would kick in.
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The marketing expense of ~INR 18 crores in FY25 will be managed by scaling the spends up or down depending on the impact of the new campaign with Medulla. If the plan is working and bringing in more relevant footfalls (of disease reversal), the spends will be higher, if it isn’t working as expected the spends will be curtailed. Overall, the EBITDA margins will see an expansion this year with all the cost saving initiatives.
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Another thing that will aid with the cost saving initiatives this year is the in-house production of medicines and food kits. By the end of FY25, all their medicines and food kits will be manufactured in-house. This will lead to much better quality control and also bring down manufacturing costs thereby leading to cost savings and EBITDA margin expansion.
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The management is also very confident of growing the topline by at least 10-15% this year (on the very conservative side). 20% growth is their stretch target but they are confident of achieving it ,if all their initiatives fire, (i) like their new marketing campaign with Medulla (ii) if they are able to launch the source franchise model (where investors buy their franchise instead of an ayurveda doctor) (iii) where their newly launched clinics do well (iv) when they start enlisting more corporate companies for their disease reversal programs. They already working with the likes of Tata Steel, JSW, Steel Authority of India etc.
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The management also stated that they can grow their topline without adding a single new clinic as their existing clinic capacity is operating at ~35-40%. Each clinic operates ~2.5 work stations and with this they are able to offer 1 L panchakarmas a month (across all their clinics), at the moment they are doing only 35-40k panchakarmas a month. Furthermore, they can also increase the number of workstations in existing clinics (from ~2.5). So, apart from operating at higher capacity, there is always the additional lever of adding more workstations to existing clinics. Currently the company has 353 clinics: 300 clinics & 53 OPD clinics (where panchkarmas are not possible and the clinic is used only for disease diagnosis).
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Kondali hospital should be NABH certified by Q2FY25. Vizag hospital is already at breakeven.
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The company has INR 12-13 crores of cash on books. Warrants worth ~INR 30 crores haven’t been exercised yet. The cash, the warrants and internal accruals will be used for further expansion of hospitals and addition of hospital beds. Both, the new construction of hospitals and addition of beds will happen in phases and based on demand/capacity utilization. The company currently owns a land bank of 8 acres (3 acres in Khopoli + 5 acres in Nagpur).
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Company is buying the adjacent land in Khopoli to expand the beds from ~53 to ~153 in the next 12 months at a total cost of ~INR 20-23 crores. INR 12-15 crores will be for capex and INR 8 crores has been the land acquisition cost. It’ll take the company 24-28 months to fill up all these beds.
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The aspirational target for the company on the revenue front is ~INR 300 crores by FY28 and EBITDA margins being at ~20% in the next 2 - 2.5 years.
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The major public shareholders (as on March FY24) of the company apart from Dr. Sane are, Virtuous Capital (~4.98%), Dharmesh Patel (~3.97%), Vinayak Kudva (~1.24%) and Santosh Kudva (~1.23%). For some reason this information is not available on Screener. When warrants do get exercised, Dr. Sane’s stake will dilute from ~66% to ~61%.
Observation on management: Through out the meeting, I thought that Dr. Sane and his management team were very transparent and honest about the future growth plans of the company. They were also great hosts and extended an invitation to other investors like me to have a face to face meeting to discuss the future prospects of the company. The gesture to invite is highly appreciated.
In summary: The company continues to have good growth plans going forward (at least on paper). Execution remains key on both the cost saving initiatives and more importantly growing the topline. I continue to hold the stock and will keep monitoring the performance of the company in FY25
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