Q2 FY25 Concall Summary

Business Updates

• Dr. Om Manchanda will step down from position of MD to now an advisory position in the company
• Bundled test packages is leading to higher number of tests per patient leading to better realizations and better margins for the industry
• The processes in the bundled operations are much more simplified and growing contribution from such bundled offerings should help the performance improve further
• Sample volume growth was 8.6% and patient volume growth is 3.5% on a yoy basis for Q2FY25
• Net cash on balance sheet as on September 2024 is Rs 1095 crores

Participants

JM Financial

BNP Paribas

Indus Capital Advisors

Spark PMS

Emkay Global

Allegro Capital Advisors

Nomura

Ambit Capital

Elara Capital

Centrum Broking

ICICI Prudential Mutual

Goldman Sachs

Nippon AIF

QnA

• In terms of Suburban diagnostics operating leverage is playing out which is leading to better margins and intent is to drive growth rate further in Suburban business as overall margins for the company are pretty good
• The growth is uniformly spread across the country and West region has performed better due to higher incidence of fever in this region
• The challenges across all geographies remain the same which is conversion from unorganized to organized
• In smaller towns the doctor patient relationships are very strong so for new brands to enter Tier ¾ towns and then gain market share it becomes challenging and it takes time to build better relationships in these markets
• The company will add 15-20 labs in the current financial year and advertise in key towns where it makes a difference with better delivery from the marketing teams and all investments on ground are being made with even A&P spends inching up every quarter
• The company has not taken any price increase whereas many competitors have taken price increases for this year and despite this margins have improved
• The general perception is market is that competitive intensity has reduced but that is not the case as many new age players are competing strongly but they have stopped giving deep discounts in lieu of profitability. Only irrational pricing has reduced
• The growth rates in Suburban diagnostics should be maintained going forward considering the steps the management has taken and it should maintain double digit growth rate and possibly even improve from that
• Expansion into Tier ¾, opening up of new labs, opening up of new sales offices and building brand in South and West market are some initiatives the management are taking which should drive growth
• The covid period created a cushion for many single location labs as they made a lot of money and at the other end many single location labs look to close and exit their business
• The capex guidance for FY25 remains intact and on an annual basis expectations are that EBITDA margins should sustain at FY24 levels or be slightly better
• There is no aversion towards price hikes but Tier ¾ markets require affordable prices and as long as the same pricing can be maintained and the margins is not diluted then it’s an appropriate situation
• The number of collection centers per lab are being increased and last year the reported number was 29 collection centers per lab and this ratio should be maintained
• The company has done 28 M&A transactions in its history and the learning are to look at how the restated numbers will look like as these are challenges which management seems to under estimate
• Most of the bundled packages consist of routine tests and these bundles are going at 2x the rate of growth of other business which should stabilize going forward